INDIAN AUTOMOBILE INDUSTRY

Automobile is one of the largest industries in global market. Being the leader in product and process technologies in the manufacturing sector, it has been recognized as one of the drivers of economic growth. During the last decades, well-directed efforts have been made to provide a new look to the automobile policy for realizing the sector's full potential for the economy. Steps like abolition of licensing, removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO requirements have set the industry in a progressive track. Removal of the restrictive environment has helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global development and also to realize its potential in the country. The liberalization policies in 1991 have led to continuous increase in competition which has ultimately resulted in modernization in line with the global standards as well as in substantial cut in prices. Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand, especially from the population in the middle income group.

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THE TWO-WHEELER INDUSTRY IN INDIA

Two-wheeler segment is one of the most important components of the automobile sector that has undergone significant changes due to shift in policy environment. The two-wheeler industry has been in existence in the country since 1955.

The characteristics of this market are: Oligopolistic market structure Product and brand differentiation Spending on advertising and brand building activities Supply and distribution networks Capital intensive market Short design-to-market cycles Achieving economies of scale Complex distribution channel

The three main product segments in the two-wheeler category are Scooters, Motorcycles and Mopeds.

However, in response to evolving demographics and various other factors, other sub-segments have emerged which are Scooterettes, Gearless scooters, and 4-stroke scooters.

In the initial years, entry of firms, capacity expansion, choice of products including capacity mix and technology, all critical areas of functioning of an industry, were effectively controlled by the State machinery. The lapses in the system had invited fresh policy options that came into being in late sixties. Amongst these policies, Monopolies and Restrictive Trade Practices (MRTP) and Foreign

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Exchange Regulation Act (FERA) were aimed at regulating monopoly and foreign investment respectively. This controlling mechanism over the industry resulted in: (a) Several firms operating below minimum scale of efficiency; (b) Under-utilization of capacity; and (c) Usage of outdated technology. Recognition of the damaging effects of licensing and fettering policies led to initiation of reforms, which ultimately took a more prominent shape with the introduction of the New Economic Policy (NEP) in 1985. However, the major set of reforms was launched in the year 1991 in response to the major macroeconomic crisis faced by the economy. The industrial policies shifted from a regime of regulation and tight control to a more liberalized and competitive era. Two major results of policy changes during these years in two-wheeler industry were that the, weaker players died out giving way to the new entrants and superior products and a sizeable increase in number of brands entered the market that compelled the firms to compete on the basis of product attributes. Finally, the two-wheeler industry in the country has been able to witness a proliferation of brands with introduction of new technology as well as increase in number of players. However, with various policy measures undertaken in order to increase the competition, though the degree of concentration has been lessened over time, deregulation of the industry has not really resulted in higher level of competition.

KEY PLAYERS IN TWO WHEELER INDUSTRY

Major players in the Two-wheeler industry are Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) , TVS Motor Company Ltd (TVS), Yamaha Motors India Ltd (Yamaha), Honda Motorcycle & Scooter India (P) Ltd (HMSI) and Suzuki India.

PESTEL ANALYSIS OF INDIAN TWO WHEELER INDUSTRY

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Political Aspects

Tax policies, trade regulation, political influence

some of the rules and regulation of

government policies which is considered in political analysis. The corrections in Excise duty on electric vehicles will enable the manufacturers take CENVAT credit and exemption from customs duty on Electric vehicle parts and also weighted deduction for in-house R&D to 200% from 150% and outsourced R&D from 125% to 175%.

This would encourage industry because this price hike isnt expected to impact sales in a significant way as a majority of two-wheeler buyers were prepared and ready to shell out extra money for their favourite set of wheels.

Economic Aspects

The level of inflation Employment level per capita is appropriate. The Indian economy has grown at 8.5% per annum. Economic factor are those which is influenced by economic growth, interest rate, exchange rate and inflation rate. Abundant and low cost labour coupled with local availability of raw material like steel, aluminium and natural rubber has placed India amongst the low cost producing centres of two-wheelers.

Consequently, Credit Analysis and Research Ltd. (CARE) anticipate buoyant growth in twowheelers exports as well. Abundance of low labour and raw material gives India an upper hand in the export. Since many auto finance company laid easy instalment rules with less interest rate it makes more segment people to go for it.

Social Aspects

Social aspects of two-wheelers industry are Popularity, Subculture, Mobility and safety. In numerous cultures, motorcycles are the primary means of motorized transport. Socially many motorcycle organization raise money for charities through organized ride and events. Many people ride motorcycle for various reasons, those reasons are increasingly practical, with riders opting for a powered two-wheeler as a cost-efficient alternative to infrequent
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and expensive public transport system, or as a means of avoiding or reducing the effect of urban congestion.

