A PROJECT REPORT on

MOTORCYCLE INDUSTRY
(The Indian Scenario)

GROUP HONDA (08FT-091) (08FT-103) (08FT-105) (08FT-107) (08FT-111) Nitish Raut Satwik Pattanayak Shantnu Prakash Soumyadip Pal Sudarshan Shridhar

CONTENTS

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1. Overview
India is the second largest market for two-wheelers in the world. It stands next only to China in terms of the number of two-wheelers produced and domestic sales respectively. This distinction was achieved due to variety of reasons like restrictive policy followed by the Government of India towards the passenger car industry, rising demand for personal transport, inefficiency in the public transportation system etc. The two wheeler industry (motorcycles, scooters and mopeds), with estimated sales of over Rs 280 billion during FYI 2007 accounted for close to 0.7% of the GDP. In volume terms, it is the largest segment in the Indian automotive industry.

4% 5% 16% 75%

Commercial Vehicles Passenger Vehicles Two Wheelers Three Wheelers

.
Source: SIAM

Figure 1 : Domestic Sales share automotive Industry

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2. Historical perspective
The first Motorcycle was first manufactured in India way back in the 1950s; after which the motorcycle industry has seen a considerable amount of demand in the country. It is amazing to note that Enfield bullet was among the first two wheelers to hit the Indian roads and it still is the passion for most motorcycle lovers. Another bike available at the time was Rajdoot, which was a close second to Bullet. Dharmendra was its brand ambassador promoting its sturdy image. Rajdoot went on to sell 1million bikes. After the huge hit in motorcycles, it was a scooter for Bajaj Auto that became widely popular in the Indian market. The scooter was named Bajaj Chetak dedicated to the brave horse of the legendary Rana Pratap, which till recently was one of the triumphant brands from the Bajaj Auto. LML also introduced scooters which were reasonably successful. Apart from heavy motorcycles and scooters, lighter bikes from TVS Suzuki named Ind Suzukia was another choice among the Indian two wheelers. However due to high import rates the bike couldnt penetrate into the Indian market. The industry was opened to foreign investments in the mid 80s, which led to the entry of as many as four Japanese bike (100cc) manufacturers, in collaboration with Indian companies. As these 100cc bikes were more fuel efficient when compared to the available bikes, it soon led to their dominance and Hero Honda the only producer of four stroke bikes at that time (100cc category), gained a top slot, which it maintains to this day. The industry saw a sudden growth in the 80s due to foreign investments. The industry witnessed a steady growth of 14% leading to a peak volume of 1.9mn vehicles in 1990. 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. The reasons for recession in the sector were the incessant rise in fuel prices, high input costs and reduced purchasing power due to significant rise in general price level and credit crunch in consumer financing. Increased production due to new entrants, coupled with the recession, resulted in companies either reporting losses or a fall in profits. IMT Ghaziabad Page 4

3. Current Trends
Post 2000, the Indian two-wheeler industry comprising of motorcycles, scooters and scooterettes opened up tremendously. With a 20% YoY growth, motorcycles captured almost 80% of the market primarily at the cost of the scooter segment. The scooter segment though has witnessed a revival with the launch of scooterettes aimed at young women and adolescents. The two wheeler market can be segmented into three categories on the basis of price Entry segment (<35000), Executive segment (between 35000 and 50000) and Premium segment (>50000). Motorcycles are now sold as an experience rather than a product. New products are being introduced at a rapid pace and brands are gaining prominence. Thus there is an increased focus on the premium segment which has an increased scope for differentiation. Buyer Power is relatively high with buyers becoming more discerning. Reliability and economy have become more of a hygiene factor. Buyers now demand two-wheelers that fit their personality thus increasing the scope for differentiation and branding. Provision of easy financing through EMIs has reduced the price sensitivity to a great extent. This has resulted in higher growth in the 125-150cc segment. High level of branding has also helped revive niche players like Royal Enfield. Supplier Power is low as most suppliers are exclusive and far more diffused than the industry itself. It is further reduced due to the threat of backward integration by the twowheeler companies. Barriers to entry has reduced with the introduction of Government policies such as reduction in excise duty from 24% to 16% and allowing for 100% FDI. However, the investment required for setting up large distribution channels and service stations can be a major entry barrier. Another significant entry barrier is the brand building required. Thus, initially foreign players set up Joint Ventures with indigenous companies. After establishing their brand they have launched their own line of products, eg.: Honda with Hero Group and Yamaha with Escorts.

