41 two wheeler industry

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TABLE OF CONTENTS

Sr.No Particulars Pages

From - To1. Acknowledgement I - I2. Objectives of the Project II - II3. Parameters of the project III - III4. Executive Summary IV - V

TWO WHEELER INDUSTRY IN INDIA

5. Introduction 1 – 26. Historical Industry Development 3 – 67. Current Scenario 7 – 9

8. Industry Structure 10 – 139. Prelude to Indian Two Wheeler Sector 14 – 1410. Growth in the Last Two Years 15 – 1511. Environmental Regulations 16 – 1612. Major Players 17 – 3013. Company’s Share in the Market 31 – 3114. Sector Outlook 32 – 3215. Bajaj Group

Profile of the Company 33 – 33

Management 34 – 34

Objectives and Goals 35 – 35 Policies 35 – 35

Performance 36 – 39

Strategies used in the Past 40 – 41

Economics 42 – 43

Marketing 44 - 50

Management Information System 51 – 52

SWOT Analysis 53 – 54

International Marketing 55 – 56

Production and Operation Research 57 – 58

Total Quality Management 59 – 61 Current Strategies Suggested 62 – 64

16. Hero Honda Group

Profile 65 – 65

Management 66 – 66

Consolidated Family Business 67 – 68

Glorious History 69 – 69

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Mission Statement 70 – 70

It’s Vision 70 - 70

Achievements and Awards 71 – 74

Areas of Management 75 – 79

Marketing 80 - 87

The Number Game 88 – 89 A Company Par Excellence 90 – 92

Exports 93 – 9517. Future Outlook of Two - Wheeler Sector 96 – 10518. Conclusion 106 – 10919. Recommendation 110 – 11820. Bibliography 119 - 120

OBJECTIVES OF THE PROJECT

Study the Two-wheeler Industry.

The Industry structure.

The forces that are at play in the Indian two wheeler market.

Gauge the performance of the major players in this market.

To analyze the reason for a major shift from scooters to

motorcycles.

PARAMETERS OF THE PROJECT

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I have tried to study the project through various areas of

management such as:

Economics

Marketing

MIS

Production

Operation Research

Sales

Market share

Profits

Production

Exports

Brand awareness

EXECUTIVE SUMMARY

In stark contrast to the situation that prevailed in the 1990s, the two-

wheeler industry has now acquired the traits of any other consumer

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durable industry, of price wars, celebrity endorsements and ever-

increasing sales and other promotional outgo. In the 1990s, the profit

margin of the top companies was not subject to the kind of strain that

is being witnessed in the recent quarters. The entry of more players

into the fast-growing four-stroke motorcycle market, has led to higher

competitive pressure for the companies. Earlier, Hero Honda and Bajaj

were the only producers of four-stroke motorcycles. Now, TVS Motor,

Kinetic, LML along with Bajaj and Hero Honda are jostling for space in

the four-stroke market. This has led to an increase in the number of

models and a consequent reduction in product lifecycle. In the past

couple of years, more than ten new four- stroke motorcycle models

have hit the Indian roads.

This has resulted in an increase in overall expenses, including

promotional costs, for the companies. Apart from the capital

expenditure, new product launches have an inflationary impact on

expenses of a recurring nature, such as sales promotion and staff cost.

This, coupled with the discounts that are being forked out, could have

a negative impact on the profitability of the two-wheeler industry in

the near term; at least until the volume growth manages to

compensate this.

The pressure on margins is not fully manifest owing to the cost controland indigenization efforts undertaken by two-wheeler companies.

Going forward, the constituents of the two-wheeler industry too would

find profit margin being consistently under pressure once the scope for

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cost control diminishes. Growth in volume would be the key driver of

financial performance even as the scope for margin expansion wanes.

INTRODUCTION

India is the third largest manufacturer of two-wheelers in the world,

and the largest manufacturer of three-wheelers. The major players in

the Two Wheeler sector are Bajaj Auto, Hero Honda, Kinetic, LML and

TVS Motors. Among two-wheelers, motorcycles have led the upsurge(88% growth) to result in a y-o-y growth of 42% for the sector. The

Indian two-wheelers industry can be broadly classified into three major

segments -- scooters, motorcycles and mopeds.

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With sales over 4.2 million (FY 2001-02), the industry is growing at

the rate of nearly 16%. The motorcycle segment is the fastest growing

with its share in two wheeler sales increasing from 37.21% in FY1997-

98 to 68.65% in FY2001-02, to nearly 70% in FY 2002-03.

In the last five to six years, the two-wheeler market has witnessed a

marked shift towards motorcycles at the expense of scooters. In the

rural areas, consumers have come to prefer sturdier bikes to withstand

the bad road conditions. In the process the share of motorcycle

segment has grown from 48% to 70%, the share of scooters declined

drastically from 33% to 22%, while that of mopeds declined by 4%

from 19% to 15% during (FY 2001-03). Sale of scooters and mopeds

segment decreased 51.20% and 47.93% respectively over the last five

years.

Scooters and mopeds are rapidly losing their place in the market to

the more fuel-efficient, stylish and sturdy motorcycles. The Euroemission norms effective from April 2000 led to the existing players in

the two- stroke segment to install catalytic converters. 4-stroke

motorcycles are now replacing all the new models. Excise duty on

motorcycles has been reduced from 32% to 24%, resulting in price

reduction, which has aided in propelling the demand for motorcycles.

Competition has intensified over the last couple of years. Recently,Honda Corporation of Japan announced its intentions to set up a 100%

subsidiary to manufacture scooters and motorcycles. Other players in

the two-wheeler industry include Bajaj Auto Ltd, Kinetic Motor Co Ltd,

LML, TVS Motors and Yamaha. Low – interest regime has helped in

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reducing cost of loans, which will help in boosting sales of 2-wheelers,

since 80% of the two- wheelers are credit – stimulated.

With more than 40 per cent of the motorcycle demand flowing from

the rural sector, the success or failure of monsoon has a major

influence on the sales volume. After a robust growth in the first

quarter of the previous fiscal, motorcycle off take tapered during the

second-half.

HISTORICAL INDUSTRYDEVELOPMENT

The invention of the first two-wheeler is a much-debated issue. "Who

invented the first motorcycle?" may seem like a simple question, but

the answer is quite complicated.

Two-wheelers owe their descent to the "safety" bicycle, i.e., bicycles

with front and rear wheels of the same size, with a pedal crank

mechanism to drive the rear wheel. Those bicycles, in turn descended

from high-wheel bicycles. The high-wheelers descended from an early

type of pushbike, without pedals, propelled by the rider's feet pushing

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against the ground. These appeared around 1800, used iron-banded

wagon wheels, and were called "bone-crushers," both for their jarring

ride, and their tendency to toss their riders.

Gottlieb Daimler (who later teamed up with Karl Benz to form the

Daimler-Benz Corporation) is credited with building the first motorcycle

in 1885. One wheel in the front and one at the back, it had a smaller

spring-loaded outrigger wheel on each side. It was constructed mostly

of wood, the wheels were of the iron-banded wooden-spoked wagon-

type, it definitely had a "bone-crusher" chassis!

The Indian two-wheeler industry made a small beginning in the early

50s when Automobile Products of India (API) started manufacturing

scooters in the country. Until 1958, API and Enfield were the sole

producers.

In 1948, Bajaj Auto began trading in imported Vespa scooters and

three-wheelers. Finally, in 1960, it set up a shop to manufacture them

in technical collaboration with Piaggio of Italy. The agreement

expired in 1971. In the initial stages, Automobile Products of India

dominated the scooter segment; Bajaj Auto later overtook it. Although

various government and private enterprises entered the fray for

scooters, the only new player that has lasted till today is LML.

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Under the regulated regime, foreign companies were not allowed to

operate in India. It was a complete seller market with the waiting

period for getting a scooter from Bajaj Auto being as high as 12 years.

The motorcycles segment was no different, with only three

manufacturers viz Enfield, Ideal Jawa and Escorts. While Enfield bullet

was a four-stroke bike, Jawa and the Rajdoot were two-stroke bikes.

Enfield 350cc bikes and Escorts 175cc bike initially dominated the

motorcycle segment.

Motorcycle, the name is evolved from motorized cycle. A motorcycle

has an engine, wheels and chain exposed. Moreover, it is chain driven.

Two-stroke motorcycles are positioned as power bikes by making use

of their high power delivery to cater the young generation. Four-stroke

motorcycle is positioned as fuel-efficient and environment friendly

vehicle.

The two-wheeler market was opened to foreign competition in the

mid-80s. And the then market leaders - Escorts and Enfield - werecaught unaware by the onslaught of the 100cc bikes of the four Indo-

Japanese joint ventures. With the availability of fuel-efficient low

power bikes, demand swelled, resulting in Hero Honda - then the only

producer of four stroke bikes (100cc category), gaining a top slot.

The first Japanese motorcycles were introduced in the early eighties.

TVS Suzuki and Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. These two players initially

started with assembly of Complete Knocked Down Kits, and later on

progressed to indigenous manufacturing. In the 90s the major growth

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for motorcycle segment was brought in by Japanese motorcycles,

which grew at a rate of nearly 33% CAGR in the last five years.

The industry had a smooth ride in the 50s, 60s and 70s when the

Government prohibited new entries and strictly controlled capacity

expansion. The industry saw a sudden growth in the 80s. The industry

witnessed a steady growth of 14% leading to a peak volume of 1.9mn

vehicles in 1990.

The entry of Kinetic Honda in mid-eighties with a variometric scooter

helped in providing ease of use to the scooter owners. This helped in

inducing youngsters and working women, towards buying scooters,

who were earlier, inclined towards moped purchases. In the 90s, this

trend was reversed with the introduction of scooterettes. In line with

this, the scooter segment has consistently lost its part of the market

share in the two-wheeler market.

In 1990, the entire automobile industry saw a drastic fall in demand.This resulted in a decline of 15% in 1991 and 8% in 1992, resulting in

a production loss of 0.4mn vehicles. Barring Hero Honda, all the major

producers suffered from recession in FY93 and FY94. Hero Honda

showed a marginal decline in 1992.

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TWO WHEELER INDUSTRY: THE CURRENTSCENARIO

If Automobile companies have been showing poor growth rates, can

the two-wheeler industry be far behind? The two-wheeler segment of

the industry had been bucking the normal trends exhibited by the

automobile industry for the past few years.

But it appears that the time has come for this segment to align itself

with the overall industry growth. The growth in two-wheeler sales has

been quite steady over the past eight years and right now, there is no

reason to expect an upturn. The overall sales growth rates appear to

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have been capped. There, in fact, could be a spiel for a fall in growth

in penetration levels after a decade of steady growth.

More specifically, one can argue that the higher base has been partly

achieved through generous financing packages and discount schemes.

All major two-wheeler players- Bajaj Auto, TVS Motors, LML, Kinetic

Motors and Hero Honda Motors, are battling for the motorcycle

segment. This dramatic structural shift in the industry from scooters to

motorcycles has been going on for the last five years and is expected

to have been completed.

The Indian consumer being sensitive to prices would certainly take the

lead. Besides, the industry size has become too big to sustain the

growth rates. As a result, lower margins will follow and supernormal

returns would no more be possible.

