Project on

TWO WHEELER INDUSTRY IN INDIA

Submitted by: Chintan Shah T.Y.BMS Semester V

Bhavans College Andheri (West)

Submitted to: The University of Mumbai 2004 - 2005

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TABLE OF CONTENTS
Sr.No
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Particulars
Acknowledgement Objectives of the Project Parameters of the project Executive Summary TWO WHEELER INDUSTRY IN INDIA Introduction Historical Industry Development Current Scenario Industry Structure Prelude to Indian Two Wheeler Sector Growth in the Last Two Years Environmental Regulations Major Players Companys Share in the Market Sector Outlook Bajaj Group Profile of the Company Management Objectives and Goals Policies Performance Strategies used in the Past Economics Marketing Management Information System SWOT Analysis International Marketing Production and Operation Research Total Quality Management Current Strategies Suggested Hero Honda Group Profile Management Consolidated Family Business Glorious History

Pages From - To
I-I II - II III - III IV - V 1 3 7 10 14 15 16 17 31 32 2 6 9 13 14 15 16 30 31 32

33 33 34 34 35 35 35 35 36 39 40 41 42 43 44 - 50 51 52 53 54 55 56 57 58 59 61 62 64 65 66 67 69 65 66 68 69

16.

17. 18. 19. 20.

Mission Statement Its Vision Achievements and Awards Areas of Management Marketing The Number Game A Company Par Excellence Exports Future Outlook of Two - Wheeler Sector Conclusion Recommendation Bibliography

70 70 70 - 70 71 74 75 79 80 - 87 88 89 90 92 93 95 96 105 106 109 110 118 119 - 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

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 twowheeler industry has now acquired the traits of any other consumer

durable industry, of price wars, celebrity endorsements and everincreasing 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 control and 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

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.

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 FY199798 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 Euro emission 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

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 INDUSTRY DEVELOPMENT

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 8

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 wagontype, 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.

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 - were caught unaware by the onslaught of the 100cc bikes of the four IndoJapanese 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 fourstroke 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 CURRENT SCENARIO

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 12

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 that profitability 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, Indias 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 pricefront. Bajaj has a stronghold of this segment with Boxer, as Hero Hondas 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

the

domestic two wheeler sales:

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Flash Report on Sales [Including Exports]

(A)Apr-Mar 1999-2000 Scooters

Bajaj Auto Ltd Honda Motorcycle & Scooter Kinetic Motor Company Ltd LML Limited Maharashtra Scooters Ltd. TVS Motors Ltd. 12,33,781 5,70,702 1,12,676 2,77,157 1,46,671 1,26,575 17,61,439 4,25,704 7,51,639 24,175 3,23,181 2,36,740 6,98,321 65,786 1,58,022 95,773 3,78,740 36,93,541

(B)Apr-Mar 2000-01
8,76,224 3,56,512 1,19,663 1,61,231 96,755 1,42,063 21,14,693 5,36,103 10,19,267 36,160 20,189 3,51,483 1,50,861 6,43,461 54,388 1,47,532 78,266 3,63,275 36,34,378

(C)Apr-Mar 2001-02
8,53,330 3,65,087 54,216 1,08,627 1,20,790 61,456 1,43,154 28,93,618 7,06,012 14,12,279 44,309 44,723 22,769 4,47,279 2,16,247 4,67,902 36,491 96,434 67,590 2,67,387 42,14,850

Motorcycles
Bajaj Auto Ltd. Hero Honda Motors Ltd. Kinetic Engg. Ltd. LML Limited Royal Enfield Motor TVS Motors Ltd. Yamaha Motor India (P) Ltd.