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Threat from Substitutes such as the Tata 1 Lakh car looms large over the two-wheeler industry. For the first time, a car has been positioned at a price point that fills the vacuum between a motorcycle and a low-end car such as the Maruti 800. Previously, the price of even a low end car (2.5 3 Lakhs) was too high to attract the customers from the entry and executive two wheeler segment. Since brand loyalty is lower for these segments vis--vis the premium segment, these segments may be threatened by the Tata car. Their buyers will consider the convenience and status associated with owning a car, which is reasonably priced and therefore a viable substitute. Current Competition has intensified thus requiring greater branding and marketing. Also due to the presence of relatively undifferentiated products, advertising and promotions have gained importance. The product has moved from a commodity to a branded product. However, there is still tremendous growth potential especially in the rural markets due to the under developed road infrastructure for which motorcycles are highly suitable. The figure below shows the growth of sales of motorcycles and scooters.

Source: ICRA

Figure 2: Growth in two wheelers Motorcycle and scooters

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4. Major Players
Following are major players in the Indian motorcycle market. Bajaj Auto Ltd. Hero Honda Motors Ltd. TVS Motor Company Ltd. Honda Motorcycle & Scooter India (Pvt.) Ltd. Kinetic Motor Company Ltd. Royal Enfield (Unit of Eicher Ltd.) Suzuki Motorcycle India Pvt Ltd. Yamaha Motor India (Pvt.) Ltd.

In this project, we limit our study to understanding the marketing strategy of 3 of the Top players, namely Bajaj Auto Ltd., Hero Honda Motors Ltd. and TVS Motor Company Ltd.

Hero Honda Motors Ltd.

Hero Honda has a reputation of being the most fuel-efficient and the largest selling Indian

motorcycle. Its commitment of providing the customer with excellence is self-evident. A rich background of producing high value products at a reasonable price led the world's largest manufacturer of motorcycles to collaborate with the world's largest bicycle manufacturer. It was this affinity in working cultures of Honda Motor Company of Japan & the Hero Group that resulted in the setting up of Hero Honda Motors Ltd. Their relationship is so harmonious that Hero Honda has managed to achieve indigenisation of over 95 percent, which is a Honda record worldwide. Tactical promotions and excellent marketing helped Hero Honda establish itself as an intelligent purchase. Its unique features like fuel conservation, safetyriding courses and mobile workshops helped the group reach in the interiors of the country. Finance services helped facilitate purchase, as did an efficient dealer network across the country. Well-entrenched in the domestic market, Hero Honda Motors Ltd. turned its attention overseas, and exports have been steadily on the rise. Over the years, the Company has received its share of accolades, including the National Productivity Council's Award (1990-91), and the Economic Times - Harvard Business School Association of India Award, against 200 contenders. It is the market leader with 49% market share. Key Milestones IMT Ghaziabad Page 7

Year 1983 1984 1985 1989 Hero Honda Motors Ltd. Incorporated First motorcycle "CD 100" rolled out New motorcycle model - "Sleek" introduced

Event Joint Collaboration Agreement with Honda Motor Co. Ltd. Japan signed Shareholders Agreement signed

1991 New motorcycle model - "CD 100 SS" introduced 1994 1997 New motorcycle model - "Splendor" introduced New motorcycle model - "Street" introduced Hero Honda's 2nd manufacturing plant at Gurgaon inaugurated 1999 2000 New motorcycle model - "CBZ" introduced Splendor declared 'World No. 1' - largest selling single two-wheeler model New motorcycle model - "Joy" introduced 2002 New motorcycle model - "Dawn" introduced New motorcycle model - "Ambition" introduced Appointed Virender Sehwag, Mohammad Kaif, Yuvraj Singh, Harbhajan Singh and Zaheer Khan as Brand Ambassadors 2003 Becomes the first Indian Company to cross the cumulative 7 million sales mark Splendor has emerged as the World's largest selling model for the third calendar year in a row (2000-2002) New motorcycle model - "CD Dawn" introduced New motorcycle model - "Splendor +" introduced New motorcycle model - "Passion Plus" introduced New motorcycle model - "Karizma" introduced 2004 New motorcycle model - "Ambition 135" introduced Hero Honda became the World No. 1 Company for the third consecutive year. Crossed sales of over 2 million units in a single year, a global record. Splendor - World's largest selling motorcycle crossed the 5 million mark New motorcycle model - "CBZ*" introduced Total sales crossed a record of 10 million motorcycles 2005 Hero Honda is the World No. 1 for the 4th year in a row New motorcycle model - "Super Splendor" introduced New motorcycle model - "CD Deluxe" introduced New motorcycle model - "Glamour" introduced New motorcycle model - "Achiever" introduced First Scooter model from Hero Honda - "Pleasure" introduced 2006 Hero Honda is the World No. 1 for the 5th year in a row

2001 New motorcycle model - "Passion" introduced

Product Range Hero Honda has a wide range of models ranging from the CD Dawn, Passion, Splendor and Deluxe to the recently upgraded Karizma. But Splendor+ and Passion+ are evergreen models. IMT Ghaziabad Page 8

