A Research Paper

On

“Two Wheeler Market in India & Brazil”

By

Mr. Pratik Prakash Bhosale

Under the Guidance of

Dr. Daniel Lazarus

Submitted to

ABMTC

In partial fulfillment of the requirement for the award of the degree of

DOCTORATE OF BUSINESS ADMINISTRATION [D.B.A]

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 Table of Contents

AUTOMOBILE INDUSTRY - INDIA …………………………………………………..…3

AUTOMOBILE INDUSTRY - BRAZIL……………………………………………………5

2 WHEELER INDUSTRY …………………………………………………………………6

GLOBAL MARKET TREND………………………………………………………6

COMPARATIVE ANALYSIS ………………………………………………………...……7

2 WHEELER INDUSTRY – INDIA ………………………………………………7
CASH CONVERSION CYCLE …………………………………………………12
2 WHEELER INDUSTRY – BRAZIL ………………………………………......13

OUTLOOK …………………………………………………………………………………17

CONCLUSION ………………………………………………………………………...… 19

BIBLIOGRAPHY ………………………………………………………………………… 20

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AUTOMOBILE INDUSTRY - INDIA

The Indian automobile industry is one of the largest in the world. It contributes 7.1%
of the GDP and provides employment to 29 million people and contributes 13% to
excise revenue.
(Indian Two Wheeler Industry Analysis Research Report. (2017, December 13).)

The Indian Automobile industry can be classified as below

Source Indian Two Wheeler Industry Analysis Research Report. (2017, December
13).

Total automobile production in India for FY17 was 25.31 Million units, with two
wheelers forming 79% and passenger vehicles 15% of the total production. The
compounded annual growth rate (CAGR) for the period FY16-17 has been 9%, with
the fastest growing segment being the passenger vehicles followed by 2W, growing
10% and 9% respectively.

The industry is expected to grow 9% – 11% in the future. The sector has also
attracted FDI investments worth 15.79 billion $ for the period April 2000 to
September 2016.

3
Source Indian Two Wheeler Industry Analysis Research Report. (2017, December
13).

4
AUTOMOBILE INDUSTRY – BRAZIL

The Brazilian automotive industry began in 1956, in the city of Sao Paulo. Since then,
the automobile industry has grown extensively. Several international automobile
companies began investing in Brazil. Companies like Chevrolet, Ford, Volkswagen,
and Fiat – all these companies saw Brazil as a potential market with tremendous
profitable prospects and set up their business in the country. These companies
dominated the Brazilian automobile market until the mid-1990s, when the Brazilian
government opened the market for imports

Brazil, the “B“ in the BRIC acronym, showed consistent economic growth between
2011 and 2013. Brazil’s gross domestic product per capita exceeded the significant
10,000 U.S. dollar benchmark in 2010, but fell to around 8,700 in 2015. Most parts of
Latin America entered have recession, and it is projected that Brazil’s per capita
gross domestic product will stay below 10,000 U.S. dollars until at least 2019.

In light of Brazil’s increasing affluence, automakers began to focus on this growing

market in recent years. In terms of market share, Brazil’s automotive market is
dominated by Fiat Chrysler Automobiles, General Motors and Volkswagen. Market
protection in the form of tariffs and quotas on imports has prompted companies to
open or expand automotive production facilities within Brazil, which helped stimulate
the local economy.

Some of the most recent protections went into effect in 2012, including putting a
quota on imports from Mexico. Brazil produced about 1.78 million passenger cars in
2016, down from a little over 2.7 million units during the prime of passenger car
production in Brazil.
Laporte, J. (n.d.). Topic: Automotive Industry in Brazil.

The following chart shows Brazilian automobile production statistics since January
2011. (Brazil auto sales to fall 10% in 2016 – UBS. (n.d.))

Source: Anfavea

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2 WHEELER INDUSTRY

A Motorcycle is defined as “A two-wheeled motor vehicle with engine mounted in

middle of the frame, with a fuel tank above it, along with manual clutch and
gear system.”

A Scooter is defined as “A two-wheeled motor vehicle which has a step through

frame and the engine located between the rider and the rear.”

Classification According to Two-Wheeler Type

Vehicle Segment Sub-Segment Customer Segment
Motorcycle
Two Wheeler Individuals
Scooter

GLOBAL MARKET TREND

The global market for Two Wheelers has witnessed a steady growth in past few
years and is expected to grow at a higher pace during 2014-2019. The major
contributors to the demand of two wheelers are the countries in Asia-Pacific region
which will continue to dominate the worldwide demand in future.
(Automotive Two Wheeler Market - 2019 By Type, Technology & Geography.)