Research outfit Morgan Stanley Dean Witter has estimated thatprofitability of players like Bajaj Auto and TVS Motors will probably

suffer as intense competition between the companies sets in. Hero

Honda will eventually have to compete on equal terms. As a result,

MSDW has lowered its rating on Hero Honda and TVS Motors to

neutral, while Bajaj Auto was already neutral. The overall Compounded

Annual Growth Rate in two-wheeler sales was 8.3 per cent between

1997 and 2000. On a high base, an improvement may not be possible.Over the same period, the CAGR for motorcycles was 22.5 per cent.

This strong growth was fuelled by a shift away from scooters.

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Now, given the share of 53.6 per cent in the total two-wheeler sales,

motorcycles have less room to grow at the expense of scooters. MSDW

as a result, expects motorcycle growth rates to move towards the

overall industry growth rate in the next one to two years.

The recent acceleration in motorcycle sales has led to a serious

rethinking in strategies in the two-wheeler market. Bajaj Auto and TVS

Motors are targeting volumes in the 4-stroke motorcycle segment at

the expense of margins. This is bound to lead to profitability pressures

for the two-wheeler industry as a whole, even subjecting Hero Honda

to competitive pressures.

The two-wheeler industry is expected to undergo a period of

transformation, which would involve lower margins and profitability

pressures. Both Bajaj Auto and TVS Motors have already built in these

pressures in their valuations while Hero Honda has not.

Growth expectations for Hero Honda, in MSDW's opinion are valid only

for the next one-year, after which it expects the company's growth to

decelerate. Honda and Piaggio have announced their plans to enter the

Indian scooter market. Their scooter brands could cause a ripple in the

two-wheeler industry and slow the extent of migration to motorcycles

from scooters.

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INDUSTRY STRUCTURE

The Indian two-wheelers Industry can be broadly classified into the

following Segments:

Scooters -Geared and Un-geared.

Motorcycles.

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The motorcycles segment can be classified into three broad segments

viz., the entry-level segment, executive segment and the premium

segment.

Till last year, the executive segment, the fastest growing segment

among the two-wheelers, was almost monopolized by Splendor,

India’s highest selling bike. However, with a host of new vehicles

flooding the market, the market leader has started showing signs of

flagging. Victor, the flagship product of TVS, has done the trick,

garnering a sequential growth throughout the last four quarters.

The entry-level segment continues to witness competition on the price-

front. Bajaj has a stronghold of this segment with Boxer, as Hero

Honda’s Dawn, the renewed version of Joy , is a distant second. It is

this segment that is gradually eating away volumes from Scooters.

These segments as shown below constitute thedomestic two wheeler sales:

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17



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Flash Report on Sales [Including Exports]

(A)Apr-Mar

1999-2000

(B)Apr-Mar

2000-01

(C)Apr-Mar

2001-02

Scooters 12,33,781 8,76,224 8,53,330

Bajaj Auto Ltd 5,70,702 3,56,512 3,65,087

Honda Motorcycle & Scooter - - 54,216

Kinetic Motor Company Ltd 1,12,676 1,19,663 1,08,627

LML Limited 2,77,157 1,61,231 1,20,790

Maharashtra Scooters Ltd. 1,46,671 96,755 61,456

TVS Motors Ltd. 1,26,575 1,42,063 1,43,154

Motorcycles 17,61,439 21,14,693 28,93,618

Bajaj Auto Ltd. 4,25,704 5,36,103 7,06,012

Hero Honda Motors Ltd. 7,51,639 10,19,267 14,12,279

Kinetic Engg. Ltd. - - 44,309

LML Limited - 36,160 44,723

Royal Enfield Motor 24,175 20,189 22,769

TVS Motors Ltd. 3,23,181 3,51,483 4,47,279

Yamaha Motor India (P) Ltd. 2,36,740 1,50,861 2,16,247

Mopeds 6,98,321 6,43,461 4,67,902

Bajaj Auto Ltd. 65,786 54,388 36,491

Kinetic Engg. Ltd. 1,58,022 1,47,532 96,434

Majestic Auto Ltd. 95,773 78,266 67,590

TVS Motors Ltd. 3,78,740 3,63,275 2,67,387

Total 2-wheelers 36,93,541 36,34,378 42,14,850

PRELUDE TO INDIAN TWO-WHEELER SECTOR

Ever since 1987, it is only during FY03 that the drought has been

severe enough to officially declare it as ‘drought year’. The inflation is

well under control at 3.40%, but concerns of burgeoning fiscal deficit

still remain at large.

While the 28% shortfall in precipitation would dampen agricultural

output during the current year, indicators on industrial output and

infrastructure activities undoubtedly point towards an economic

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recovery. The IIP {The Index of Industrial Production} witnessed a y-

o-y increase of 6.1% as on September 2002, with Automobiles

clocking a 4.9% growth.

The two-wheeler sector witnessed a complete transformation in the

level of competition and growth rates as motorcycles lead the way in

offering a wider choice at competitive prices. The strong surge in

motorcycles had led the entire two-wheeler sector in posting an

incredible growth of 41% in the first half of the last year.

TWO-WHEELER INDUSTRY GROWTH IN THE

LAST TWO YEARS

The two-wheeler industry has seen a profound shift in the consumer

preference towards motorcycles from scooters. Until 1999, scooters

held the upper hand in the contribution to overall sales. The

introduction of Hero Honda’s blockbuster product Splendor was

instrumental in changing the scenario and the motorcycle growth

continues to outsmart scooters till date.

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STRICT ENFORCEMENT OF ENVIRONMENTAL

REGULATIONS

In the years to come, stringent regulations and environmental laws

should increase replacement demand for two-wheelers. The retention

period of a two-wheeler in India is one of the highest in the world. This

should gradually decrease in the forthcoming years.

Among the two and three wheelers, both selected models of Hero

Honda (Splendor and CD 100) are the most eco friendly two wheelers.

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They have scored above average in vehicle and engine design and are

one of the very few, four-stroke two wheeler fitted with any kind of

pollution control equipment.

Bajaj boxer, which ranks third, has scored well in vehicle and engine

design but lacks in emission control equipment and comparatively

poorer emission.

The best performing two-stroke model ranks fourth amongst the two

wheelers. The lowest score has been obtained by Kinetic Safari moped,

which obtained average scores in design and emissions and very poor

scores in pollution control equipment and emissions.

MAJOR PLAYERS IN THE INDUSTRY

The Indian two-wheeler contributes the largest volumes amongst all

the segments in automobile industry. Though the segment can be

broadly categorized into 3 sub-segments viz; scooters, motorcycles

and mopeds; some categories introduced in the market are a

combination of two or more segments. There are a lot of companies in

this Industry. The major players are:

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Hero Honda Motors Ltd is one of the leading companies in the two-

wheeler industry. At present, it is the market leader in the motorcycle

segment with around 50% of the market share during FY 2003-04.

The company has emerged as one of the most successful players,

much ahead of its competitors an account of its superior and reliable

product quality complemented with excellent marketing techniques.

The company has been consistently addressing the growing demand

for motorcycles and has a cumulative customer base of over 5 million

customers, which is expected to reach 6mn mark with the rural and

semi-urban segment being the new class of consumers.

Hero Honda continues to hold the coveted position of being the

largest individual two wheeler companies in the world as also

being the No.1 two wheeler joint venture of Honda Motor Co,

Worldwide. The Hero Honda Splendor has maintained its

leadership as the World No.1 two wheeler brands.

New model 'Dawn' recorded monthly sales of 10,000 units within

three months of launch.

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The total sales turnover of the company was Rs.1, 745.21 crores

in quarter ended June 30, 2004 from Rs.1, 359.82 crores in the

corresponding period last year.

Profit before tax was Rs.885 crores and Profit after tax was 581

crores in the FY 2002-03.

The company's sales volume during the first quarter of the year

2004 also recorded a splendid increase, with sales of 6, 09,123

units of motorcycles as compared to 4, 58,779 motorcycles sold

during the first quarter of the last FY.

The company offers the following products:

CD 100

CD 100 SS

Splendor

Passion

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CBZ

CD Dawn

Karizma

Ambition

Ambition 135

Splendor +

Passion Plus

CBZ Star

Address:

Registered & Corporate office:

HERO HONDA MOTORS LIMITED

34 Community Centre, Basant Lok

Vasant Vihar,

New Delhi – 110057

Tel: 011 26142451 / 26144121

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Fax: 011 26143321/ 26143198 / 26141830 / 26152453 / 26152132

URL:www.herohonda.com

Established in 1945, it was incorporated as a

trading company. From 1948 till 1959, it imported scooters and three

wheelers from Italy and sold them in India. It then obtained a

production license in 1959 and struck a technical collaboration with

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Piaggio of Italy in 1960 and continued with the same for the next two

decades.

Scooter production commenced in 1961. Three wheeler productions

followed in 1962. Its collaboration with Piaggio expired in 1971 and

since then the Company's scooters and three wheelers are sold under

the "Bajaj" brand name.

It is one of India's top ten companies in terms of market capitalization

and among the top five in terms of annual turnover.

Under the "Horizontal transfer of technology" policy, Maharashtra

Scooters Ltd., a Company with 24% equity participation by the

Company and 27% participation from Maharashtra State Government's

Western Maharashtra Development Corp. was formed in 1975.

Production facilities are located at Satara, in Maharashtra State. This

helped augment production capacities. These scooters are marketed

through the Company's distribution network and under the Company'sbrand name.

The Company's second plant was set up in 1984 at Aurangabad, in

Maharashtra State. In this plant, scooter production commenced in

1986, three wheeler production commenced in 1987 and scooterettes

and motorcycle facilities were commissioned in 1990 & 1991

respectively.

From 1961 when the annual production was about 4000 units, today

the Company has become a market leader with annual production in

excess of 1.35 million units and with product offerings in all segments

(mopeds & scooterettes, scooters, motorcycles, three wheelers).

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Its main models are:

Chetak

Spirit

CT 100

Caliber 115

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Wind 125

Pulsar 150 KS

Pulsar 150 SS

Pulsar 180 SS

Eliminator

Address:

Mumbai - Pune Road,

Akurdi, Pune 411 035.

Tel No. : 020 772851, 776151.

Fax No. : +91-20 776387, 773398.

URL: www.Bajajauto.com

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http://auto.indiamart.com/scooters/bajaj-chetak/index.html

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LML is one of the leading scooter manufacturers in the country; with a

30% market share in volume terms with its popular scooter brand

"Supremo". Financially, LML's turnover has grown from Rs.209.05

crores in 92-93 to Rs.832.71 crores in Sept '98. It plans to facilitate

authorized dealers with a WAN (wide area network) and sell spare

parts through the Net.

It is also working towards setting up five training schools (one each in

Mumbai, Kanpur, Bangalore, Calcutta and Noida), to train mechanics

and service personnel. Beginning with 120 people in the first quarter of

1999, it hopes to build up a base of 20,000 trained mechanics over

time. Besides, its 300-dealer strength is to be over 500 soon.