These models are still very much in demand. The CBZ Extreme is the powerful motorcycle which is intended to take the battle with its rivals in the 150 cc category. The other demanded models are Glamour, Ambition, Super Splendour. The latest Hero Honda bike is the hunk. The Karizma model of Hero Honda is a top-end bike and targets the niche section of customers who have preference over performance than to economy. Karizma comes with a 223cc single cylinder, air-cooled, four stroke engine having maximum power of 17bhp at 7000rpm. It has broken the 200cc barrier and the fresh grounds in the acceleration aspect. The bike has been received well by the youth who prefer style. Hero Honda CD Dawn is an entry-level bike and competes with other low-range bikes from rivals like Bajaj Auto and TVS. The performance and mileage of this bike is very good and is cheap and yet carries the sticker of Hero Honda. This model has served the need of middle class who have to battle the rising fuel prices. The other preferred choices are CD 100, CD Deluxe, etc. These bikes have the mileage of 70-80. The latest hero honda bike is HUNK. This model is heavier than the Karizma and the engine is not visible that much and is packed really nice. The sports bike look goes in completely well. From the engine aspect the HUNK is similar to that of the Extreme's. The engine displacement is 149.2cc and produces 14.2 bhp @ 8500rpm with a max torque of 12.8Nm @ 6500rpm. Fuel Economy is said to be a little better than the Extreme and the features are not very hi-fi. It has no LED, digi-speedo and Clip handlebars. The plastic mudguard are extended below the lights and signs of sportiness. The black and dark color combo which is found in almost all the bikes are signs of sportiness as well as beast which it mentions out in advertisements. The Hunk is priced at Rs. 55,000 for the kick start model and Rs. 57,000 for the self start model.

Bajaj Auto Ltd.

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

five in terms of annual turnover. 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. IMT Ghaziabad Page 9

It then obtained a production license in 1959 and struck a technical collaboration with Piaggio of Italy in 1960. Scooter production began 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. 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. The unit continues to assemble scooters from CKDs supplied by the Company. 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). Key Milestones (Reverse Chronology)
Year 2007 Launch of XCD DTS-Si National Launch of 220 cc Pulsar DTS-Fi. Bajaj Auto Commissions New Plant at Pantnagar, Uttarakhand 200 cc Pulsar DTS-i launched Bajaj Kristal DTS-i launched 2006 Bajaj Platina launched 2005 Bajaj Discover launched Bajaj Avenger DTS-i launched Bajaj Wave DTS-i launched 2004 Bajaj Discover DTS-i launched New Bajaj Chetak 4 stroke with Wonder Gear launched Bajaj CT100 Launched Bajaj unveils new brand identity, dons new symbol, logo and brandline 2003 Pulsar DTS-i is launched. Bajaj Wind 125,The World Bike, is launched in India. Bajaj Auto launched its Caliber115 "Hoodibabaa!" in the executive motorcycle segment. Event

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2001 Bajaj Auto launches its latest offering in the premium bike segment Pulsar. The Eliminator is launched. 2000 The Bajaj Saffire is introduced. 1999 Caliber motorcycle notches up 100,000 sales in record time of 12 months. Production commences at Chakan plant. 1998 Kawasaki Bajaj Caliber rolls out of Waluj. Legend, Indias first four-stroke scooter rolls out of Akurdi. Spirit launched. 1997 The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw are introduced. 1995 Bajaj Auto is 50. Agreements signed with Kubota of Japan for the development of diesel engines for three-wheelers and with Tokyo R&D for ungeared Scooter and moped development. The Bajaj Super Excel is introduced while Bajaj celebrates its ten millionth vehicle. One million vehicles were produced and sold in this financial year. 1994 The Bajaj Classic is introduced. 1991 The Kawasaki Bajaj 4S Champion is introduced. 1990 The Bajaj Sunny is introduced. 1986 The Bajaj M-80 and the Kawasaki Bajaj KB100 motorcycles are introduced. 500,000 vehicles produced and sold in a single financial year. 1977 The Rear Engine Autorickshaw is introduced. Bajaj Auto achieves production and sales of 100,000 vehicles in a single financial year. 1976 The Bajaj Super is introduced. 1975 BAL & Maharashtra Scooters Ltd. joint venture. 1972 The Bajaj Chetak is introduced. 1971 The three-wheeler goods carrier is introduced. 1970 Bajaj Auto rolls out its 100,000th vehicle. 1960 Bajaj Auto becomes a public limited company. Bhoomi Poojan of Akurdi Plant. 1959 Bajaj Auto obtains licence from the Government of India to manufacture two- and three-wheelers. 1948 Sales in India commence by importing two- and three-wheelers. 1945 Bajaj Auto comes into existence as M/s Bachraj Trading Corporation Private Limited.