Mopeds
Bajaj Auto Ltd. Kinetic Engg. Ltd. Majestic Auto Ltd. TVS Motors Ltd. Total 2-wheelers

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 yo-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 Hondas 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. 21

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 twowheeler 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 26

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's brand 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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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 twowheeler 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, TVSSuzuki became the first Indian company to introduce 100 cc IndoJapanese 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 Road Chennai - 600006 Ph: 044-8272233 Fax: 044-8257121

COMPANYS 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 annual turnover 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 Directors Rahul Bajaj Madhur Bajaj Kantikumar R. Podar Shekhar Bajaj D.J. Balaji Rao D.S. Mehta
Chairman & Managing Director Vice Chairman & Whole-Time Director Director Director Director Whole-Time Director

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J.N. Godrej S.H. Khan Rajiv Bajaj Mrs. Suman Kirloskar Naresh Chandra Nanoo Pamnani Committees of the Board
Audit Committee

Director Director Joint Managing Director Director Director Director

S.H. Khan J.N. Godrej Nanoo Pamnani D.J. Balaji Rao Naresh Chandra

Chairman

Shareholders & Investors Grievance committee

D.J. Balaji Rao J.N. Godrej Naresh Chandra

Remuneration committee

Chairman

D.J. Balaji Rao S.H. Khan Naresh Chandra

Chairman

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.

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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, geared scooters, 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

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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 - 1999 viz., 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 fueleconomy segment at a competitive price point. Secondly, Bajaj will try to capture market share by introducing top-of-the-line scooters, 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 in August 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

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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 its cash-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 companys range includes Caliber, Caliber

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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 Autos 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 Motorcycles Scooters Geared Scooters Ungeared Step thrus Total wheelers Two For 2004 106,745 8,898 3,205 1,299 120,147 August Upto 2004 485,791 48,071 15,900 8,639 558,401 August For 2003 76,487 12,570 5,427 3,024 97,508 August Upto August 2003 394,983 68,314 23,457 14,256 501,010

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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-intime 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 customers 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 in office 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 combustion efficiency. 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, switchoff 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 Ps 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 Quality

Services mix and 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. 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 customer care 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 The fundamental service or benefit that the customer is really buys. Here in Bajaj the core product is the

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 its 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 good quality. 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 Twowheeler the positioning of the product as well the price of the product is quite important.

51

Motorcycles Chetak 4 Stroke Spirit CT 100 Caliber 115 Wind 125 Pulsar 150 KS Pulsar 150 SS Pulsar 180 SS 39,485 29,301 40,083 46,062 51,042 57,386 61,312 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 that the 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 theres a new and fresh advertising strategy, developing the firm-positioning platform. 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 segments 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 to unstructured information like news items, new product releases, new product introduction, dealer discussion groups, internal market-place, etc.

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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.

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 Lined up a range of 17 two wheelers covering the entire spectrum from motorcycles to scooters. Weaknesses: In the late seventies there was skid in production due to intermittent labour problems. Underutilization of capacity. Not considered living with times.

Opportunities: Launching of new products and variants of existing models backed up by appropriate marketing efforts. Fuel efficiency which is much higher than competitors. Virtual zero maintenance among the products. Bajaj plans to offer CNG models with euro-II compliant. Focusing more on motorcycles to capture the urban market. Threats:

59

 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.

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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 fuelefficient and cost effective. Our strength in R&D comprises 500 dedicated professionals who work as 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 predelivery 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. This model 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 overheads including salaries.

67

 It should increase focus on its 5 different products- scooters, motorcycles, step- thru scooters, scooterettes & 3 wheelers-from productions to dealers front. Bajaj should strengthen its marketing and sales department by creating a separate team for different products in the coming months. Stung by the a declining portfolio scooter sales, Bajaj by auto should the

undertake

re-shuffles

exercise

which

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 will reduce 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 shall help 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 Managing Director Joint Managing Director Director Director Director Director Director Director Director Director Director Director Director Mr. Brijmohan Lall Munjal Mr. Pawan Munjal Mr. Akio Kazausa Mr. Shinichi Nakayama Mr. Satyanand Munjal Mr. Om Prakash Munjal Mr. M P Wadhawan Mr. S P Virmani Mr. O P Gupta Mr. M. Sudo Mr. S Toshida Mr. N N Vohara Mr. Pradeep Dinodia 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 Groups future with the same zeal. Hero, a name synonymous with two wheelers in India is today a multiunit, 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, the Hero 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 to the 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

1985-86 1989-90 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 43,000 units 96,200 units

company's sales over the years

5, 30,600 units 7, 61,210 units 10, 29,555 units 14, 25,195 units 16, 77,537 units 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.