Motor-cycle gives a great advantage to the specified designation where other buses cannot enter. Since there is a rule in some of the main states and cities in India to wear helmet while riding two-wheelers to make them safe from accidents makes two-wheeler riders to have a safe journey.

Technological Aspects

Technical

Aspects

in

Two-wheeler

industry

includes

construction,

fuel

economy, electric motorcycles, dynamics and accessories. Technological solutions helps in integrating the supply chain, hence reduce losses and increase profitability. Internet makes it easy to collect and analyse customer feedback. Two-wheeler construction is the engineering, manufacturing, and assembly of components and systems for two-wheelers which results in performance, cost and aesthetics desired by the designers.

Construction of two-wheeler includes steel, aluminium frame, telescopic forks and disc brakes. Motorcycle is the best fuel economy mode of transport. Nowadays, two-wheelers are designed to give more than 80 km mileage per litter with low maintenance cost. Invention of Electric motorcycle gives an added advantage since the two-wheeler users can avoid using petrol. Different types of two-wheelers have different dynamics and these plays a vital role in their performance. Since sufficient bike accessories are available in many place two-wheeler riders have a privilege to change the broken parts very easily.

Environmental Aspects

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Physical conditions like environmental situation affect the use of two-wheelers. If the environment is pleasant then it will lead to more use. With the entry of global companies, advanced technologies; both in product and production process have developed which cause less harm to the environment. Provides for a healthy environment for R&D in India.

Legal Aspects Legal provision relating to environmental pollution by two-wheelers and safety measures. Confirms the governments intention on harmonizing the regulatory standards with the rest of the world Indian government auto policy aimed at promoting an integrated, phased and conductive growth of the Indian two-wheeler industry. Ensure a balanced transition to open trade at minimal risk to the Indian economy and local industry.

PORTERS FIVE FORCES ANALYSIS OF TWO WHEELER INDUSTRY

Industry Rivalry
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The industry rivalry is extremely high with any product being matched in a few months by competitor. This instinct of the industry is primarily driven by the technical capabilities acquired over years of gestation under the technical collaboration with international players.

Entry Barriers Entry barriers are high. The market runs on high economies of scale and on high economies of scope. The need for technical expertise is high. Owning a strong distribution network is important and is very costly. All these make the barrier high enough to be a deterrent for new entrants. Supplier Bargaining Power Suppliers of auto components are fragmented and are extremely critical for this industry since most of the component work is outsourced. Proper supply chain management is a costly yet critical need.

Buyer's Bargaining Power Buyers in automobile market have more choice to choose from and the increasing competition is driving the bargaining power of customers uphill. With more models to choose from in almost all categories, the market forces have empowered the buyers to a large extent. Substitutes There is no perfect substitute to this industry. Cars, which again are a mode of transport, do never directly compete or come in consideration while selecting a two-wheeler, but now new products like Tata Nano are targeting the existing/potential 2-wheeler drivers. Cycles do never even compete with the low entry level moped for even this choice comes at a comparatively higher economic potential. Summarizing the industry analysis, it can be said that the two-wheeler market is attractive as it scores well on three out of five categories.
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KEY DEMAND DRIVERS

The key factors which strongly affecting the two-wheeler industry are: Government policy impact on petrol prices: Petrol prices determine the running cost of twowheelers expressed in Rupees per kilometer. Petrol prices are the highest in India as GOI subsidizes kerosene and diesel. But with the recent change in GOI policy to reduce the subsidy, the prices of petrol will remain constant at the current prices. This will have a positive effect on purchases of two-wheelers. Improvement in disposable income: With the increase in salary levels, due to entry of multinationals following liberalization process and fifth pay commission, the disposable income has improved exponentially over the years. This will have multiplier effect on demand for consumer durables including two-wheelers. Increasing urbanization: With the increase in need for personal transportation and changes in the demographic profile, there is an increase in demand for two-wheelers. Changes in prices of second-hand cars: The second hand car prices of small cars have come down sharply in the recent past. This will shift the demand from higher-end two-wheelers to cars and affect the demand for two-wheelers negatively. A further drop in second-hand car prices will lead to pressure on the two-wheeler majors who plan to release higher-end scooters and motorcycles. Implementation of mass transport system: Many states have planned to implement mass transport systems in state capitals in the future. This will have negative impact on demand for two-wheelers in the long run. But taking into account the delays involved in implementation of such large infrastructure projects the demand to be affected only five to seven years down the line. Availability of credit for vehicle purchase: The availability and cost of finance affects the demand for two- and three-wheelers as the trend for increased credit purchases for consumer durables have increased over the years. Therefore, any change with respect to any of these two parameters as a result of change in RBI policy has to be closely watched to assess the demand for two- and three-wheelers. Availability of fuel-efficient and low-maintenance models and increasing number of models with different features to satisfy diverse consumer needs.