Product range Bajaj Platina, a 100cc bike from Bajaj Auto was launched after TVS Star City. The cheaper version of this bike is priced for Rs 34,500, while the higher version of Bajaj Platina costs Rs 36000 according to Delhi showroom prices. The bike was introduced into the market as the very cheap bikes in its segment to compete Hero Honda. Bajaj has entry-level bikes like Bajaj CT-100 and Bajaj Discover. The entry-level segment was strengthened by the arrival of Bajaj Platina. Bajaj Pulsar, perhaps, was the bike which done wonders for the auto company. This bike was received very well among the bikers. Bajaj Pulsar DTSi comes in two models: Bajaj Pulsar IMT Ghaziabad Page 11

150 DTSi and Bajaj Pulsar 180 DTSi. The 180cc bike is a stunner. On admires its perfectly sculpted body. It is loaded with a very responsive engine, 14.8 Bhp from 180 CC. The pricing of the bike is also very affordable. It has lighter and stronger alloy wheels with superb stability. Bajaj Pulsar 150 DTSi has mileage of 55-60 kmpl and Bajaj Pulsar 180 DTSi gives a mileage of 45-50 kmpl. Bajaj Avenger, 180cc DTSi was introduced into the cruiser bike segment post Eliminator. The wheelbase is 1475mm in comparison to Bajaj Pulsars 1,330 mm wheelbase. The bike is extremely high speed machine and stylish. Bajaj Avenger gives a mileage of 40-45 kmpl in city conditions. The engine of the bike is 4 - stroke and the displacement is 180cc. Overall it is stylish and a brand new experience for the bikers. The other models of Bajaj Bikes are CT-100, Wave, Discover, Wind. Bajaj is considering launching big bikes in India. The bike include the Ninja 250, the Sports Roadster the ER-6n Super Sports bikes, the Ninja ZX-6R, the Z1000 and the Vulcan Cruiser.

TVS Motor company Ltd.

TVS Suzuki, a leading two wheeler company began with the vision of the founder of the

Sundaram Clayton Group, the late T.S. Srinivasan - 'to design, develop and produce an affordable moped for the Indian family.' This vision was realized in 1980 when TVS 50, India's first two-seater moped rolled out of the factory at Hosur in Tamil Nadu, Southern India. A byword for ruggedness and reliability, the TVS 50 proved to be a promising success and paved the way for many successes for TVS Suzuki ever since. The TVS 50 XL, a proven, much sought after moped; likewise, the TVS Champ and the Super Champ, created for those who want economy fused with sporty looks. And now the new XL Super with a 70 cc high-tech Power Pack is all set to redefine the category of mopeds in the country. Alongside the economy two wheeler range, it has constantly worked on innovating the motorcycle segment as well. The Suzuki Samurai was launched for the time conscious urban commuter.

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The Max 100 R was engineered for those who demanded strength and ruggedness. The Suzuki Shogun was for those who wanted raw power. And today, TVS Suzuki continues to keep one step ahead of its time by creating India's first 5 speed, 140 cc motorcycle - The Suzuki Shaolin. The TVS Scooty, a 60 cc Scooterette, is yet another example of the company pioneering a new category and emerging as market leaders in it. As for other wins, 'Team TVS' has conquered every major race and rally in the country from the road to the racetrack, with each of the TVS bikes being a winner. And each time the 'Team TVS' has won on the track or off it, our customers have secured a better product for their personal transportation.

Key Milestones
Year 1980 Launched TVS 50, India's first 2 seater 50 cc moped 1984 First Indian company to introduce 100 cc Indo - Japanese motorcycles 1994 Launched India's First indigenous scooterette (sub - 100 cc variomatic) - TVS Scooty 1996 Introduced India's first catalytic converter enabled motorcycle, the 110 cc Shogun 1997 Introduced India's first 5 speed motorcycle, Shaolin 2000 Launched India's first 150 cc, 4 stroke motorcycle - The Fiero 2001 Launched India's first fully indigenously designed and manufactured motorcycle. 2004 Launched the revolutionary VT-I engine for the best in class mileage in TVS Centra 2006 Launched TVS Apache - first bike to win 6 awards in a row 2007 Apache RTR - first two wheeler in India to have racing inspired engine and features. 2008 TVS Flame, TVS Scooty Electric Vehicle and Three wheeler TVS King launched. Event

Product range TVS Apache is very high performance bike. TVS Apache is well styled and has awesome finish. The design theme of the bike is unique, stocky, but muscular. The headlamp is arrow shaped and fares combo along with triangular front mudguard giving it an aerodynamic look. The fuel tank capacity of 16 litres, gives Apache a heavy front look, similar to Pulsar and IMT Ghaziabad Page 13