Models Provided:

Freedom DX

Freedom Prima 110

Freedom Prima 125

Freedom Prima 125 DB

Freedom Topper

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Graptor

Address:

Registered Office:

C 3 Panki Industrial Estate,

Kanpur - 208 022

Kinetic Engineering Ltd., founded in the year 1970, is the leading

manufacturer and exporter of 2-wheelers. Born of the vision of the late

Shri H. K. Firodia, it has produced useful, heart - winning products for

over two decades.

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KEL manufactures a wide range of Mopeds, Scooters and Motorcycles

that are very popular in the country and are well recognized for their

fuel economy, quality and reliability.

KEL has 3 manufacturing plants, with the capacity to manufacture 4

lakh vehicles per year. Their well endowed technologically advanced

manufacturing set up has enabled them to reach high quality

standards.

The company also exports these vehicles to countries like USA,

Canada, Sweden, Latin America, Denmark and the Middle East.

The company has always been conscious of quality and customer

oriented production.

A strong service network set up across India backs Kinetic Engineering

Ltd. Kinetic Engineering are also the promoters of Kinetic Honda Motor

Ltd., a joint venture with the internationally known Honda Motor

Company of Japan.The Models provided are:

Nova EX / DLX / 135

ZX Zoom

Zing STD

Zing Rockin 80

Rock in Zing

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Boss

Boss SP

Boss 115

Boss EX

GF – 170

Laser

Velocity

King DLX

Aquilla

Address:

D-1 Block, Plot No. 18/2,

MIDC Chinchwad,

Pune- 411 019

Tel: (020) 7474301-5

Fax: (020) 7475842-3

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TVS MOTOR COMPANY

TVS Motor Company Limited, part of the TVS Group, is one of India's

leading two-wheeler manufacturers. With a turnover of over Rs.2800

crores, the Company manufactures a wide range of motorcycles,

scooters, mopeds and scooterettes. Little wonder, it boasts of more

than 9.5 million happy customers.

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The year was 1980, was a year to remember for the Indian two-

wheeler industry. For it was this year that saw India's first two-seater

moped, TVS 50, rolling out on the Indian roads. For some it was

freedom to move.

With the joint venture with Suzuki Motor Corporation in 1983, TVS-

Suzuki became the first Indian company to introduce 100 cc Indo-

Japanese motorcycles in September 1984. Through an amicable

agreement the two companies parted ways in September 2001.

With a strong sales and service network of 500 Authorized

Dealerships, 1018 Authorized Service Centres and over 864 Certified

Service Points, TVS is growing from strength to strength.

Products offered by the Company:

Max 100

Max R

Centra

Victor GL

Victor GLX

Fiero F2/FX

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Scooty PEP DLX

Scotty KS

Scotty ES

Address:

Jayalakshmi Estates

V Floor

8, Haddows RoadChennai - 600006

Ph: 044-8272233

Fax: 044-8257121

COMPANY’S SHARE IN MARKET

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SECTOR OUTLOOK

The motorcycles segment is bubbling with a spate of models launched

in the last four quarters. With more players joining the fray in the

motorcycle segment, the competition should ultimately give each

player its share.

Among the two-wheeler majors, TVS Motor Ltd is taking its chances

with the massive R&D and capacity expansion plans. On similar lines,

LML is banking on its new products for growth and is coming out with a

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flurry of new models in the executive segment of the motorcycles,

where the growth is highest.

The current fiscal should bring in considerable bottom-line growth to

all the two-wheeler players due to positive demand outlook for the

sector. But the major concern for all the players is the acute pressure

on pricing that may impact the margins for all of them.

BAJAJ GROUP

Profile of the company

The Bajaj Group came into existence during the turmoil and the heady

euphoria of India's freedom struggle. Jamnalal Bajaj, founder of the

Bajaj Group, was a confidante and disciple of Mahatma Gandhi, and

was deeply involved in the effort for freedom. The integrity,

dedication, resourcefulness and determination to succeed which are

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characteristic of the Company today, are often traced back to its birth

during those long days of relentless devotion to a common cause.

Today, Rahul Bajaj is the Head of the Group. He has been the Chief

Executive Officer of Bajaj since 1968 and is recognized as one of the

most outstanding business leaders in India. As dynamic and ambitious

as his illustrious predecessors, he has been recognized for his

achievements at various national and international forums. Bajaj Auto

is the flagship of the Bajaj Group of Companies.

Bajaj is currently India's largest three-wheeler manufacturer and one

of the biggest in the world. We have long left behind our annualturnover of Rs.72 million (1968), to last years, impressive figure of

Rs.39 billion (US$ 920 million).

Management

A team of seasoned professionals ably manages Bajaj Auto Ltd.

Board of DirectorsRahul Bajaj Chairman & Managing Director

Madhur Bajaj Vice Chairman & Whole-Time Director

Kantikumar R. Podar Director

Shekhar Bajaj Director

D.J. Balaji Rao Director

D.S. Mehta Whole-Time Director

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http://www.bajajauto.com/1024/aboutbajaj/shekhar.asp

http://www.bajajauto.com/1024/aboutbajaj/balajirao.asp

http://www.bajajauto.com/1024/aboutbajaj/dsmehta.asp

http://www.bajajauto.com/1024/aboutbajaj/rahul.asp

http://www.bajajauto.com/1024/aboutbajaj/madhur.asp

http://www.bajajauto.com/1024/aboutbajaj/kantikumar.asp

http://www.bajajauto.com/1024/aboutbajaj/shekhar.asp


http://www.bajajauto.com/1024/aboutbajaj/dsmehta.asp



J.N. Godrej Director

S.H. Khan Director

Rajiv Bajaj Joint Managing Director

Mrs. Suman Kirloskar Director

Naresh Chandra Director

Nanoo Pamnani Director

Committees of the Board

Audit Committee

S.H. Khan Chairman

J.N. Godrej

Nanoo Pamnani

D.J. Balaji Rao

Naresh Chandra

Shareholders’ & Investors’ Grievance committee

D.J. Balaji Rao Chairman

J.N. Godrej

Naresh Chandra

Remuneration committee

D.J. Balaji Rao Chairman

S.H. Khan

Naresh Chandra

Objectives and Goals

The main objective of Bajaj Auto is not only on sharp increase in

output but also on:

Transparency: A commitment that the business is managed

along transparent lines.

Fairness: To all stakeholders in the Company, but especially to

minority shareholders.

Disclosure: Of all relevant financial and non-financial

information in an easily understood manner.

40

http://www.bajajauto.com/1024/aboutbajaj/jngodrej.asp

http://www.bajajauto.com/1024/aboutbajaj/shkhan.asp

http://www.bajajauto.com/1024/aboutbajaj/rajiv.asp

http://www.bajajauto.com/1024/aboutbajaj/suman.asp

http://www.bajajauto.com/1024/aboutbajaj/naresh.asp

http://www.bajajauto.com/1024/aboutbajaj/nanoo.asp














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Supervision: Of the Company's activities by a professionally

competent and independent board of directors.

Policies

They approach their responsibilities with ambition and

resourcefulness.

They organize themselves for a transparent and harmonious flow

of work.

They respect sound theory and encourage creative

experimentation.

And they make their workplace a source of pride.

Bajaj Performance

The market for the so-called 'mature' segment, which according

to Mr.Rajiv Bajaj (joint managing director) included, gearedscooters, mopeds, step-thru's and three-wheelers.

The geared scooter market in which Bajaj is clearly the market

leader with its Chetak and Super's till ruling strong. The

41



company has a stranglehold in the southern and western regions

of the country with a market share ranging between 80% to

90%.

Next, comes the largest market of the north (55% of total

scooter market). Here too Bajaj is relatively well placed with only

LML to worry about. But the good part of the story ends right

here. As this market is a mature one, growth opportunities are

limited and Bajaj has come around to accept that only too well.

Sale of Company's new products introduced during 1998 - 1999viz., Spirit, Bravo, Legend and Caliber was 30% of the total

number of two wheelers sold during the period.

Going forward, its strategy would be to position itself in the fuel-

economy segment at a competitive price point. Secondly, Bajaj

will try to capture market share by introducing top-of-the-linescooters, which match its competitors in terms of style and

technology. Towards this, Bajaj Introduced the four-stroke

'Chetak' in November 2000 giving 65 kms/liter fuel economy and

the 'Fusion' and 'BravoHP' in October 2000 to give LML

something to think about.

In Step-thrus, the upgraded M-80 Major was introduced inAugust 1999. It incorporates a new engine that delivers higher

power, better fuel economy and significantly lowers emissions.

This vehicle is well received by customers. M-80 four strokes will

42



be introduced in the current quarter. With this introduction

Company's step-through market share should exceed 60%.

Sale of Spirit scooterette has crossed 6,000 units per month.

This was followed by a new scooterette in the next quarter. With

this, the Company expects to become India's largest scooterette

manufacturer.

The success of Pulsar has helped the company to stay clear of

adopting an aggressive price reduction strategy. Caliber 115 has

also enjoyed a fair degree of success. As a result, aided by itscash-rich status, the company has been able to hold its ground

in the times of recession.

Commercial production of Saffire, four-stroke automatic scooter

commenced at Bajaj Auto's new plant at Chakan

(Pune) on October 20, 1999.

Bajaj has consistently rolled out successful models for example

one of the feathers in its crown is the Bajaj Pulsar…..a premium

bike segment motorcycle which has been a very successful

model. Bajaj Kawasaki is one other bike which created quite a

stir in the industry.

With the Indian two-wheeler industry focused on the motorcycle

segment, Bajaj Auto now becomes the only Indian company with

offerings in each user segment. Starting with the entry level

Boxer series, the company’s range includes ‘Caliber’, ‘Caliber

43



Croma’ and ‘Aspire’ in the executive bike segment, Pulsar in the

premium bike segment, and the only cruiser bike of India the

‘Eliminator’.

An estimated Rs.100crores has been invested in developing

‘Pulsar’ and the project took 36 months from conceptualization

to commercial production of the vehicle. Pulsar is being

manufactured at Bajaj Auto’s state-of-the-art facilities at Chakan

near Pune where all the stylish un-geared scooters such as Bajaj

Spirit and Bajaj Saffire are manufactured.

In motorcycle segment, introduction of new Boxer AT, CT and

Caliber has been very encouraging.

Sales in number For and Upto the Month of August

2004

Products For August

2004

Upto August

2004

For August

2003

Upto August

2003

Motorcycles 106,745 485,791 76,487 394,983

Scooters

Geared8,898 48,071 12,570 68,314

Scooters Un-

geared3,205 15,900 5,427 23,457

Step thrus 1,299 8,639 3,024 14,256

Total Two

wheelers120,147 558,401 97,508 501,010

44



Strategies used in the Past

Bajaj strategic plan was to establish in three main areas viz establish

volume leadership, establish cost leadership and reduce the respond

time and bring in.

Volume Leadership:

Retain the high reliability and work on easing out immediate

availability.

Vast expansion supported by Quality circles, kanban, just-in-

time and high automation.

Expanded the dealer network to reach town, cities and even

villages.

45



Improve the genuine spares availability.

Reduce the prices drastically to match local specious parts.

Cashed on branding, image to penetrate into rural areas than

competitors.