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EVOLUTION OF TWO-WHEELER INDUSTRY IN INDIA

The Two-Wheeler Industry in India has shown a tremendous evolution over the past two decades with the total sales of two-wheelers doubling from 1999-00 to 2009-10. Sales and Growth of Two-Wheelers in India during 1999-00 to 2009-10

http://www.icra.in/files/PDF/SpecialComments/2010-February-Two-Wheeler.pdf http://www.siamindia.com/scripts/market-share.aspx http://www.siamindia.com/scripts/export-trend.aspx

The factors for the growth of Two-Wheelers in India: The Gross Domestic Product has grown to 7.2% and is expected to grow at 8.5% during fiscal 2010-11 Steady revival in economic activity The average family income has increased with higher disposable incomes The finance have become easier to access The reduction in taxes and excise duties
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Introduction of international standards in India The economic and fuel-efficient engines The teenager and the youth using more and more motorcycles Shift in centers of growth with manufacturers repositioning products and Manufacturers realigning their portfolios creating products to serve new market segments Manufacturers placing greater emphasis on the rural and semi-urban markets to achieve growth.

The factors for complementary supply push are:

Increase in the competitive intensity with launch of new products/ variants by manufacturers, Targeted marketing spends Expansion of customer touch points (not withstanding sharp decline in organized financing)

Shift from Scooter and Moped to Motorcycle The composition of the two-wheeler industry has witnessed sea changes in the post-reform period. Post liberalization era saw a major shift from scooter and mopeds to motorcycles in two-wheeler segment with consumer preferences changing and high demand more for motorcycles. Advanced technology, larger wheelbase, higher ground clearance and the ability to ride on bad roads with less effort and less danger of skidding and decreased maintenance cost were the other factors that encouraged customers to choose motorbikes over scooters and mopeds. In 1991, the share of scooters was about 50% of the total 2-wheeler demand in the Indian market. Motorcycle and moped had been experiencing almost equal level of shares in the total number of twowheelers.

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http://www.coolavenues.com/mba-journal/strategy/company-analysis-bajaj-auto-ltd?page=0,1 From 1993 to 2000, shares of scooter and moped of the total automobile demand in India reduced from 47% to 24% and 2% to 1% respectively which is approximately half the share scooter and moped had in 1993 whereas that of motorcycle increased from 25% to 58% which is more than double of the share of motorcycle in 1993.

http://www.fadaweb.com/itw_industry.htm In 2003-04, the share of motorcycles increased to 78% of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16% and 6% respectively showing the change of the status of Two-wheeler industry from more Scooter and Moped oriented to Motorcycle oriented.

http://www.fadaweb.com/itw_industry.htm

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Firstly, one of the reasons for the tremendous change in the 90s was the motorcycle market which was filled with options. Secondly, bikes having four-stroke engines are thought to be more fuel efficient motorbikes. They are the main reason for the growth of motorbikes in India as a segment over scooters and mopeds. http://www.fadaweb.com/itw_industry.htm In 2003-04, Motorcycle segment showed approximately 15% growth whereas Scooter had 10% growth followed by negative growth for last five years and Moped segment showed negative growth 0f 10% which again shows the shifting of consumer preferences to Motorcycle segment.

MOTORCYCLE INDUSTRY IN INDIA

It has been more than 50 years now that bikes have been ruling the Indian automobile sector. In 1955, the Indian government needed sturdy and reliable motorcycles for its Army and police to patrol the western part of the country with rugged border highways and craggy terrains. The 350 cc 'Bullet' manufactured by the Royal Enfield Company of United Kingdom was the first batch of motorcycles in India. These motorcycles were put together in Chennai. This was the beginning for the Indian twowheelers industry. Since then, bikes in India have been flourishing as a two wheelers segment, and Indian bikes gaining on popularity all across the world. The motorcycles in India cater to a variety of needs of the consumers. The motorcycle has become one most popular modes of transportation, and is preferred by the daily commuters. Exports are made mainly to South East Asian and SAARC nations.