Unicorn. The other features include a dual cradle chassis, six-spoke, matt-black finished alloy wheels, rectangular-section swing arm for the rear wheel and a straight, low-set handle bar that offers the rider a forward position. By far it has been one of the most successful model from TVS. It was given the following awards in 2006 TVS Victor is 4-Stroke, 125cc, performance motorcycle with VT-i technology. It is available in three different models: TVS Victor Edge, TVS Victor GLX 125 and TVS Victor GX. TVS Victor has number of innovative features. Its engine has temperature sensors which can sense, the engine temperature is low and the engine then activates the spark plug and advances the ignition timing. This allows the bike to start fast and with lesser fuel. TVS Victor has good suspension and better shock absorption. It includes advanced safety features. The features include are optional right side disc brake for instant stop and provide good braking control. It has mileage of 60-65 kmpl. TVS Centra is equipped with super efficient 100cc VTi engine, developed by TVS Motors themself. The engine has 7.5 Brake Horse Power (Bhp) @ 7250 RPM making it a powerful motorcycle in its segment. VT-i (variable timing - intelligent) engine contains the dual spark plugs. It also has advanced microprocessor control system that adjusts the ignition timing based on certain information, such as engine temperature, rpm level, etc. It has superior performance and great fuel economy than its previous models. TVS Fiero Fx is equipped with the features like round headlamps, round mirrors, turn signal lamps and innovative twin pod instrument cluster containing the speedometer and trip tachometer together. The engine of Fiero has the single cylinder which is air-cooled, 4 stroke 150cc. The engine generates a peak power output of 12 bhp at 7000 rpm and a maximum torque of 10.5 Nm at 6500 rpm.

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5. Marketing Environment
Macro Environment
Demographics Environment Population: With the population of India crossing the 1.2 billion mark India is making its mark as an emerging market for automobile and consumer market. Today automobiles companies see India as a huge untapped opportunity. And as if to reaffirm their faith has been a surge in demand of two wheelers and four wheelers for the past few years. Geographical Distribution of population: Increasing urbanization and poor planning has led to a massive horizontal expansion of cities. The prohibitive cost of land ownership in the business districts results in people having to travel long distances to work. With the public transportation system being inadequate in most cities, two-wheelers are essential.

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Figure 3 : Growing Urbanization (%)

Figure 4: Increasing No. of cities with 1M+ population

Population age mix and household income: The population can be divided into six areas Pre-school School age children Young age adults Middle age adults (40-65) Older age adults (above 65)

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Indias current demographic profile is very benign to economic development, with the proportion of educated employable population being on the rise. Pertinently, the population in the age group 20-39, the main consumer group of two-wheelers, is expected to grow at 1.5x the total population growth over the next 10 years. The combination of benign age profile and economic prosperity would help sustain the demand for two-wheelers.
Age Group 0-4 5-14 15-19 20-24 25-34 35-44 45-54 55-59 60 & above Total 1996 120 233 91 82 142 105 73 26 62 934 2001 109 239 109 90 157 122 86 31 71 1012 2006 114 221 122 109 171 139 100 37 82 1094 1995-96 (%) 0.7 19.7 32.8 26.7 20.0 2010 120 216 117 121 191 151 113 42 93 1162 2001-02 (%) 1.4 25.7 41.2 18.3 13.3 2013 121 220 110 121 211 159 123 46 101 1212 2016 123 228 105 115 229 168 134 51 113 1264 2006-07 (%) 2.6 37.9 41.0 10.1 8.3

Table 1: Age profile (figures in millions)

House hold Annual Income Very Rich (>Rs 360,000) Consuming class(Rs 80,000 3,60,000) Climbers (Rs 40,000 80,000) Aspirants (Rs 28,000 40,000) Destitutes (<Rs28,000)

Table 2: Income profile Educational groups: The population in any society falls in any of the five educational groups: Illiterates High school dropouts High school degrees College degrees Professional degrees Indias population consists of all the five major groups. Illiterates constitute approximately 25% of Indias population. The demand of two wheelers is present across all educational groups. Educational level determines the kind of two wheeler models demanded. Household Pattern:

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India has traditionally been a joint family society but with the changing social and economic environment there has been a transition towards nuclear families. This has resulted in a surge in demand for two wheelers because earlier there was pooling of vehicles but with more and more people opting for nuclear family the requirement of owning a vehicle has increased.