Came up with easy financing scheme and several occasional

discounts to establish volume leadership.

Cost Leadership:

Macro value addition chain was exploited through out the

companies operation but also spread within micro value addition

chain i.e. dealers and distributors, through free test rides,

registration and insurance schemes.

Macro value addition suppliers offering them hi-tech automation,

by keeping and improving the productivity.

After exploiting value addition micro and macro chain further

establishing the cost leadership, cost cutting exercises, was

adopted to ultimately reduce the cost of 58% to a target of 55%.

Response Time:

46



Total transparency within the dealer, distribution and works

through online.

Delivery within 24 hours of any variant within the circle.

Improves ecstatic and added variants to support the wide range.

Make available any variant, any range or access to definite

information directly. Improve to customer’s perception and

loyalty to product with widening the base and strengthening the

brand loyalty.

Example: Bajaj scooter customers change over to Bajaj motorbikes.

Economics

1. Demand Forecasting:

Forecasting means to know the trend or behaviors after a period of time. The aim of economic forecasting is to reduce the risk or

uncertainties that the firm faces in its short-term operational

decision-making and in planning for its long-term growth. A firm

must decide how much of each product to produce, what price to

charge, and how much to spend on advertising, and it must also

plan for future growth of the firm.

One of the techniques of forecasting is:

Moving Averages

47



The simplest smoothing technique is the moving average technique.

Here the forecasted value of a time series in a given period (Month,

quarter, year, etc) is equal to the average value of a time series in

a number of previous periods e.g. with a three period moving

average, the forecasted value of a time series for the next period is

given by the average value of the time series in the previous three

method.

2. Cost cutting:

A)At Akurdi Plant:

Replacement of 40/60 W incandescent bulbs by 7 W PL lamps inoffice building.

Installation of automatic temperature controllers in standard

room and water chilling plant at general canteen and use of solar

energy systems for canteens and paint shop.

Use of thermo sol fuel activities for LDO for better combustionefficiency.

Installation of auto control panels for minimum use of garden

lights, fountain and road lights.

48



B) At Waluj Plant:

Reduction of avoidable losses (replacement of capacitors, switch-

off of lights, fans, pumps, cooling water pumps etc. at identified

locations during identified hours).

Fine turning of equipment (thereopac, changed temperature

setting of air conditioning system etc.)

Plant voltage optimization.

Marketing

Four P’s of Marketing Mix

1. Product

The term "product" is anything that can be offered to a market to

satisfy a want or need. Products that can be marketed include

Physical goods, services, experiences, events, persons, places,

properties, organizations, information, and ideas.

Components of a market offering:

Value based prices

Attractiveness of

49



Market offering

Product features and Services mix and

Quality Quality

Product Levels

In planning its market offering, the company needs to think thru five

levels of the product. Each level adds more costumer value, and the

five constitute a customer value hierarchy.

First level, is the core benefit. The fundamental service or benefit

that the customer is really buys. Here in Bajaj the core product is the

vehicle. (Means for transportation)

Second level, the company has to turn the core benefit into a basic

product. The basic product would include the gears, the leather seat,the rear view mirrors, the trunk and the petrol tank. The essential

accessories that would make the product useful.

Third level, the company prepares an expected product, a set of

attributes and conditions buyers normally expect when they buy the

product. Here in case of two wheelers it is the warranty, the after sales

service that the customers expect. At Bajaj they have special customercare service tips which are accessible even on its website. They have a

24-hour service whereby the customers can post their queries to the

company and they try to answer the queries within a span of 7 days.

They have personalized service charts, which are exclusive to each

50



model. This enables the customer to get the right way of taking care of

his vehicle.

Fourth level, the marketer prepares an augmented product that

exceeds customer expectations. Auto finance is one such feature which

is an unexpected service though these days it’s no more a pleasant

surprise almost all leading companies offer finance which works as an

incentive for the buyers. Augmented product adds cost and soon

becomes expected product. Bajaj Auto Finance Ltd (BAFL), a group

company of Bajaj Auto Ltd is one of the biggest retail financing

companies in the country today.

2. Price

Pricing is an important part of the marketing strategy. The

consumers demand quality products at low prices which is as good

as a tightrope walk for manufacturer as he needs to control the cost

in order to reduce price but at the same time also maintain goodquality.

The basic price-deciding factor in any product is the cost. At Bajaj

also the cost factor is taken into consideration while deciding the

prices for the products. So now we have more and more products

trying to find space in the market, which makes them, take every

possible step to eat into each others share. For products like Two-wheeler the positioning of the product as well the price of the

product is quite important.

51



Motorcycles

Chetak – 4 Stroke 39,485

Spirit 29,301

CT 100 40,083

Caliber 115 46,062

Wind 125 51,042

Pulsar 150 KS 57,386

Pulsar 150 SS 61,312

Pulsar 180 SS 65,840

52









Eliminator 95,602

3. Place

Bajaj has a very wide spread dealer network of 219 dealers across

the country and abroad which provide excellent customer service.

The company has been operating in the two-wheeler industry since

decades and enjoys a favorable logistics position. Considering thatthe industry demands a good availability of service stations Bajaj

definitely has a distinct edge over its competitors due to the

presence of a widespread dealer and service station network in the

remotest region of India.

Dealer Preparedness

The company must ensure that the dealers are well aware of the

product when it is launched and the dealers are equipped to provide

the after sales services as well. There is a general complain from the

dealers that by the time they come to know of a product in totality,

53



the company launches a new product. So to ensure that no such

complaints arise the dealers must be asked to do a prior homework.

With the launch of products with new technologies, proper training

must also be imparted to the employees at the dealerships.

4. Promotion

Bajaj Auto is an aggressive advertiser. The advertising Budget of

Bajaj Auto is more than Rs.100 Crore. Bajaj has a distinct style of

promoting its products, for every product launched there’s a new

and fresh advertising strategy, developing the firm-positioningplatform.

One of the successful campaigns from the Bajaj has been the

commercial for the launch of Bajaj pulsar.

Bajaj Pulsar

54



Chatting merrily, three girls

walk by a line of motorbikes.

One's dupatta skims over the

bikes and then gets stuck...

...making her turn in

consternation. She pulls it away

slowly to reveal...

... The logo, "Pulsar". MVO: Bajaj

Pulsar, definitely male

Market Segmentation rather than Product

Differentiation

Over the past two years, the 100cc economy segment has taken off,

as Bajaj introduced low priced motorcycles. The economy segment’s

share of the total motorcycle market has ballooned to 31% from about

20% three years ago. The 100cc executive segment continues to

dominate the motorcycle market-it forms about 56% of the total

motorcycle sales. The premium segment 125cc+ is small at 13% of

the total market. However, this premium segment is expected to be

the future growth driver.

It can be clearly seen that an attempt has been made by all the

motorcycle producing companies to lure the customers to buy their

55



bikes in the entry level segment with one of the long term objectives

to gain their loyalty towards the company so as when these customers

tend to shift towards higher segments they prefer their brands again.

Management Information System

Bajaj - The IT Effect

In the dynamic environment within which all organization has to

function IT certainly has started playing a vital role. Indian

organizations are no exception to this. IT planning and implementation

in such a changing environment has become a challenging task.

However, right from the beginning the IT strategy has been to focus

on the current business needs and to use the available technology to

help in achieving the business objectives at that time.

This resulted in a 4-phase implementation:

56



Phase I - started with use of computers in accounting.

Phase II - the focus changed to manufacturing. Online computers

were used during this phased to help in achieving production targets,

improving men and machine productivity, improving quality and

reducing costs which were the major issues at a time when the

company was in the sellers market.

Phase III - in this phase Bajaj auto used the exploding technology in

the areas of CAD/CAM, Networking and Communications and Office

automation in the strategic areas of marketing and engineering.

Marketing and dealership computerization was brought into effect.

Phase IV- in this phase Bajaj auto used SAP. The my SAP Enterprise

Portal will cover 100 sales field employees, 350 dealers in the first

phase and the remaining will be covered in second phase. The dealer

portal, in addition to operating information, provides access tounstructured information like news items, new product releases, new

product introduction, dealer discussion groups, internal market-place,

etc.

57



SWOT Analysis

Strength:

Technical expertise, in collaboration with Kawasaki Heavy

Industries, Japan.

Worlds lowest cost manufactures in the market.

Extensive service and dealer networks.

Higher labour productivity and greater automation.

Global-scale production.

58



Hero Honda's switch start automatic transmission 100cc scooter.

Competition from MNC's.

Government regulations.

Dealers not adjusted with changing realities.

Change in tastes of consumers.

Increase of secondary or resale market for two-wheelers.

International Marketing

Based on our own brand of globalization, we have built our distribution

network over 60 countries worldwide and multiplied our exports from

1% of total turnover in Fiscal 1989-90 to over 5% in Fiscal 1996-97.

The countries where our products have a large market are USA,

Argentina, Colombia, Peru, Bangladesh, Sri Lanka, Italy, Sweden,

Germany, Iran and Egypt. Bajaj leads Colombia with 65% of the

scooter market, in Uruguay with 30% of the motorcycle market and in

Bangladesh with 95% of the three-wheeler market.

60



Several new models are being developed specifically for global markets

and with these we will progressively endeavor to establish our

presence in Europe too.

In countries where we perceive a good market potential, we seek a tie

up with one of the major industrial establishments, which would be in

a position to invest in the project and which would also entail

manufacturing activities apart from marketing, distribution and after

sales services through a well-established nation-wide network.

We offer a full range of services to such business partners:

Training in sales, service and spare parts management based on

the Bajaj distribution system.

Active supports for setting up manufacturing facilities overseas

including transfer of technical know how.

61



Assistance in setting up an assembly plant for assembly of

vehicles from complete knocked down (CKD) kits.

Select machinery and equipment, training of technical personnel,

all in a phased manner as required by the regulations in the

recipient country.

Production and Operation Research

R&D Objectives and Set-up

62



The objective of Bajaj Auto's R&D is to contribute towards making life

a better experience for society as a whole. At Bajaj Auto, we intend to

achieve this objective by giving priority to environmental concerns,

which include minimizing toxic emissions and optimizing the use of

natural resources while also keeping in mind the exact requirements of

the customers in a fast changing world racing towards modernization.

We intend to use R&D not only to develop products better and faster,

but to also evolve technologies that are eco-friendly, more fuel-

efficient and cost effective.

Our strength in R&D comprises 500 dedicated professionals who workas team members on a platform concept. These platforms comprise of

engineers skilled in product engineering, manufacturing engineering,

component development, project management and quality assurance.

The primary objective of these platforms is to develop newer, better,

more efficient and less polluting vehicles for both the Indian and

International market.

Our foreign technology partners, like Kawasaki, Kubota and Tokyo

R&D, collaborate closely with the platform teams, with transfer of the

latest technology and R&D assistance. Our designs are also subjected

to an exacting and critical assessment from our technology partners.

63



Total Quality Management

The core competency of Bajaj Auto lies in the quality provided to the

customers.

At Bajaj, they are committed to high quality standards with a motive

for productivity behind it. They believe that poor quality is the greatest

productivity deterrent of all.