The region is the home to the top six markets in the world. China is the largest
national market of two wheelers and will continue to remain at the top followed by
India and Indonesia in future. Regions like Americas, Africa, Middle East and Europe
will contribute to the remaining minor portion of the worldwide demand.

The demand for two wheelers is highly dependent on the economic stability and the
average income levels of the country. In emerging economies like China& India, two
wheelers are an affordable alternative to walking, riding bicycle and public transit
systems etc.

The rising fuel prices can also be a growth driver for two wheelers due to their higher
fuel efficiency.

The report covers the Indian & Brazil’s two wheeler industry comprising of:
1. Scooters
2. Motorbikes (Light, medium and heavy)

Major players in this market such as Honda, Yamaha, Hero Moto Corp., Bajaj Auto,
Suzuki, Loncin, Jiangmen Dachangjiang (Haojue), Lifan, Luoyang North Enterprises
and others.

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COMPARATIVE ANALYSIS

2 Wheeler Industry in INDIA

India has overtaken China to emerge as the world's biggest market for two-wheelers.
A total of 17.7 million two-wheelers were sold here last year, that's over 48,000 units
every day.

Neighbouring China trailed with 16.8 million units sold, according to officials from
industry body Society of Indian Automobile Manufacturers (Siam) as well as data
from China Association of Automobile Manufacturers.

Besides rising incomes and growing infrastructure in rural areas, one big reason for
the spurt in sales has been women commuters+ who like the ease of zipping in and
out of chaotic city traffic on their gearless scooters.

Source Indian Two Wheeler Industry Analysis Research Report. (2017, December
13).

Two wheeler sales pick-up; scooter segment growth outpacing the industry growth
After ending FY2017 with a moderate growth of 6.9%, the growth rate in the two-
wheeler industry improved in 4M FY2018 to 9.2% over the corresponding previous.

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The industry growth rate of 16.0% during Apr-Oct’16 moderated from November
2016 following liquidity crisis post-demonetisation and inventory correction measures
undertaken by original equipment manufacturers (OEMs) for the transition from BS III
to BS IV norms thereby limiting the overall growth for domestic volumes at 6.9%
during FY2017. However, the growth rate revived during the current fiscal, supported
by channel-filling measures of most OEMs post massive discounting done just prior
to the transition to BS-IV emission norms.

The only minor hiccup was in June 2017, as the dealers were de-stocking in the pre-
GST period. Over the first four months of FY2018, the scooter segment reported
healthy growth of 18.2% while the motorcycles segment reported moderate growth of
6.6%,

However, the growth in the motorcycle segment improved in July 2017, growing at
16.9% and outpacing the scooter segment growth after many months, supported by
stocking up post GST implementation. The mopeds segment reported de-growth of
13.0% in 4M FY2018, after a dream run in FY2017.

Source Indian Two Wheeler Industry Analysis Research Report. (2017, December
13).

Scooter sales report double digit growth in 4MFY2018 after two quarters of de-
growth

After two quarters of consecutive de-growth, the scooter segment reported healthy
growth of 18.2% in 4MFY2018. Both Q3 and Q4FY2017 were marred by negative
effects of demonetisation and channel correction activities taken up by the OEMs as
the industry shifted from BS III to BS IV emission norms. However, during 4M
FY2018 this has reversed, and the scooter segment reported double digit growth for
all the months with lowest growth rate being 10.6% in June 2017 as dealers cleared
their inventory prior to GST implementation.

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The 90-125cc sub-segment continues to account for the major proportion of domestic
scooter volumes, supported by the wider variety of product offerings. Nonetheless,
the <90cc sub-segment reported robust growth since Q2 FY2017, driven by launch of
the updated TVS Scooty Pep+ and the higher displacement categories also reported
healthy growth during the current fiscal, driven by the Vespa 150 and Aprilia SR 150
models in the 150-cc segment.

Source Indian Two Wheeler Industry Analysis Research Report. (2017, December
13).