India is the manufacturer of some of the best bikes in the world. Hero Honda , Bajaj and TVS Motor are some of iconic bike manufacturers in India. There are cheap motorcycles

in the commuter bikes segment, as well luxury bikes like sports bike in India for the new age bikers. Due to economic downturn in 2008 leading to decreased spending by consumers, motorcycle industry faced high negative growth of 13% with a large decrease in demand. The major reason for the small
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growth of 1% in 2009 was the high inflation rate of 8.03-11.89% during 2009. But 2010 showed the high growth of 26% in motorcycle segment showing the revival of the economy and increased consumer spending predicting bright future for this segment. Indian Motorcycle Industry (Domestic + Exports)

Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf

Domestic Motorcycle Industry

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Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf Market share of different Two-wheelers during 1999-00 to 2009-10

Source: http://www.icra.in/files/PDF/SpecialComments/2010-February-Two-Wheeler.pdf Motorcycles have always been the major contributor to the two wheeler industry in India. From a share of about 48% in 1999-00, it has steadily grown to about 80% in 2009-10. The share of scooters has gone down from 33% in 1999-00 to 13% in 2009-10.
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Motorcycle models with a sticker price of up to Rs. 40,000 comprise the Commuter Standard (STD), comprising of Bajaj Autos Platina; Hero Hondas CD series; and TVS Star.. The entry segment has suffered volume declines during the last two to three years, being hit the worst by the tightening of credit; being a relatively small ticket item, its customers usually belong to the most vulnerable section economically within the universe of motorcycle buyers. The segments profitability has also declined over this period, with volumes falling and price competition getting more intense. Sales in this category have declined from 44% in 2005-06 to 16% in 2010-11 whereas volumes have declined from 2.09 lakhs in 2005-06 to 1.08 lakhs in 2010-11.

The Rs. 40-50,000 Commuter Deluxe (DLX) consisting of Bajaj Autos Discover; Hero Hondas Splendor, Passion and Glamour; Honda Motorcycle & Scooters Indias (HMSIs) Shine; and TVS Fiero and account for bulk of the volumes (~63%) in motorcycles. Sales in this category have increased from 48% in 2005-06 to 65% in 2010-11 whereas volumes have increased from 2.8 lakhs in 2005-06 to 4.4 lakhs in 2010-11.

The Sports which includes Bajaj Autos Pulsar; Hero Hondas CBZ, Hunk and Karizma; HMSIs Unicorn and Stunner; TVSs Apache; and YamahasR15 and FZ16 and accounts for Rs. 55,000 and above. Sales in this category have increased from 9% in 2005-06 to 19% in 2010-11 whereas volumes have increased from approx. 43,000 in 2005-06 to 1.28 lakhs in 2010-11.

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Category Share Projections

Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf Category Share Volumes

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Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf

Motorcycle Market Information The major players in Indian Motorcycle Industry are as follows:

BAJAJ AUTO HERO HONDA TVS MOTORS HONDA MOTORCYCLES (HMSI)

It is evident from the table (below) that HERO HONDA is still the market leader in this segment with market share of 47% but it is also observed that BAJAJ AUTO share has also increased from 25% to 34% which is due to its Discover model. Also, Bajaj Auto has taken away a nine per cent share in the motorcycle market from leader Hero Honda during the quarter ended June. While Bajaj's market share went up from 25% to 34% between April and June, Hero Honda's share fell from 56% to 47% during this period. Other players like TVS Motors and Honda Motorcycle & Scooters have retained their share.

Discover was a bike first launched in 2004 and extended to the 100cc segment last year. Bajaj claims the Discover (with sales of 114,000 bikes in June) has emerged as the second-largest selling brand in motorcycles, overtaking Hero Honda's Passion (106,000 units/month) but trailing its market leader, Splendor (160,000/month). If the Discover sustains its momentum, it could overtake Splendor in three to six months, said S Sridhar, Bajaj Auto's CEO for two-wheelers. There's a good chance of it managing to do so, unless Hero Honda spoils the party by dropping prices for Splendor or Passion.

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Bajaj is expanding motorcycle capacity by 300,000 per annum and from July; it will be able to produce 170,000 a month of Discover bikes. Bajaj has also launched a 150cc variant of the bike and hopes to sell 35,000 of these every month, once it's available across India. For several months, Bajaj has been reporting 60-80 per cent jump in volumes. In the past five months, its domestic sales jumped 98 per cent, while the industry grew at 30 per cent and Hero Honda grew at 12.1 per cent, albeit on a much higher base. This is partly due to a low-base effect. Bajaj's domestic sales had slipped to 110,000 units a month last year as consumer financing dried up during the downturn but rival Hero Honda continued to do well, as consumers in rural areas bought in cash.