The constant drive for perfection and the single-minded pursuit of

excellence of the employees makes Bajaj one of the largest

manufacturers of two and three-wheelers and gives it the resilience to

64



take on competition from the world's biggest players. This

commitment starts with the top management and extends to every

worker on the shop floor.

The phenomenal growth in volumes, profitability and market share,

year after year, has been possible only because every aspect of the

operations is managed to perfection through effective management

systems, HRD initiatives and quality assurance and control.

At Bajaj, products are more than just a process output. They are an

expression of creative and innovative energies, in which technology

plays a passionate role. And in the midst of all this, Bajaj has never

lost sight of the human factor. Acutely tuned to lifestyles and social

conditions, Bajaj engineers are trained to develop products that

precisely match consumer needs.

The Process:

The process of achieving such high levels of quality begins at the

product development stage itself and continues right up to the time

the vehicle stands gleaming in a dealer showroom.

65



During the elaborate development procedure, prototypes over three

different stages are subjected to a battery of laboratory and field tests.

Besides supervising the pre-production process, Quality Assurance lays

down norms for their vendor force.

The close interaction ensures that agreed quality levels are unfailingly

maintained on the shop floor, mistakes are not rectified- they are

prevented. Cell members conduct a scrupulous self-inspection of

components while Quality Control experts measure and improve

manufacturing processes, through the application of statistical tools.

Every engine and transmission assembly, and finally every vehicle

goes through a series of static and dynamic product verification checks

by 'Quality Control' before clearance for dispatch to the dealers.

The process of quality control is extended to its dealerships and sales

and service outlets, where every dealer conducts an extensive pre-delivery inspection before a vehicle is delivered to a customer.

Workshops are manned by skilled company-trained mechanics and

equipped with appropriate tools, testing facilities and adequate stocks

of spare parts.

The determined effort to optimize employee output has led to the

adoption of the unique V1-V10 system of cellular manufacture. Thismodel calls for a continuous minimization of all inputs - space, men,

material, and equipment - to achieve the same level of output.

Results:

66



Results have been creditable. Manpower productivity measured in

terms of number of vehicle per man-year has grown by 88% in this

decade alone. More significantly, the increase in capacity at Bajaj in

recent years has been largely due to a surge in productivity rather

than a rise in investment.

Quality Management:

ISO 9002 Certificate awarded by the Bureau Veritas Quality

International (BVQI), to the Moped and Motorcycle Division of the

Company at Waluj, Aurangabad, in December 1994.

ISO 14001 Certificate awarded by the Bureau Veritas Quality

International (BVQI) to the Company's Plant at Waluj, Aurangabad, in

August 1997.

Current Strategies Suggested

Bajaj auto must come out with new models in 2 and 3-wheeler

segment to sustain its market share in the comparative domestic

market.

Bajaj auto should tighten up the supply chain mechanism and

gearing up of the distribution system. It is advised also Bajaj

auto to take steps for cutting costs, especially overheadsincluding salaries.

67



It should increase focus on its 5 different products- scooters,

motorcycles, step- thru scooters, scooterettes & 3 wheelers-from

productions to dealer’s front.

Bajaj should strengthen its marketing and sales department by

creating a separate team for different products in the coming

months.

Stung by the declining scooter sales, Bajaj auto should

undertake a portfolio re-shuffles exercise by which the

motorcycles division will be main growth vehicle of the company.

It should gear up towards improving its productivity levels and

they should be able to double the output with the current

workforce.

There is a need for greater decentralization at the plant level to

ensure that each worker adds value. In a bid to cut costs, the company should work towards in

pushing up indigenization for its 2-wheeler models and reduce

waste at the factory level. It should also work in tandem with

vendors to identify for bringing down the cost at the latter's end.

Bajaj auto has started a component procurement and product

development restructuring exercise called 'Scorpio'. This willreduce the company's inventory levels and cut the vendor base

by half.

68



Cost/Price Monitoring

Bajaj should concentrate more at reducing the costs and thereby

translate this in the price of the vehicle. The cost if controlled shallhelp it in competing against competitions. Bajaj is about to launch its

chopper style Eliminator motorcycle. It has been successful to a

certain extent in reducing the costs at its Akrudi pant, and this needs

to be done for the Waluj plant as well.

Technological Up-Gradation

Bajaj should plan to upgrade its technical performance with a

manufacturer who has the desired expertise and the technology for

making the power bikes. New players like Kinetic Engineering and

Kanpur based LML are coming into the picture and the competition is

bound to increase. In such a scenario the company should be proactive

rather than being reactive.

69



HERO HONDA GROUP

Profile of the Company

"Hero", the brand name symbolizing the steely ambition of the Munjal

brothers, came into being in the year 1956. From a modest

manufacturer of bicycle components in the early 1940's to the world's

largest bicycle manufacturer today, the odyssey was fueled by one

vision - to build long-lasting relationships with everyone, including

workers, dealers and vendors. This philosophy has paid rich dividends

through the years.

70



Management

Chairman Mr. Brijmohan Lall Munjal

Managing Director Mr. Pawan Munjal

Joint Managing Director Mr. Akio Kazausa

Director Mr. Shinichi Nakayama

Director Mr. Satyanand Munjal

Director Mr. Om Prakash Munjal

Director Mr. M P Wadhawan

Director Mr. S P Virmani

Director Mr. O P Gupta

Director Mr. M. Sudo

Director Mr. S Toshida

Director Mr. N N Vohara

Director Mr. Pradeep Dinodia

Director Gen. (Retd.) V P Malik

Consolidated Family Business

The Hero Group is a strong family business - there is no other Group

that has so successfully managed to stay together for over 40 years.

The system is to bring in any new family member, coming of age,

71



within the fold of the existing business or set him up in a new

business. The third generation is already actively involved in existing

as well as the new initiatives within the Group. The second and the

third generations of the family, aided by workers who typify the hardy

spirit of the Punjab, are consolidating the Group’s future with the same

zeal.

Hero, a name synonymous with two wheelers in India is today a multi-

unit, multi-product, geographically diversified Group of companies.

Through fully integrated operations, the Munjals roll their own steel,

make critical components such as free wheels for their bicycles, and

have the foresight to simultaneously diversify into myriad ventures,

like product designing, IT enabled services, finance and insurance, just

to name a few.

Like every success story, Hero's saga contains an element of spirit and

enterprise; of achievement through grit and determination, coupled

with vision and meticulous planning. Throughout its success trail, theHero Group and its members have displayed unwavering passion of

setting higher standards for themselves and delivering simply the best

to their customers.

The Hero Group philosophy is: "To provide excellent transportation tothe common man at easily affordable prices and to provide total

satisfaction in all its spheres of activity." Thus apart from being

customer-centric, the Hero Group also provides its employees with a

72



fine quality of life and its business associates with a total sense of

belonging.

"Engineering Satisfaction" is the prime motive of the Hero Group and it

has become a way of life and a part of the work culture of the Group.

This is what drives the Group to seek newer vistas, adopt faster

technology and create quality driven products to the utmost

satisfaction of customers, partners, dealers and vendors.

Today the Hero Group has a number of accolades and achievements to

its credit, yet consumer requirements and newer technologies provide

fresh challenges every day and at Hero the wheels of progress

continue to turn.

Glorious History

The Legend of Hero Honda

73



What started out as a Joint Venture between Hero Group, the world's

largest bicycle manufacturers and the Honda Motor Company of Japan,

has today become the World's single largest two wheeler Company.

Started with the initial investment of Rs.55 crores, it came into

existence on January 19, 1984. Hero Honda Motors Limited gave India

nothing less than a revolution on two - wheels, made even more

famous by the 'Fill it - Shut it - Forget it ' campaign. Driven by the

trust of over 5 million customers, the Hero Honda product range today

commands a market share of 50% making it a veritable giant in the

industry. Add to that technological excellence, an expansive dealer

network, and reliable after sales service and you have one of the most

customer- friendly companies.

This is proved by the company's sales over the years

1985-86 43,000 units

1989-90 96,200 units

1998-99 5, 30,600 units1999-00 7, 61,210 units

2000-01 10, 29,555 units

2001-02 14, 25,195 units

2002-03 16, 77,537 units

2003-04 20, 70,147 units

Mission Statement

We at Hero Honda are continuously striving for synergy between

technology, systems, and human resources to provide products and

74



services that meet the quality, performance and price aspirations of

the customers. While doing so we maintain the highest standards of

ethics and societal responsibilities. Constantly innovate products and

processes, and develop teams that keep the momentum going to take

the company to excellence in the new millennium.

It’s Vision

It’s our mission to strive for synergy between technology, systems and

human resources, to produce products and services."

Brij Mohan Lall Munjal - Chairman Hero Group.

Achievements and Awards

1990:

Pegasus Award from Readers Digest for campaigning 'One Litre

Road'.

75



1991:

Economic Times-Harvard Business School Award for Excellent

Governance to Hero Honda Motors Ltd.

Hero Honda moved into India's Top 100 Companies - Ranked 87.

1992

Honorary Membership - Indian Institution of Industrial

Engineering.

1994:

The Businessman of the Year award is conferred upon the

Chairman, Mr. Brijmohan Lall Munjal - by Business India Group

of Publications.

1995:

National Award for Outstanding contribution to the Developmentof Indian Small Scale Industry (NSIC Award - Presented by

President of India).

The Analyst Award 1995 presented to Hero Honda Motors

Limited on being ranked 9th amongst the most investor

rewarding Companies in India.

1996:

Hero Honda becomes first company to server Army, Navy & Air

Force with its 100cc motorcycles.

1997:

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Distinguished Entrepreneurship Award conferred upon the

Chairman Mr. Brijmohan Lall Munjal by, PHD Chamber of

Commerce & industry.

1998:

Business Leader of the Year conferred upon the Chairman, Mr.

Brijmohan Lall Munjal, by Business Baron.

1999:

Best Productivity Award for the best performance in Automobile

& Tractor Sector by National Productivity Council presented byVice President of India.

2000:

Splendor declared World No. 1 - largest selling single two-

wheeler model.

Sir Jehangir Ghandy Medal for Industrial Peace conferred uponthe Chairman, Mr. Brijmohan Lall Munjal, by XLRI, Jamshedpur.

2001: Bike Maker of the Year, by Overdrive Magazine.

Winner of the Review 200 - Asia's Leading Companies Award

(9th Rank amongst top 10 Indian Companies).

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Entrepreneur of the Year Award conferred upon the Chairman,

Mr. Brijmohan Lall Munjal, by Ernst & Young.

Three Leaves Award for Environment to Hero Honda by Centre

for Social & Environment Green Rating Project.

2002:

Bike Maker of the Year, by Overdrive Magazine.

Winner of the Review 200 - Asia’s Leading Companies Award(4th Rank amongst top 10 Indian Companies)

Entrepreneur of the Year Award conferred upon on the

Chairman, Mr. Brijmohan Lall Munjal, by Business Standard.

Company of the Year for Corporate Excellence, by the Economic

Times.

Giants International Award to the Chairman, Mr. Brijmohan Lall

Munjal, in the field of Business & Industry.

Business Leadership Award conferred upon on the Chairman, Mr.

Brijmohan Lall Munjal, by Madras Management Association.