Economic Environment Income Distribution: With Indian economy moving on fast track and per capital income increasing the middle class expanding there has been a surge in the demand for two wheelers as the purchasing power of consumer is increasing. Savings, Debt and Credit availability: Till a couple of months back the interest rates were quite low but with the increase in the inflation rate, the RBI has begun tightening its monetary policy in order to suck the excess liquidity from the economy, thereby leading to an increase in the interest rates for loans. The increase in interest rates in case of auto loans has not deterred the prospective customers as the increase in rate of interest has been outshined by the increase in their purchasing power. The other important change that has made easy availability of credit is that the banking system has increased its reach, covering many more towns and villages than ever before. This has led to financing schemes being available to more consumers. Political, Legal and Natural Environment

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Anti pollution pressures: Due to increase in the environmental awareness there has been a pressure on the automobile companies to come up with newer technologies which are less polluting and more environmental friendly. The Auto Fuel policy announced in October 2003 laid down a road map for implementation of emission norms which is as follows: Date 1 April 2005
st

1st April 2010

Applicable Norms Bharat II norms (equivalent to Euro II) for the entire country; Euro III or equivalent norms for vehicles in Delhi / NCR, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and Agra Bharat III norms (equivalent to Euro III) for the entire country; ; Euro IV or equivalent norms for vehicles in Delhi / NCR, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Surat, Kanpur and Agra Table 3: Date line for anti pollution norms

Changing role of government: With the liberalization of economy there has been a sea change in the industry with more and more MNCs are establishing their businesses in India. The role of the government has been credible in nurturing this industry through relaxation of excise duty. In the 2008-09 budget the excise duty was relaxed from 16% to 12%, which is positive for the sector which has witnessed sharp decline in volumes in current fiscal year. The cut in excise duties can be in effect be passed to the consumers so as to push the sales volume. Time Line Till 1990 1991-92 1999-00 2008-09 Excise Duty Varying excise duty from 10% - 30%, depending on the engine capacity Excise duty rationalized to two categories 15% for vehicles up to 75cc 25% for vehicles greater than 75cc Excise duty rationalized to a uniform 16% Excise duty further reduced to 12% Table 4: Reduction in Excise duty

Although there has been a reduction in excise duty, taxes on automotive manufacturing are levied at city level (octroi), state level (sales tax) and the centre level (excise tax). These taxes taken together, amount to 37% of total price, which is a huge figure and affects the export competitiveness of the Indian manufacturers. Although the move towards VAT has led to the

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reduction of the cascading effect, still VAT has not been implemented successfully in all the states. Technological Environment Highly competitive markets and changing consumer preferences have led to a lot of changes in the two wheeler industry. The companies have come up with new and powerful engines, disk brake and better looks. This has caused the Indian motorcycles to come up to international standards. The latest technological improvements are the use of liquid cooled engines and the introduction of e-bikes.

6. Market analysis
Apart from the consumer changing preferences another thing that has a large bearing on the companys performance and its sales in the market is its competitors. The India motorcycle industry has seen a very intense competition during the past three years with companies adopting different strategies to gain market share. Here we have tried to understand the strengths and weaknesses of different motorcycle companies operating in the Indian market. In the last four to five 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 to a staggering 75%. The Euro emission norms led to the existing players in the two- stroke segment to install catalytic converters. This has been replaced by 4-stroke motorcycles which do not incur the additional cost of such converters and fierce competition led to a fall in price of certain models.

Segmentation of Automobile Industry

Motorcycles

in

Indian

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Motorcycle models are categorized according to the engine capacity and cost. Following table lists the different segments into which the motorcycle industry can be categorized into: Segment Economy Lower Economy Upper Executive lower Executive Upper Premium Lower Premium Upper Models available Hero Honda CD Dawn Bajaj Platina, CD deluxe, TVS star Hero Honda splendor, Hero Honda Passion Hero Honda Glamour, Bajaj Discover 135, Honda Shine, TVS Flame, Bajaj XCD Bajaj Pulsar, TVS Apache, Hero Honda Hunk, Hero Honda CBZ extreme, Honda Unicorn, Hero Honda achiever Hero Honda Karizma, Bajaj Pulsar 220, Royal Enfield Table 5: Segmentation of Motorcycle industry

The segmentation basis takes into account motorcycle price, engine capacity, and the extent of cross shopping to demarcate models that form a competitive set. The most powerful bikes are kept under the premium upper segment and the least powerful bikes are kept under the economy lower segment.

Market share of different manufacturers

The figure below shows the market share of different players in the motorcycle industry. It

is obvious from the below statistic that Hero-Honda (49%) has the highest market share followed by Bajaj Auto (33%) and TVS (9%). The major share of sales for Hero Honda comes from the domestic market whereas Bajaj Auto has a higher percent in the export pie of Indian automobiles.

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Figure 5: Market share of different manufacturers

Competitor Analysis
Hero Honda Motors Ltd. Strengths Strong dealer network. Motorcycles catering to all the segments. Easy availability of spare parts and easy maintenance of motorcycles. Good after sales service.

Weaknesses Advertisement strategies are Corporate Image centric there is limited focus on individual brands. Confusion amongst buyers as too many products.