HERO HONDA For the sixteenth consecutive month, Indias largest two wheeler manufacturer, Hero Honda has registered sales of over 3 lakh units in April 2010 with a very marginal increase of 0.2 percent over April 2009. Hero Honda achieved such a huge figure despite a severe shortage of batteries for over two weeks due to an agitation at Exides Bawal facility. And for the same reason around 50,000 fully built two wheelers were left stranded at companys facilities devoid of batteries. Hero Honda recently launched a souped up version of its premium seller Passion with digital console and refreshed graphics.
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Hero Honda achieved highest ever monthly sales of 4,35,933 units in may 2010. These figures are 13.92% more than 3,82,678 units which Hero Honda managed to sell during May 2009. Mays figures are 20,796 units greater than the previous best sales performance of 4,15,137 units set in August 2009. Hero Honda also revealed that May became the 17th consecutive month where the company has sold more than 3 lakh units and the 4th month where company has recorded sales of 4 lakh and more units. Companys share in the 100cc market has reduced from 69% in August 2009 to 64% in May 2010 majorly gulped by Bajajs Discover 100 and HMSIs Twister. This shift also brings a positive forward that companys other segments are also increasing dominance and the dependency on 100cc segment is reducing in overall sales.

BAJAJ AUTO Indias second largest two wheeler manufacturer registered their highest ever monthly sales figures in April 2010 registering a growth of 84. Bajaj posted a huge growth of 63% in May 2010 from May 2009. The most important part is the fact that Bajajs concentration on more profit yielding Pulsar and Discover brands is paying off big time. These two brands constituted 68% of total sales with Pulsar brand chipping in with 75,974 units and Discover registering 1,07,076 units in the overall sales for the company. Bajaj also registered growth of 64% in exports. Bajajs latest masterstroke Discover 150, which is a 150cc motorcycle launched recently at a shattering price, registered 12,377 units during its initial month of sale.

TVS MOTORS TVS witnessed a growth of 28% in April 2010 over April 2009 whereas domestic sales increased by 22%. Motorcycles also displayed a great show in April 2010 growing at 24% over April 2009. Innovative 110cc clutch-less Jive has also witnessed a very good response from the market helping the company achieve such growth figures. TVS also managed growth of 90% in export in April 2010 from April 2009. TVS registered an increase of 30% in overall two wheeler sales for the month of May 2010. Domestic sales also saw an upsurge of 27% gaining from May 2009 to May 2010. Independently, motorcycle sales grew by 27% in May 2009. Exports have started generating consistent growth for the company
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as they managed to carve out 62% increase in May 2010 from May 2009. These figures reflect the positive outlook of the company and the launch of Jive has definitely helped the company bringing in more volumes.

HONDA MOTORCYCLE AND SCOOTER INDIA (HMSI) Japanese auto maker Hondas Indian subsidiary Honda Motorcycle & Scooter India also continued their good run at the figures tally registering an overall growth of 41% in April 2010 against April 2009. Motorcycle sales jumped 51.02% in April 2010 from last April. Clearly, companys latest upgrades were received well by the customers with the 110cc Twister adding a bit of twist to the overall tally. Launch of 100cc twister in the volume segment is expected to further propel the growth for the company. HMSI motorcycle sales jumped 52% from May 2009 to May 2010. The impact of Twister and Dazzler is clearly reflecting in the growth pattern for the company.

SEGMENTS IN MOTORCYCLE INDUSTRY

Indian Motorcycle industry in divided into segments based on their cc as it is a widely accepted classification. cc or cubic centimeters refers to engine capacity. Specifically it refers to the amount of air/fuel mixture able to fit into the cylinders (where combustion occurs) at full expansion. The market can be also divided into segments based on their prices. The 3 segments are Entry level, Middle level and Premium level. For our study we have considered the classification based on cc or cubic centimeters, as price levels are observed to be changing continuously because of stiff competition in the industry.

90-120 cc 121-140 cc 141-179 cc 180< cc

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Different product of different companies based on market segments BAJAJ PLATINA DISCOVER-DTS-Si 90-120 cc HERO HONDA CD- DAWN CD- DELUXE SPLENDOR PASSION PLUS PASSION PRO TVS STAR CITY STAR SPORT JIVE HMSI TWISTER

121-149 cc HERO HONDA GLAMOUR SPLENDOR-NXG TVS FLAME DS FLAME SR HMSI STUNNER-CBF SHINE

BAJAJ PLATINA 125 PULSAR 135 LS XCD- DTS-Si-135

150-179 cc HERO HONDA ACHIEVER CBZ-XTREME HUNK TVS APACHE-RTR-150 HMSI UNICORN

BAJAJ PULSAR DTSI-150 DISCOVER-150

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180< cc HERO HONDA KARIZMA KARIZMA-ZMR HUNK TVS APACHE-RTR-180 HMSI NONE

BAJAJ PULSAR DTSI-180 PULSAR DTSI-220 AVENGER-200 AVENGER-220 NINJA 250R

BAJAJ AUTO
SWOT Analysis Strengths Highly experienced management. Product design and development capabilities. Extensive R & D focus. Widespread distribution network. High performance products across all categories. High export to domestic sales ratio. Great financial support network (For financing the automobile) High economies of scale. High economies of scope.