2003: Winner of the Review 200 - Asia's Leading Companies Award

(3rd Rank amongst the top 10 Indian Companies).

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Most Respected Company in Automobile Sector, by Business

World.

Bike Maker of the Year by Overdrive Magazine.

Areas of Management

Hero Group > Growth Models

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The Hero Group has done business differently right from the start and

that is what has helped them to achieve break-through in the

competitive two-wheeler market. The Group's low key, but focused,

style of management has earned the company plaudits amidst

investors, employees, vendors and dealers, as also worldwide

recognition.

The growth of the Group through the years has been influenced by a

number of factors:

Inventory Control

The Hero Group through the Hero Cycles Division was the first tointroduce the concept of just-in-time inventory. The Group boasts of

superb operational efficiencies. Every assembly line worker operates

two machines simultaneously to save time and improve productivity.

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The fact that most of the machines are either developed or fabricated

in-house, has resulted in low inventory levels.

Purchase Policy

80% of the components in the manufacturing of a bike today are

outsourced to the vendors. Those vendors are located in the vicinity of

the plants and company is moving towards full employment of “Just In

Time” policy wherein the components arrive, just before they are

required to be installed on the bikes, resulting in substantial savings in

terms of inventory costs. Most vendors supply the components & HHML shares a very nice relationship with the vendors.

In Hero Cycles Limited, the just-in-time inventory principle has been

working since the beginning of production in the unit and is functional

even till date. The raw material vendors bring in the goods get paid

instantly and by the end of the day the finished product is rolled out of

the factory. This is the Japanese style of production and in India; Herois probably the only company to have mastered the art of the just-in-

time inventory principle.

Ancillarisation

An integral part of the Group strategy of doing business differently was

providing support to ancillary units. There are over 300 ancillary units

81



today, whose production is dedicated to Hero's requirements and also

a large number of other vendors, which include some of the better-

known companies in the automotive segment.

The Munjals have gone much beyond the conventional definition of

ancillarisation, making it a point to extend technical and managerial

support to these ancillaries. These ancillary units are manned by

friends, relatives, ex-employees or close associates of the Munjal

family since the Group patriarch, Mr. Brijmohan Lall, "… never wanted

to march alone."

Employee Policy

Another Striking feature within the Hero Group is the commitment and

dedication of its workers. At Hero Cycles Limited, the flagship unit of

the Group it is claimed that except for a few days during Operation

Bluestar, the plant has never had any stoppage of work. There is no

organized labour union and family members of employees find readyemployment within Hero. The philosophy with regard to labour

management is "Hero is growing, grow with Hero."

When it comes to workers' benefits, the Hero Group is known for

providing facilities, further ahead of the industry norms. Long before

other companies did so, Hero was giving its employees a uniform

allowance, as well as House Rent Allowance (HRA) and Leave Travel

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Allowance (LTA). Extra benefits took the form of medical check-ups,

not just for workers, but also for the immediate family members.

Financial Planning

The Hero Group benefits from the Group Chairman's financial acumen

and his grasp on technology, manufacturing and marketing. Group

Company, Hero Cycles Limited has one of the highest labour

productivity rates in the world. In Hero Honda Motors Limited, the

focus is on financial and raw material management and a low

employee turnover.

Diversification

Throughout the years of mammoth growth, the Group Chairman, Mr.

Lall has actively looked at diversification. A significant level of

backward integration in its manufacturing activities has been

substantial in the Group's growth and led to the establishment of the

Hero Cycles Cold Rolling Division, Munjal and Sunbeam Castings,

Munjal Auto Components and Munjal Showa Limited amongst other

component-manufacturing units.

Then there were the expansion into the automotive segment with the

setting up of Majestic Auto Limited, where the first indigenously

designed moped, Hero Majestic, went into commercial production in

1978. Then came Hero Motors that introduced Hero Puch, in

collaboration with global technology leader Steyr Daimler Puch of

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Austria. Hero Honda Motors was established in 1984 to manufacture

100 cc motorcycles.

The Munjals also took a foray into other segments like exports,

financial services, information technology, which includes customer

response services and software development. Further expansion is

expected in the areas of Insurance and Telecommunication.

In Conclusion

The Hero Group's phenomenal growth is the result of constantinnovations, a close watch on costs and the dynamic leadership of the

Group Chairman, characterized by an ethos of entrepreneurship, of

right attitudes and building stronger relationships with investors,

partners, vendors and dealers and customers.

Marketing P’s

A. Product & Price:

Hero Honda

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CD 100 42,616

CD 100 SS 43,218

Splendor 45,778

Splendor (Disc) 48,741

CBZ (Disc) 59,225

CBZ (Self) 65,193

CD Dawn 35,217

Karizma 76,219

Ambition (Disc) 56,793

Ambition (Drum) 53,580

Ambition 135 (Drum) 50,170

Ambition 135 (Drum – Self) 53,580

Splendor + (Disc) 49,034

Splendor + (Drum) 46,352

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Passion + (Disc) 50,883

Passion + (Drum) 47,931

CBZ Star 59,196

Hero Motors

Smart 23,256

Sting 26,615

E Zee SX 27,407

Product Range and New Models

The Company's product range includes "Splendor" which is the largest

selling motorcycle brand in the world with over 6.9 lakhs vehicles sold

86



in 2000-01. A cumulative over 5 million customers are the real

foundation of the company's strength.

The identity of Hero Motors in the market has been established

through two of its leading international products - Hero Puch and Hero

Winner. When Hero Motors entered into a technical collaboration with

Steyr Daimler Puch of Austria, Hero Puch was born which marked a

new chapter in the two-wheeler scenario of the country. Hero Puch,

the mini-motorcycle designed by Ferdinand Porsche combined the

power (4.15 bhp) and ease of a motorcycle and at 91 km/hr, the

economy of a moped.

B. Place

Dealer Network

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At Hero essentially they have a completely customer-driven

approach. A nation-wide dealer network comprising of over 3,500

bicycle dealers, 350 dealers for mopeds and 225 franchise holders

for motorcycles, ensures convenient access to the Group's products

across the country.

Strong dealer company relationship with a deep sense of belonging

to the Hero fraternity, the Group's dealer network has catalyzed

growth and acted as a strong bridge between the customers and

the Group.

Sales agents from Hero travels to all the corners of the country,

visiting dealers and send back daily postcards with information on

the stock position that day, turnover, fresh purchases, anticipated

demand and also competitor action in the region.

There are more than 1000 committed dealers & service outlets

spread across the country. The authorized workshop have well laidout standards for motorcycle servicing supported by fully equipped

infrastructure in terms of quality precision instruments, pneumatic

tools & a team of highly trained service technicians. Having your

motorcycle serviced at an authorized workshop ensures highest

standards of service quality and reliability.

C. Promotion

HHML is an organization, which is known for its innovative &

Aggressive Marketing. Rs.120 crores was the Annual budget for

88



market for the financial year 2002-2003. All the mediums are used

extensively, be it print or mass media like T.V & hoardings.

HHML also promotes sports in the country. It is also the sponsor of

the ICC world Cup 2003 and half of the Indian team represents

Hero Honda. Those players are Virender Sehwag, Mohammad Kaif,

Yuvraj Singh, Harbhajan Singh, Zaheer Khan and Sourav Ganguly

as Brand Ambassadors. Superstar Hrithik Roshan is also a Brand

Ambassador for Hero Honda Company. They will endorse the

company products, attend corporate and brand events and help

promote its "We Care" campaign comprising safety riding,

environment and friendliness Also, advertising is done at a local

level by dealers, in which HHML also contributes to help dealer

promote the dealership in the local area.

HHML has print ads that the customer gets to see almost every day

in newspapers, magazines, etc. This has increased the brand recall

by a significant number. They also have their bikes featured invarious TV programs like top drive on star news and others which

act as a strong reference.

Some of the Events Sponsored During the Years

1993

Hero Cup – Five Nation Cricket Tournament.

89



1999

Masters Golf Championship.

7th Cricket World Cup in England.

2000

NKP Salve Challenger Trophy.

Stardust Hero Honda Millennium Honors Award.


20th Cinema Express Award.

2002

India-England Women's Cricket Series.


Second Indian Television Academy Award.

21st Cinema Express Award.

India-England Test Series.

First Indian Television Academy Award.

2003

8th Cricket World Cup in South Africa.

2004

ICC Champions Trophy in England.

Brand Ambassadors

90



91



The Number Game

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Hero is one of the few vehicle brands that, despite the fluctuations,

have never managed to go out of the A&M Top Brands Survey. This is

probably because of its envious high-sales record in the two-wheeler

market. But its popularity (in terms of brand awareness and recall)

does seem to be facing a somewhat downward trend. Hero in 1992

had a rank of 40 and a power score of 26. This, needless to say, has

been Hero's highest rank and power score till date. At that time, Hero

had a higher ranking than its main competitor in the bicycles market,

Atlas, in the main earners and young adults segment. Its worst

performance was amongst housewives.

In the early 1990s, Hero had started an aggressive rural-oriented

campaign for its motorcycles, in order to break into the rural market.

The creative route taken by the group was by taking parallels from

popular Hindi movies to deliver the intended message. The campaign

generated high interest and the strategy did work, as demand and

brand acceptability picked up in rural areas.

But unfortunately, that was at the cost of popularity in urban areas.

The year 1993, saw the brand's ranking fall nine places to 49. Brand

preference was stronger amongst rural consumers than urban ones

and amongst lower-income-groups than the higher-income earning

segment.

The years 1994 and 1995 saw an increase in ranking with the rank

increasing to 44 and then to 42. Its best performance across segments

93



was amongst young adults, the main-earning segment and in the

Hindi-speaking regions. Hero's performance in the urban segment also

improved due to the launch of new models.

Suddenly, in 1996, the brand suffered a huge fall of 14 places to land

at rank 56. Hero was doing badly in almost every segment and Waking

up to this sudden dip in popularity, Hero started with a new

advertising campaign.

And by 1997, the brands ranking has picked amongst housewives,

young males and the western and southern regions, thus increasing its

overall ranking to 45. The next year, 1998, saw only a minute

decrease in ranking with the rank falling one place to 46. But a

worrisome trend emerged. Hero has lost scores in around 12 segments

out of 14.

Hero Honda was still the largest selling motorcycle company but other

companies such as TVS, Bajaj and Yamaha had started to catch up.This led to Hero's rank decreasing to a low of 54 in 1999. Its

performance in urban areas had dragged it down a few notches.

A Company Par Excellence

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A rich background of manufacturing high value, reasonably priced

products, an uncompromising pursuit of the goals to attain quality

along with customer satisfaction, the resulting affinity in working

cultures - brought the world's largest manufacturer of motorcycles in

collaboration with the world's largest bicycle manufacturer, bringing

forth a market leader. Honda Motor Company of Japan and the Hero

Group entered a joint venture to setup Hero Honda Motors Limited in

1984.

The Market Leader

Today Hero Honda has managed to achieve indigenization of over 95

percent, a Honda record worldwide. Hero Honda is at present the

largest-selling Indian motorcycle and the most fuel-efficient in its

category - the outcome of Hero Group's foresight and another classic

example of how the group strives to provide the customer with

excellence and satisfaction.