Bajaj Auto Ltd. Strengths Bajaj has been manufacturing two wheelers for a very long time as a result it has core competency in two wheeler manufacturing

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Bajaj has a good research and development section as a result it keeps coming out with new motorcycles Bajaj has bikes catering to all the market segments

Weaknesses Bajaj has completely ignored the customers at the lowest level of the pyramid by completely exiting the economy segment TVS Motor Company Ltd. Strengths Initially good technology due to a joint venture with Suzuki Japan Advertisement strategy well developed by incorporating icon like Mahendra Singh Dhoni

Weaknesses TVS does not have a product portfolio catering to all the segments of Indian motorcycle market Dealer network is quite weak Availability of spare parts is limited Consumers not satisfied with the after sales service South India centric company

SWOT analysis of the industry

Strengths Better Mileage when compared to the four wheelers Improvements in the technology used in the manufacturing processes have led to more efficient engines and hence improved driving experience Greater market access when compared to other modes of transport IMT Ghaziabad Page 23

Appeal for youth

Weaknesses Bikes are not very safe when compared to cars and other four wheelers There is very limited carriage space when compared to cars and even scooters so it is low on multi-utility value Only two people can comfortably sit on a bike as compared to a car where more people can be accommodated Opportunities Increase in purchasing power of the common man will increase the cash available in the hands of the consumers which can be translated into higher sales The present Indian population is very young and since youngsters are a main chunk of the potential customers for any bike company, it could be good news for the company. With Increase in urbanization, more and more people will need a means of transport as they will have to travel long distances and as public transport is nonexistent in most of the cities, most of the people may be enticed into buying bikes The rise in the cost of fuel will make riding bikes more economical when compared to four wheelers Threats Credit crunch due to increase in interest rates by the RBI to control inflation Increase in the fuel prices have in turn led to the increase in the operating costs of a bike and hence it has become more expensive to own and maintain a bike Tata Nano: The Tatas are planning to pitch there four wheeler the Tata Nano against premium bikes which may eat up into the market share of bikes With Increasing environmental concerns, the regulators may force the manufacturers to adhere to a very strict emission norms which may lead to additional investments into the manufacturing plants For the last two years the growth rate of scooter sales has been increasing whereas that of bikes has dipped. The increasing share of the scooters may eat into the pie of the bikes

S
Better Mileage IMT Ghaziabad

W
Safety of Passenger Page 24

Better Technology Greater Market Access Appeal for Youth

Carriage Space Capacity

O
Increasing purchasing power Young Indian Demography Urbanization Rising Fuel Price

T
Credit crunch Tata Nano Environmental Concern Exhaustible Source of Energy Increase in market growth of scooters

Figure 6: SWOT matrix

7. Analysis of competition in the motorcycle industry with reference to the Porters five forces model

Threat of intense segment rivalry

There is immense segment rivalry; both inter segment and intra segment in the motorcycle

industry. This is due to the fact that there are enough competitors available in all the segments and also the bike manufacturers are trying to lure the customers into the higher segments.

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The upper executive and the lower premium segments are the most competitive with all the companies trying to grab a large share of this expanding and relatively more profitable segment. Though the fixed costs of entering this segment are high, yet most companies have launched their models in this segment due to the high stakes involved. The various models launched or re-launched in the last year are : Premium lower: Bajaj Pulsar DTSI, TVS Apache RTR, Hero Honda Hunk Executive upper: Bajaj Discover 135, TVS Flame and Bajaj XCD The presence of numerous competitors has led to various companies upgrading their existing products to gain an edge over the other competitors. The gain has all along been that of consumers considering that they are now getting better offering at the same price. Previously the consumer had wanted bikes which provided better mileage (kilometers a motorcycle can travel on one litre of petrol), however now the consumer has become more aware and conscious of new technologies and style which has led the motorcycle manufacturers to introduce motorcycles which are better looking, provide a good average and give more power. There is immense rivalry in all the segments, hence to launch a new product, it is very important to market it properly; proper advertising is also a must. The below table illustrates the segment wise sale of two wheelers.

Volume (Thousands) Growth Motorcycles 2003 2004 2005 2006 2007 2008 2008 3-year Less than 75cc 52 32 19 1 0 0 75-125cc 3152 3659 4177 4806 5168 4196 -18.8% 0.2% 125-250cc 417 453 741 975 1349 1536 13.9% 27.5% >250cc 27 27 28 29 30 36 18.6% 8.7% Table 6: Segment wise sale of two wheelers

Threat of new Entrants

The motorcycle industry in India is very competitive and there is a huge investment

required to enter the market as it requires huge investments in machinery, distribution network

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etc, hence normally we donot observe any new player entering the market. This year there were three new entrants in the market. Mahindra and Mahindra Mahindra and Mahindra entered the two wheeler market by acquiring all the assets of Kinetic motors co. They have a strong in-house design and development competencies provided by Mahindra Engineering Services (MES) and the recent acquisition of Italy-based design house, Engines Engineering. They aim to enter the market initially in scooter segment later spreading to the whole spectrum of two wheelers including premium bikes. Ducati Italys Ducati motors also entered the Indian market this year. They are pioneers in making premium bikes and aim to become the market leaders in that segment in India. There is a low threat from new entrants in the economy and the executive segments but the domestic players in the premium segment may have to be ready for an onslaught from foreign players as India is becoming more and more lucrative for them due to the increase in purchasing power of the common man in India.