Weaknesses Hasn't employed the excess cash for long. Still has no established brand to match Hero Honda's Splendor in commuter segment, still a long way for Discover-Dts-Si. Not a global player in spite of huge volumes. Not a globally recognizable brand (unlike the JV partner Kawasaki)
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Threats The competition catches-up any new innovation in no time. Threat of cheap imported motorcycles from China. Margins getting squeezed from both the directions (Price as well as Cost) Entry of Electric/Eco-Bikes being attractive to the mileage concerned target group.

Opportunities Double-digit growth in two-wheeler market. Untapped market above 180 cc in motorcycles. More maturity and movement towards higher-end motorcycles. The growing gearless trendy scooters and scooterette market. Growing world demand for entry-level motorcycles especially in emerging markets.

The Inevitable Change Bajaj on internal analysis found that it lacked 1.The technical expertise to deliver competitive goods 2.The design know-how. 3. And the immediate inability to support the onslaught of competitors. All these forced Bajaj to look for an international partner who could bring in technology and also offer some basic platforms to be manufactured and marketed in India. Kawasaki of Japan is a worldrenowned manufacturer of high performance bikes. Bajaj entered into a strategic tie-up with Kawasaki in late 1990s to enhance its product line and knowledge up-gradation to support long-term strategies. This served the purpose of sustaining the market competition for a while. From 1996 to 2000, Bajaj invested hugely in infrastructure while simultaneously developing product design and innovation capabilities, which is the prime reason behind the energetic Bajaj of 21st century. Bajaj introduced a slew of products right from entry-level motorcycle to the high premium segment right from 2001 onwards, and since then its raining success all the way for Bajaj. BAL has been the pioneer in

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stretching competition into providing latest features in the price segment by updating the low price bikes with the latest features like disk-brakes, anti-skid technology and dual suspension, etc.

Bajajs overall volumes and growth

Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf Bajajs volumes and growth in Commuter Standard segment

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Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf Bajajs Commuter Standard segment consists mainly of Platina which shows a decline from 36% in 2005-06 to 30% in 2009-10. Bajajs volumes and growth in Commuter Deluxe segment

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Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf Bajajs Commuter Deluxe segment consists mainly of Discover which shows a growth from 15% in 2005-06 to 17% in 2009-10. Bajajs volumes and growth in Sports segment

http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for%2013th %20May%2010.pdf Bajajs Sports segment consists mainly of Pulsar which shows a decline from 72% in 2005-06 to 46% in 2009-10. Market share of Bajaj in 100 CC segment

There is a top gear race in the two wheeler market between Hero Honda and Bajaj. The track is 100 cc segments wherein Hero Honda has been the stalwart for years. While Bajaj's market share went up from 25% to 34% between April and June, Hero Honda's share fell from 56 per cent to 47 per cent
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during this period. But the track is assisting well for Bajaj now that whatever share that Hero Honda slipped down (around 6%) has been wrapped by Bajaj in this financial quarter ended June 2010. Hero Honda rules the rooster with its premium brands in 100 cc, Splendor and Passion but Bajaj had the gunshot in the form of its Discover 100 cc. The sale volume for the 100 cc bikes during the second half of the 2009-10 was an addition of 33264 units a month, than those of the first half. In the period when Hero Honda faced a fall, Bajajs sale grew with a volume of 34867 monthly units, much prior to the launch of its Discover. Bajaj has witnessed a growth of 6% in 100 cc segment making the point to 23% in the phase of October 2009 to May 2010; whereas Hero Hondas sale tune was down from 69% to 64% during the mentioned period. Bajaj admits that it has tasted the difference in the matter of profit too. The company plans to reduce the entry level share from the 42% found in 2009-09 to 16% currently for more profitability. Hero Hondas shake is not only to the aggressive drive of Discover, but also due to the strengthening strategy of its sibling Honda Motorcycles and Scooters India. The industry experts anticipate a growth of 13% in the industry of which Hero Honda is expected to snatch 10% CAGR for the ensuing three financial years from 2010. Bajaj claims the Discover (with sales of 114,000 bikes in June) has emerged as the second-largest selling brand in motorcycles, overtaking Hero Honda's Passion (106,000 units/month) but trailing its market leader, Splendor (160,000 a month). It is predicted by the industry expert that if the Discover sustains its momentum, it could overtake Splendor in three to six months. There's a good chance of it managing to do so, unless Hero Honda spoils the party by dropping prices for Splendor or Passion. The notion prevailing in the market, Hero Honda dominates in the rural sector, too would be broken since there is a smiling over Discover, for a change of fashion and style from this segment. The irony is Discover costs Rs 4000 more than Hero Honda Splendor. But money does not matter for the playful customers.