Hero Honda became the first company in the country to introduce

four-stroke motorcycles and set the standards for fuel efficiency,

pollution control and quality. It has a production capacity of 1.2 million

motorcycles, which shall be enhanced to 1.5 million motorcycles in the

coming years. It has an excellent distribution and service network

spread throughout the country. Hero Honda is the market leader in

motorcycles, with sales of over Two million motorcycles in last yearand a strong market share of 50%.

Customer-centric

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The Company's success has been driven by customer centric policies

and teamwork to achieve progress and productivity. The philosophy of

Hero Honda emphasizes the "Pursuit of Excellence" in designing and

manufacturing technologically and qualitatively superior products and

in creating economic value for its stakeholders. It takes care of its

customers through value based competitive pricing and good after

sales service.

Excellent marketing, finance and loan services, an efficient dealer

network, tactical promotion comprising of fuel conservation

campaigns, mobile workshops, safety driving courses and others, all

placed Hero Honda in a league distinct from the conventional. The

Company focuses on providing "Value for Money" through its pricing

strategies and after sales services.

Excellent Collaborator Relationship

Hero Honda is now the leading two-wheeler Company in India in termsof net sales. It is both the leading two wheeler manufacturer and sales

operation among Honda's worldwide operations. The Company has

maintained excellent relationship with all stakeholders including its

collaborators. Hero Honda has emerged as the most successful joint

venture Company of Honda in the world, their relationship over 116

years old now.

ERP Implementation

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The Company has successfully implemented SAP R/3 (ERP Program -

"Project Synergy") thereby enabling proper planning and company

wide efficiency. The modules were implemented and stabilized in a

record 10 months period. It speaks of the commitment of the

management and the implementation team towards making it

processes accountable and efficient.

Exports

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HERO CYCLES

HERO HONDA

HERO PUCH

HERO CORPORATE SERVICES

MUNJAL SHOWA LIMITED

As early as in the 1960s' very few Indian bicycle manufacturers were

interested in exports. However, the Hero Group's foray into the

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overseas markets in 1963 pioneered Indian exports in the bicycle

segment. It was a move prompted essentially by the need to remain

attuned to the global market place.

While initial exports were restricted to Africa and the Middle East,

today more than 50 percent of the exports from Hero Cycles Limited

meet the demands of sophisticated markets in Europe and America.

This is primarily because of appropriate product development and

excellent quality that Hero offers.

The Group has been continuously upgrading technology and has set up

special units - like Gujarat Cycles Limited (now Munjal Auto Industries

Limited), to meet international quality standards. Munjal Auto

Industries Limited has state-of-the-art equipments imported from

Europe and Taiwan. The unit is designed to match international

standards and is an Export Oriented Unit (EOU). Its products are

supplied to the International Markets of developed countries like U.K,

Germany, France, etc.

The Group's exports have gone beyond cycles and their components.

The success of the Hero Majestic moped did not remain confined to

Indian shores. Finding enthusiastic buyers across the world, it became

the largest exported moped from India.

Hero Puch is perhaps the first Indian two-wheeler to be homologated

abroad (in Spain) and has assembly plants in Mauritius and Egypt.

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Today Hero Puch mini-motorcycles can also be seen in Paraguay,

Mexico, Argentina, Turkey and Holland.

Group Company, Munjal Showa Limited is one of the largest suppliers

of shock absorbers to major auto giants in Japan, United States and

the United Kingdom, amongst other developed markets.

In 1993 Hero Exports was established as the International Trading

Division for Group and non-Group products. The Government of India

recognizes Hero Exports as a Trading House.

And the latest diversification for the Group in the export market is in

the area of Software exports and the development of overseas

relationships in the domain of IT and IT enabled services through Hero

Corporate Services Limited.

FUTURE OUTLOOK OF TWO-WHEELER SECTOR

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The dynamics of the Indian two-wheeler industry has changed

significantly over the last six years. There is a continuation of shift in

demand towards motorcycles from geared scooters. In absolute terms,

total industry volumes in Financial Year 2002 were 4.3 m units. As is

evident from the graph below, motorcycles have got a lion’s share in a

matter of just six years (66% of total two-wheeler sector volumes or

2.9 m units in FY02).

YearAll Two-

wheelersMotorcycles

Ungeared

scooters

Geared

ScootersMopeds

Step-

thrus

1995 2208231 23.9% 8.6% 42.6% 15.1% 9.8%

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1996 2660005 24.8% 9.1% 40.6% 16.8% 8.7%

1997 2965474 27.1% 8.9% 38.4% 16.5% 9.1%

1998 3042347 30.0% 8.8% 35.4% 15.5% 10.3%

1999 3403471 34.6% 8.3% 32.7% 14.6% 9.8%

2000 3776719 42.7% 10.0% 25.9% 14.1% 7.3%

2001 3745516 54.1% 10.9% 16.0% 12.9% 6.1%

2002 4318531 66.2% 9.5% 12.3% 8.7% 3.3%

2003 5053562 74.4% 10.5% 6.7% 6.2% 2.2%

The factors that have prompted the change are:

Affordability. This comes in two forms.

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Firstly, in 1996, the top selling models were Hero Honda’s ‘CD 100’

and ‘Splendor’, ‘Kawasaki Bajaj’ and TVS Max-100 R with an

average entry-level model starting with prices above Rs. 36, 000

per unit. But with the advent of competition, this had declined with

entry level of Bajaj’s ‘Boxer’ available at less than Rs. 30,000 per

unit. Eventually, the price difference between a ‘boxy’ geared

scooter and a ‘sleek-cum-trendier’ motorcycle had narrowed. This

had also aided the shift in demand.

Secondly, the consistent fall in interest rates has also benefited the

industry immensely. In an analyst meet of TVS Motors in mid 2002,

the company said that, as much as 40% of its motorcycle sales are

financed. It will be safe to assume higher numbers for the industry

as well. Just to put things in perspective, in absolute terms, two-

wheelers bought through vehicle financing stands at around 1.7

million units.

Rising double income families and urbanization, have also

led the change in consumer preference. For quantification

purpose, the NCAER estimate suggests that the consuming class

as a percentage of total households in India in financial year

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1995 was 29 million (17%). NCAER expects the mix to change

considerably with the consuming class expected to touch 91

million households in financial year 2007 (46%). This has also

been a driving factor for the industry in the last few years.

The graph below, which shows the correlation between GDP and the

two-wheeler sector, highlights this significance. But over the longer-

term horizon of 3-5 years, we remain positive on the sector.

Growth in volumes will take place due to the following

factors:

104



Increasing contribution from the services sector.

Urbanization.

Double income families.

Improving road connectivity, which could unlock significant value

from the rural markets.

Continuing poor public transport system.

Declining interest rates.

Wider availability of finance.

Decreasing product life cycles.

Increasing percentage of young population.

Apart from motorcycle segment, ungeared scooter manufacturers will

also see a sustained rise in volumes. Honda’s launch of ‘Dio’ and

Kinetic’s ‘Nova’, are both launches in the ungeared scooter segment.

Bajaj Auto and TVS expect the decline in geared scooter and moped

sales to stabilize in the near future.

Which company will benefit in the future?

105



As far as the motorcycle segment is concerned, Hero Honda, TVS

Motor and Bajaj Auto seem to be well poised to capitalize on the

growth opportunity purely due to a wider distribution network and an

impressive new model launch.

Hero Honda

Hero Honda Motors Limited (HHML) is a, 26:26 joint venture between

the Hero group and Japanese major, Honda Motor Co. The remaining

stake is in the hands of financial institutions and the public. The

company has earned the distinction of being the world’s largestindividual motorcycle-making company.

The volumes of HHML have been growing at 40% p.a. over the last

five years. It generates a return of over 50% on its capital employed in the business.

Hero Honda is operating on a negative working capital since Financial Year 1996.

Hero Honda has a 50% share of the motorcycles segment.

Hero Honda sold over one million motorcycles last year. It has

achieved sales of more than 2 millions in the last FY.

Hero Honda's brand equity, its distribution network, efficient

operations, quality products coupled with continuous product

introductions shall spruce up the sales. Passion is already selling more than

15,000 vehicles a month.

Hero Honda's Splendor is already the world's largest selling two-wheeler . It has been leading

the world since 3 consecutive years. Hero Honda’s legacy of a solid after sales

service and brand equity will continue to drive volume growth.

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HHML’s success comes from an unprecedented success of its Splendor

model, which now contributes over 65% of sales. Sure CBZ and Street

have clocked decent volumes, but they look pale in comparison with

Splendor. This also raises concerns on the future growth of the

company.

With LML and now BAL coming into their own with newer models, it's

only a matter of time before the Splendors of the world start fading

away. It is strongly believed, that the lack of suitable product offerings

from BAL, TVS and others earlier allowed HHML to dominate and

benefit from the massive shift in consumer preferences from scooters

to motorcycles. The past is history.

BAL with its Caliber has threatened the seemingly unstoppable growth

of Splendor. An upgraded Boxer and introduction of new models like

Eliminator and Pulsar are a clear market segmentation exercise from

BAL, which is already beginning to show results.

HHML being a pure motorcycle company has been working at an

operating spread of around 13%, while operating margins for BAL

stands at less than 7% (excluding other income).

It is also worth noting that the 26% shareholding of the Munjal family

is a joint holding of every fraction of the family and transmission to

any one fraction of the next generation is unlikely to be automatic.

And adding fuel to the entire future of HHML is a growing interest

amongst some family members to foray into IT-enabled services and

107



the likes. Such diversifications would only mean less dedication to the

core business of HHML by the new generation of Munjals.

So, we have some unanswered questions with regards to ownership of HHML in

the future. Will it be Munjal, Honda or a JV or…well, one can only wait to see

how the dice eventually rolls out.

TVS Motor Co

TVS Motor Company Limited, part of the TVS Group, is one of India's

leading two-wheeler manufacturers. With a turnover of over Rs.1800

crores, the Company manufactures a wide range of motorcycles,

108



scooters, mopeds and scooterettes. Little wonder, it boasts of more

than 5 million happy customers.

It has a strong sales and service network of 430 Authorized

Dealerships, 1018 Authorized Service Centers and over 864 Certified

Service Points, TVS is growing from strength to strength.

TVS’s heavy reliance on few models like ‘Victor’, ‘Fiero’ and ‘Scooty’ for

growth and absence of models in the entry level segment would mean

a slower growth in its market share in the medium-term.

The Fiero F2 and Scooty Pep both had been designed to set new

standards in style and performance as also convenience.

LML

LML is one of the leading scooter manufacturers in the country. Two-

wheeler manufacturer LML in June 2003 recorded a six-fold growth on

a year-on-year basis in its motorcycle sales. The company's

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motorcycle sales grew from 2,398 units in June 2002 to 16,781 units

in June 2003, representing a six-fold increase. This phenomenal

growth in motorcycles comes entirely from the Freedom, which was

launched in Uttar Pradesh in July 2002 and progressively in other parts

of India in September-October 2002.