Threat from substitutes

Though the market of motorcycles after being is red is back into being in black and the market fundamentals look good for the bike industry yet there is no scope for complacence as there are other automotive products which are vying for a share of the pie of the motorcycle industry. Tata Nano Tata have positioned there latest yet to be launched car against premium segment of motorcycles. The car comes at an additional price of only about Rs 20,000, but at the same time IMT Ghaziabad Page 27

it promises better safety and provides the ease of additional space so that more people can travel together. It is a serious threat for the bike industry and specially the premium segment which has the most growth potential. Scooters It can be observed that over the last two years, the sale of scooters have gone up. This may be attributed to the fact that the new generation scooters available are more efficient and comfortable and can be easily handled by the lady drivers. The threat from substitutes may not pose a major problem as of now but it is imperative that the price of Nano and other low cost cars in the offing be taken into consideration when pricing any motorcycle. It is also important that the products be improved continuously so as to narrow the gap between the bikes and their substitutes.

Bargaining power of consumers

The Indian motorcycle industry has moved from a sellers market to buyers market. Pre liberalization era has seen a sudden increase in the consumer bargaining power in almost every industry, motorcycle industry being no exception. The consumer has become more aware about technology and style in motorcycles. This has pressurized the manufacturers to come up with new and innovative products and provide the consumer with value for money proposition. This has also led to a marked improvement in the quality of motorcycles in India.

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8. BCG Matrix Stars

Executive Upper

????
Premium Upper Premium Lower

Cash Cows
Executive Lower

Dogs
Economy Lower Economy Upper

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Question Marks
These products are those which have a high market growth but relatively low market share

these products have the potential to become market leaders or stars through proper nurturing and investment. If these products are not taken care of they may turn into dogs. The premium segment of motorcycles are kept in this segment as this segment has a high growth rate (27.5% over the last year 3 years) but have low market share.

Stars
These products are those which have high market share as well as high growth rate. These

products are the main front running products of any company. The executive upper segment of bikes have been kept in this category as it has a high market share and at the same time the market for such bikes is growing at a high rate. Bikes in the 120 135cc range are doing well owing to the increase in the demand of the customers for a powerful (higher BHP) as well as fuel efficient bike.

Cash Cows
These products are those which have a high market share but a low growth rate. These

products donot need any new investment and are self sustaining and hence the return on investments is high, in fact the revenue from these products at times support other brands which require money. The executive lower segment have been kept in this category owing to the fact that they constitute about 60% of the market, but have a low market growth. These bikes were launched a long time back and at the time had become very popular with the people in the tier 2 and tier 3 cities owing to lower price and higher fuel efficiency. In todays scenario people want more than just fuel efficiency and hence they prefer executive upper to the lower segment.

Dogs
These products are in a stage where the share of the company in the overall market goes

down and the market is also not as attractive in terms of doing business. Here the company would like to either harvest or divest the product. IMT Ghaziabad Page 30

The economy segment of bikes has been kept in this category as these bikes have lost most of their market share to the executive segment. These bikes donot have a bright future owing to people demanding better looks and power in a bike. This segment should be slowly divested.

9. Unmet needs
Unmet Needs of 2 Wheelers Industry
Envrionmental friendly bikes With rising fuel cost and depleting fuel reserves world wide , the consumer at large is becoming more sensitive to environmental issues and hence in years to come , bikes which run on renewable sources of energy and at the same time which can reduce the fuel emission to a great extent will find more demand . Electric bike is an example of such a bike segment which is still untapped to a major extent. The low cost of running electric bikes also make them a joy ride and hence they will find good popularity if a major player invests in them . At present Yo Byke manufactured by Electrotherm India Ltd is the only existing player in this segment .

Bike Safety

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At present , the Indian public still views bikes as not very safe and a middle class Indian always prefers to buy a car once he becomes a family man .Thus the bike only finds popularity amongst the youth who prefer to live their life on the edge . But with weak Indian road infrastructure , bikes will gain popularity if they can include safety features. Such features can include - autobrake system which can take over the bike speed if a collision is detected very close , impact detectors which can detect any impact on the bike's body and prevent a possible toppling by means of automatic support system. With the advent of Nano , bike will have to focus on the safety aspects otherwise a major of customers who are not able to move to car due to price issues might change their loyalty.

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