MARKET SHARE OF BAJAJ IN 125CC SEGMENT

Hero Honda shares a majority in 125cc segment while Bajaj regains its lost momentum in 100cc with the launch of Discover. Hero Honda lost 6% from its 80% share accrued in the fiscal of 2008-09 while
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Bajaj increased almost similar volume to 17% from 10.5% in the 125cc segment. Hero Honda secured an increased sale volume of 40.55lakh while Bajaj could muster a whooping 9.28 lakh units.

Brand and Category Portfolio Composition

Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf Discover and Pulsar shows a growth of 76% in 2009-10 from 58 % in 2008-09 whereas Platina and CT 100 shows a decline from 42% in 2008-09 to 24% in 2009-10. The resurgence in Bajaj's sales is driven by the Discover and the company's renewed focus on the 100 cc commuter segment. Bajaj made the mistake of trying to move away from 100 cc bikes, hoping commuters would upgrade to more powerful and higher-displacement bikes, which are its strength. That's when Bajaj adopted a flanking strategy to counter Hero Honda, trying to attack it from the top as well from the bottom. The bigger and sportier Pulsar created a niche at the top, now leading the
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segment, while its price-driven, entry-level strategy worked till rival Honda dropped prices and Bajaj saw it as a zero-sum game. In 2007, Bajaj had launched XCD, a sleek bike in 125cc, which sold 20,000 a month but wasn't good enough. Bajaj then developed a 100cc bike on the XCD platform (using its chassis, engine and gearbox), allowing it to price attractively. Source: http://autos.in.msn.com/autonews/article.aspx?cp-documentid=4119724&page=3

LEARNING CURVE

But Bajaj had learnt a few lessons from its past failures and tried to incorporate them in the new bike package. For instance, it had understood that it was not enough to harp on features; the starting point for a customer was the brand, which reassures him. Bajaj had a good brand in Discover (until then available in 125cc and 135cc), which enjoyed the image of a bigger and sportier bike and priced at Rs 50,000. Bajaj felt a customer's familiarity with a brand was important, and hence settled for this one for its new 100cc bike that delivered an on-road mileage of 80 km to a liter. These include a longer wheel base, a five-speed gear box, auto choke and gas-filled shock absorbers, which are found in performance bikes but come in more than handy in negotiating bumpy rural roads. To complete its 4-F strategy for Discover (familiarity, frugal, features, and fun), it introduced it in a peppier, 150cc variant. This product was complemented well with a Discover India campaign, where the key message was that there are many India's within one India -- a village of Afghans called Jambur near Jamnagar, a village in Karnataka where people speak only in Sanskrit, or a village in Maharashtra where houses have no doors. More important, the ads tried to communicate that many of these villages are located less than 100 km from different cities, and you can reach these in a Discover with one liter of petrol.

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Hero Honda's Splendor had a great run. For 15 years, it had built a strong pedigree, with 11.5 million sold. But in less than a year of launch, Discover is the second-largest selling bike after Splendor and has a good chance of over-taking the latter.

A GROWTH PERSPECTIVE

India is emerging as one of the worlds fastest growing and second largest two wheeler manufacturer. The two-wheeler market in India is the biggest contributor to the automobile industry with a size of or Rs 22000 crores. In terms of volume the industry sales around 5.4 million units a year. India is the second largest producer and manufacturer of two-wheelers in the world. It stands next only to Japan and China in terms of the number of two-wheelers produced and domestic sales respectively. India is the two wheeler capital of Asia with 27 two wheelers per 1000 persons as compared to 8 two wheelers per 1000 persons in China. Indian two-wheeler industry has got spectacular growth in the last few years. According to the International Yearbook of Industrial Statistics 2008 released by United Nations Industrial Development Organization (UNIDO), India ranks 12th in the list of the worlds top 15 automakers.