Motorcycle sales, for the first three months of the financial year 2003-

04, stood at 55,259 units compared to 7,278 units in the previous

year. The growth in motorcycle sales comes from Freedom model,

whose total population on road had crossed 1, 80,000 units within a

year of its launch.

In January 2003 the company also introduced the premium version of

the Freedom in select markets, which has also been extremely well

received. This impressive growth signals the company’s turnaround.

LML has decided to brand its new generation primary dealerships as

‘LML Global’. These will showcase all LML scooter and motorcyclemodels in a roomy environment ranging from 1,000 to 2,000 sq.ft. The

showrooms will have tea and coffee vending machines and a

cybercafé.

CONCLUSION

Changing Landscape of the two-wheeler industry

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The two-wheeler industry is passing through a very interesting phase.

Developments such as the entry of more number of players into the

motorcycle market, price discounts offered by producers, monsoon

failure and growing competitive pressure have changed the underlying

basics of the industry.

The impact of these developments is reflected in a change in market

share, a divergent trend in share price and the sharp swing in the

price-earnings multiple.

The year ended March 2002 may not have been particularly good for

the stock market, but not so for two-wheeler stocks. The market's

affinity for two-wheeler stocks - Bajaj Auto, Hero Honda and TVS

Motor is explained by the robust demand for motorcycles.

Suzuki, the global major, which recently severed its ties with TVS

Motor Company, has now decided to set-up manufacturing facilities in

the country. Apart from international companies, there is growingcompetitive pressure from existing domestic producers as well.

LML and Kinetic, whose presence hitherto was confined to the scooter

market, have now entered the motorcycle segment. As a result, the

battle for market share is set to intensify further.

Attractive growth rates in the motorcycle segment, has intensified

competitive activity in the past two years. With product configurations

across players converging, effective sales and marketing skills will

likely determine future success. It is believed that there will be

111



continuity of market growth, a gradual move up in the value change

and a tight leash on costs by industry leaders to effectively counter

sporadic price-led competition.

Motorcycles embody the best features of a two-wheeler such as fuel

efficiency, ruggedness and greater product differentiation. Our

population profile (skewed towards the youth) and a rising service

class tilts the balance in favor of motorcycles.

Currently all the major players in the industry- Hero Honda, Bajaj Auto

and TVS Motors have nearly equal scores in all the competitive

positions, with the rest of the players lagging behind in the run.

Hero Honda had been the first company in the Indian market to have

envisaged the motorcycle market as an opportunity market and

invested wholeheartedly in it. Due to its superior and reliable products

and excellent services reached the number 1 position. It has placed

most of its bikes in the early stages in the Utility segment appealing tothe masses. Its product positioning has also been very good, which

has also attracted other players in the market and driven growth in the

sector. But Hero Honda has surely held the first mover advantage.

Bajaj on the other hand, has been the second mover in the segment.

Realizing the potential of the motorcycle segment it started looking

into it and due to its focus and continued efforts and ability to

understand the market has been able to give Hero Honda a run for its

112



money. It has provided the consumers cheaper and more fuel efficient

bikes, increased product lines and above all has now taken a

substantial market in the Premium segment.

Other players in the market are following suite to both Hero Honda

and Bajaj Auto. TVS Motors and Yamaha have been forced to tow the

line and upgrade their products from two-stroke to four-stroke bikes in

line with the emission norms specified. They could not analyze the

market potential by themselves, thus lag behind.

Bajaj Auto has been the faster of the two since it has come to terms

with the motorcycle market potential. Its new product launches are an

example to this fact as it is launching a product in all the three

segments to garner more volume base and customer loyalty by

providing customers products that provide an alternative as well as

value for money.

Exports now constitute about 4% of total two-wheeler sales. This isexpected to increase to 12% in FY 2005. Kawasaki, Bajaj’s technical

partner, has decided to outsource its sub-200cc motorcycle

requirements from Bajaj. This can be the singular reason for concern

for the other players in the market.

Only Yamaha Motors has the financial muscle and product range to

compete with the three giants Hero Honda, Bajaj and TVS Motors. It

has the technical know-how and good products in international arena.

It has to understand the Indian market and the Indian customer in

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order to have a good product mix in India. It is expected that Yamaha

to make a place for itself in the industry in the next three to four years

by setting up its own subsidiary in India or through a collaboration

with one of the Indian company.

In regards to TVS Motors, it has to launch products in all the three

segments to build in from here. It cannot rely on a single product

Victor to see it through this intense competition. Its ability to launch

new reliable and quality products has decreased due to an end in its

technical collaboration with Suzuki.

I feel in the next two years there will be a change in the segmentation

of the market with newly defined segments in terms of price and

engine capacity. All the three segments will move in an upward

direction in terms of engine capacity.

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Opportunities and Threats for the Industry

114



Motorcycles race ahead

There are no signs of a reversal in the growing consumer

preference for motorcycles to scooters. Riding comfort, better

control and superior mileage have attracted consumers to

motorcycles.

Also, the soft interest rate regime over the last two years has

resulted in a steady drop in lending rates. As a result, the cost of

retail loan has fallen steadily which, in turn, has prompted

consumers to go in for motorcycles, though they are a costlier thanscooters.

In the motorcycle market, the consumer preference has tended to

be skewed in favour of four-stroke models. With petrol prices ruling

firm, it is not all that surprising to find the growing consumer

preference for four-stroke bikes that offer superior mileage.

As a result, two-stroke motorcycles have lost ground heavily in

recent years. Bajaj Auto has practically stopped producing two-

stroke bikes, while other two-stroke producers such as Yamaha and

TVS Motor have also turned to four-stroke models.

After some sharp drop in volumes, TVS Motor found the demand forits two-stroke bikes picking up after it cut prices. This has lured the

Kinetic group and LML. LML launched Energy and Adreno models,

while Kinetic Engineering came up with Challenger.

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Existing majors — Hero Honda and Bajaj — have taken efforts to

enhance their presence in the fast growing four-stroke segment.

With a series of successful launches such as Boxer, Caliber and

Caliber Croma, Bajaj has turned out to be a star performer in terms

of improvement in turnover and increase in market capitalization.

Scooters on a downhill ride

Scooters continue to lose favour at the market place. In the geared

scooter segment, the lack of choice and practically, no major

improvement in product features, design and styling have driven

116



consumers away. Bajaj continues to dominate the geared scooter

market with LML a distant No 2.

In the scooter market, the ungeared models could turn out to be

the dark horse. The ease of usage and relatively lower product

weight make ungeared scooters a popular choice, especially among

women. Moreover, this product segment has seen more product

launches compared to the geared models.

Kinetic Motor launched its Marvel model, while Bajaj came up with

Saffire. Honda Motor of Japan has launched the Activa model

produced by its local subsidiary. In the sub-100cc category, Scooty

continues to be the market leader, while Bajaj (through Spirit) and

Kinetic (through Style) have a presence in this product category.

The recent success of Activa is a pointer that a good product with

different style and design would always find market acceptance.

If the companies manage to come up with more such products,

scooters could stage a comeback in the two-wheeler market.

Mopeds losing out

After growing at a steady pace during the mid-1990s, mopeds

appear to be losing their prominence in the two-wheeler market.

The drop in the price of motorcycle (second-hand bikes, in

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particular) has affected moped demand. Mopeds also appear to be

losing their earlier image of an ideal entry-level vehicle.

This apart, the depressed scenarios in the farm sector and the

pressure on crop realizations have affected demand from the key

rural market segment.

While the moped demand could see a revival, industry leaders feel

that it is unlikely to reach earlier levels. The market leader, TVS

Motor, has decided to launch four-stroke mopeds, which might

revive demand.

New models hold the key

Given this backdrop, it is evident that model launches are critical

for survival and growth. With more models coming up, the related

expenses such as advertisement and other promotional outgo are

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sure to go up. Industry majors have already upped their ad-spends

over the recent years.

Hero Honda and TVS Motor have gone a step ahead by roping in

celebrities as brand ambassadors. Hero Honda has launched an

advertisement featuring Sourav Ganguly and Hrithik Roshan, while

TVS has signed a contract with Sachin Tendulkar. With competitive

pressure on the rise, the companies would raise the load of

promotional activities, which could bring pressure on profit margins.

This apart, the necessity to launch models at regular interval would

also push up development and other related expense such as

technical know-how and royalty payment. The bottom-line is that

the scope for any major expansion in profit margin may be

relatively limited from current levels. The earnings growth would be

driven more by volumes.

Competition on the rise

The growing popularity of motorcycles has resulted in more players

vying for a place in this market. Besides the top three companies,

three others are fighting for a place in the segment. This has

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resulted in the market place becoming crowded with numerous

models.

With more products vying for consumer attention, the product life-

cycle could get shortened. As a result, it would be all the more

imperative for companies to launch models at fairly frequent

intervals. This would be the single-most important factor for

success. This has already been evident in Bajaj's and TVS' recent

performance.

Backed by successful model launches, both have managed to

enhance their market share in the motorcycle market. This, in turn,

has led to an improvement in their financial performance.

After a considerable time, it came up with Passion, which has

enjoyed reasonable success at the market place. Other offerings

such as CBZ and Street enjoyed muted success.

There would be a limited market potential for higher priced

products. But we would be interested in such products as it helps in

developing our technical capabilities though we may not always

make money. The Rs 50,000 mark is probably a serious

psychological barrier. Below this price segment is where there

would be huge volumes.

Porters 5 Forces of Competition

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The state of competition in an industry depends on five basic

forces:

Customers, Suppliers, Potential Entrants, Substitutes & the Industry.

The collective strength of these forces determines the ultimate profit

potential of an industry.

Knowledge of the underlying sources of competitive pressure provides

the groundwork for a strategic agenda of action. They highlight the

critical strengths and weaknesses of the company, animate the

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positioning of the company in its industry, clarify the areas where

strategic change may yield greatest payoff, highlight the places where

industry trends promise to hold the greatest significance as either

opportunities or threats.

Rivalry among existing firms – High

The two-wheeler industry is categorized by intense competition

mainly between the three majors – Bajaj Auto, Hero Honda & T V S

Motor Co. There are also some small players who are gaining

market share such as LML & Kinetic. The industry is constantlywitnessing price-cuts, freebies & product launches.

Threat of Substitute Product – High

The two-wheeler industry faces direct competition from the automobile

sector. With the increase in disposable income & increase in bank

finance people prefer to have cars rather than two wheelers. Thus thedemand for cars affects the demand for two-wheelers. If the demand

for cars falls, the demand for two-wheelers will rise.

Barriers to entry –High

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The barriers to entry & exit are high. The investment required to

compete with these giants would be significant. Thus it is very

difficult for newcomers to enter this sector. The industry

attractiveness is low not due to profit margin but due to intense &

well established competitors.

Bargaining power of suppliers – Poor

The two-wheeler industry, rely on only a few selected vendors.

Thus the bargaining power is poor. Around 60% - 90% of the

product is outsourced thus the suppliers have a direct impact on thecompanies cost & profitability.

Bargaining power of buyers –High

The bargaining power of the buyers is high. There are a variety of

products available to customers to choose from. The customer is

treated “as a king”. The marketers have segmented the market intothree categories namely entry level, executive & premium category.

41 two wheeler industry

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