Its Vision
Its 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 Development of 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:

76

 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 by Vice President of India. 2000: Splendor declared World No. 1 - largest selling single twowheeler model. Sir Jehangir Ghandy Medal for Industrial Peace conferred upon the 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).

77

 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 - Asias 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).

78

 Most Respected Company in Automobile Sector, by Business World. Bike Maker of the Year by Overdrive Magazine.

Areas of Management Hero Group > Growth Models

79

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, recognition. The growth of the Group through the years has been influenced by a number of factors: employees, vendors and dealers, as also worldwide

Inventory Control

The Hero Group through the Hero Cycles Division was the first to introduce 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.

80

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; Hero is probably the only company to have mastered the art of the just-intime 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 betterknown 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 ready employment 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

82

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

83

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 constant innovations, 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 Ps A. Product & Price: Hero Honda

84

 CD 100 CD 100 SS Splendor Splendor (Disc) CBZ (Disc) CBZ (Self) CD Dawn Karizma Ambition (Disc) Ambition (Drum) Ambition 135 (Drum) Ambition 135 (Drum Self) Splendor + (Disc) Splendor + (Drum)

42,616 43,218 45,778 48,741 59,225 65,193 35,217 76,219 56,793 53,580 50,170 53,580 49,034 46,352

85

 Passion + (Disc) Passion + (Drum) CBZ Star

50,883 47,931 59,196

Hero Motors
Smart Sting E Zee SX 23,256 26,615 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

87

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 laid out 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 in various 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. Masters Golf Championship. 20th Cinema Express Award. 2002 India-England Women's Cricket Series. Masters Golf Championship. 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

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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 year and 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 terms of 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 lions share in a matter of just six years (66% of total two-wheeler sector volumes or 2.9 m units in FY02).

Year

All Twowheelers

Motorcycles

Ungeared Geared scooters 8.6% Scooters 42.6%

Mopeds 15.1%

Stepthrus 9.8%

1995 2208231 23.9%

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1996 2660005 24.8% 1997 2965474 27.1% 1998 3042347 30.0% 1999 3403471 34.6% 2000 3776719 42.7% 2001 3745516 54.1% 2002 4318531 66.2% 2003 5053562 74.4%

9.1% 8.9% 8.8% 8.3% 10.0% 10.9% 9.5% 10.5%

40.6% 38.4% 35.4% 32.7% 25.9% 16.0% 12.3% 6.7%

16.8% 16.5% 15.5% 14.6% 14.1% 12.9% 8.7% 6.2%

8.7% 9.1% 10.3% 9.8% 7.3% 6.1% 3.3% 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 Hondas 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 Bajajs 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, twowheelers 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 longerterm horizon of 3-5 years, we remain positive on the sector.

Growth in volumes will take place due to the following factors:

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 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. Hondas launch of Dio and Kinetics 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?

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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. individual 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.

The

company has earned the distinction of being the worlds largest

Hero

Honda

has

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 with network, continuous efficient product

operations,

quality

products

coupled

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 Hondas legacy of a solid after sales

service and brand equity will continue to drive volume growth.

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HHMLs 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

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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 orwell, 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,

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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. TVSs 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. Twowheeler 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 200304, 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 companys turnaround. LML has decided to brand its new generation primary dealerships as LML Global. These will showcase all LML scooter and motorcycle models in a roomy environment ranging from 1,000 to 2,000 sq.ft. The showrooms will have tea and coffee vending machines and a cybercaf.

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 growing competitive 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

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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 to the 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

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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 is expected to increase to 12% in FY 2005. Kawasaki, Bajajs 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.

RECOMMENDATIONS
Opportunities and Threats for the Industry

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 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 than scooters. 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 twostroke 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 for its 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

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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 lifecycle 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 121

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 constantly witnessing 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 the demand 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 the companies 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 into three categories namely entry level, executive & premium category. It has been observed that companies which have ignored the customers have suffered Bajaj Auto, which once operated without a marketing department, but instead had a dispatch department. However the rules of the game have changed. The customer should be the focus of all activities. All activities Production & Marketing should be done keeping the consumer in mind.

With this I end my memorable odyssey..

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