In order to make India a power to reckon with in the automotive sector the government launched the Automotive Mission Plan (AMP) 2006-2016. As per the AMP, it is estimated that the total turnover of the automotive industry in India would be in the order of USD 122 billion - USD 159 billion in 2016. It is expected that in real terms, India would continue to enjoy its eminent position of being the world's second largest two-wheeler manufacturer. Further, by 2016, the automotive sector would double its contribution to the country's GDP from current levels of five per cent to 10 per cent. Demand Forecast for Motorcycles and Scooters for 2011-12
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Two-Wheeler Segment Motorcycle Scooter

Regions South 2835 (12.9) 203 (2.6) West 4327 (16.8) 219 (3.5) North-Central 2624 (12.5) 602 (2.8) East & North-East 883 (11.1) 99 (2.0) All India 10669 (14.0) 1124 (2.08)

Note: Compound Annual Rate of Growth during 2002-03 and 2011-12 is presented in parenthesis Source: Indian Automobile Industry: Optimism in the Air, Industry Insight, NCAER http://www.fadaweb.com/itw_industry.htm

The Growth of Two-wheeler segment suggests two important dimensions for the two-wheeler industry. The region-wise numbers of motorcycle and scooter suggest the future market for these segments. At the all India level, the demand for motorcycles will be almost 10 times of that of the scooters. The same in the western region will be almost 20 times. It is also evident from the table that motorcycle will find its major market in the western region of the country, which will account for more than 40 per cent of its total demand. The south and the north-central region will follow this. The demand for scooters will be the maximum in the northern region, which will account for more than 50 per cent of the demand for scooters in 2011-12.

Demand Forecast for Motorcycles

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Source: http://www.bajajauto.com/images/investor/Analyst%20Presentation%20-%20BAL%20for %2013th%20May%2010.pdf There is a large untapped market in semi-urban and rural areas of the country. Any strategic planning for the two-wheeler industry needs to identify these markets with the help of available statistical techniques. Potential markets can be identified as well as prioritized using these techniques with the help of secondary data on socio-economic parameters. For the two-wheeler industry, it is also important to identify the target groups for various categories of motorcycles and scooters. With the formal introduction of secondhand car market by the reputed car manufacturers and easy loan availability for new as well as used cars, the two-wheeler industry needs to upgrade its market information system to capture the new market and to maintain its already existing markets. Availability of easy credit for two-wheelers in rural and smaller urban areas also requires more focused attention. It is also imperative to initiate measures to make the presence of Indian two-wheeler industry felt in the global market. Adequate incentives for promoting exports and setting up of institutional mechanism such as Automobile Export Promotion Council would be of great help for further surge in demand for the Indian two-wheeler industry.

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OUTLOOK FOR THE ENTRY SEGMENT

Competitive intensity in this segment is likely to increase. The launch of new products in the entry segment augurs well for the enrichment and expansion of the segment. However, the already high rate of penetration in the urban markets is likely to remain a moderating factor. Increased competition in this segment is expected to lead to an increase in below-the-line promotions, thereby squeezing profit margins; this may get accentuated further by a likely increase in raw material costs in the near term.

OUTLOOK FOR THE EXECUTIVE SEGMENT

Investment in brand-building assumes far greater significance now than earlier with Indian customers turning more demanding and competition also intensifying. Since bikes in the upper end of the executive segment also have an aspirational value attached, the ability of OEMs to build strong brands in this space could have a positive rub-off on their entry-segment offerings as well. Thus, going forward, the executive segment is expected to claim a greater share of marketing spends. Increased activity is expected at the higher end of the executive segment, in which global majors are likely to leverage their global portfolios to launch models in India. The executive segment is expected to be able to maintain its volume growth over the the medium term, which should translate into superior profit margins for players that are stronger in this segment.

OUTLOOK FOR THE PREMIUM SEGMENT

This market offers large scope for segmentation in terms of price points and performance characteristics. Also, the premium segment is expected to get crowded as new players like Harley Davidson and Ducati gear up to expand their presence in it. Given the premium and niche character of these bikes, the volume base is likely to remain small over the medium term.
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The low volumes of products in this segment do not justify investments in localization of parts. Hence, most of the new products planned to be launched are either likely to be imported as completely built units (CBUs) or they would have a high import content.

Thus, product prices are likely to remain high over the medium term, which in turn could curtail growth prospects. While it is true that these products are not meant for the mass market, considering the increase in customer awareness levels, OEMs cannot afford to ignore the price-value equation altogether.

FUTURE PROSPECT OF THE BAJAJ AUTO IN PRODUCTION

Bajaj is expanding motorcycle capacity by 300,000 per annum and from July; it will be able to produce 170,000 a month of Discover bikes. Bajaj has also launched a 150 cc variant of the bike and hopes to sell 35,000 of these every month, once it's available across India. For several months, Bajaj has been reporting 60-80% jump in volumes. In the past five months, its domestic sales jumped 98%, while the industry grew at 30% and Hero Honda grew at 12.1%, albeit on a much higher base.

FUTURE PLAN OF ACTION

Identification of most important attributes of motorcycles in the Indian market context. Use of quantitative tools such as MDS and Conjoint Analysis for BAJAJ Auto Recommendations for the market challenger (BAJAJ Auto) to take on the Market Leader Hero Honda. Data collected will be organized in tabular and graphical form for quick reference

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