Motorcycles revive gradually on the back of entry-level sub-segment

Emerging from the de-growth it had been reporting for six continuous months since
the demonetisation exercise in November 2016, the motorcycle segment finally
turned around since the beginning of FY2018 as the cash situation eased out,
reporting a moderate growth of 3.4% in Q1 FY2018, and a much higher growth of
16.9% in July 2017. While the marriage season in the North also supported the sales
during the period, the primary driver for the spurt in volumes has been channel
replenishment post the implementation of BS-IV emission norms and GST from April
1, 2017 and July 1, 2017 respectively.

The lower displacement entry sub-segment of motorcycles (75-110 cc) has led the
volume growth in the motorcycle segment during the current fiscal, supported by a
general improvement in rural demand sentiment on expectations of a normal
monsoon. This is expected to continue into subsequent quarters, with cash inflows
from the kharif crop and the upcoming festive season expected to support rural
sentiment and sales over the near term. While the higher displacement premium
motorcycles (>250-cc) continued their healthy growth streak, the other motorcycle
sub-segments reported mixed performance during the current fiscal.

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Going forward too, the higher displacement sub-segments of motorcycles are
expected to continue their healthy growth streak, supported by the premiumisation
trend in the country, with increasing disposable incomes and the current favourable
demographic split.

Source Indian Two Wheeler Industry Analysis Research Report. (2017, December
13).

Hero and Honda consolidate their dominance in motorcycle and scooter

segments respectively while Bajaj loses out

Hero MotoCorp Limited (Hero MotoCorp): Recovery in demand in the largest

motorcycle sub-segment (entry level), which accounts for close to 60% of the total
segment, and Hero MotoCorp’s continued dominance in the sub-segment, supported
expansion in its overall market share in the motorcycle segment to 52% during 4M
FY2017, an improvement of 96 bps from FY2017 levels; this was in spite of absence
in the fast growing higher displacement premium motorcycle sub-segments. During
the same period, however, the OEM’s share in the scooter segment further eroded to
12.5% (14.7% in FY2017).

Bajaj Auto Limited (Bajaj): Bajaj conceded its position as the second largest
motorcycle manufacturer to Honda during 4M FY2018, with market share dropping
down to 14% from 18.0% during FY2017. With many of the OEMs carrying out
channel-filling measures actively post BS IV implementation in April 2017, while Bajaj
had commenced the same from January 2017 with its BSIV compliant vehicles, the
OEM has lost out on market share significantly during the first few months of
FY2018.

Honda Motorcycle and Scooter India (Honda): Honda remains the dominant
market leader in the scooter segment during 4M FY2018 with a market share of
59.4%, further strengthened from FY2017 levels of 56.9%. The OEM has benefited
from continued strong demand for its Activa model, increasing acceptance of
scooters in the market, and additional capacities that have come on-stream with its

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scooter-only facility in Gujarat. Overall, the OEM expanded its market share in the
domestic two-wheeler market from 27% during FY2017 to 30.2% in Q1 FY2018,
benefitting from its market share gains in the scooter segment.

TVS Motor Company Limited (TVS): TVS remains the third-largest two-wheeler
player, supported by its presence across product segments. The OEM displaced
Hero MotoCorp from its position as second-largest scooter manufacturer during
FY2017 and has maintained the same during the current fiscal. It has also emerged
as the largest player in the 150-250 cc sub-segment of motorcycles on the back of
healthy demand for its Apache model.

Source Indian Two Wheeler Industry Analysis Research Report. (2017, December
13).

Firming up of commodity prices and increased costs related to BS-IV hurt

profitability of two-wheeler OEMs

The aggregate revenues of the four listed two-wheeler OEMs continued their positive
growth trajectory during Q1 FY2018, supported by improved volume off-take and
price hikes undertaken. However, the operating profit margins moderated on a YoY
basis, with firming up of commodity prices and increased costs related to BS-IV
compliance. Furthermore, the one-time GST compensation given to dealers by the
OEMs also had a marginal impact on the margins. Although price hikes have been
undertaken by most OEMs to pass on the increased costs to consumers, it is unlikely
that the operating profitability would return to the historic highs reported during the
period of soft commodity prices over the past two fiscals.

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CASH CONVERSION CYCLE

The cash conversion cycle is a metric used to gauge the effectiveness of a

company's management and, consequently, the overall health of that company. The
calculation measures how fast a company can convert cash on hand into inventory
and accounts payable, through sales and accounts receivable, and then back
into cash.

All companies have a negative cash conversion cycle. Hero MotoCorp had cash
conversion cycle of -26 days, it is arrived at as below

Hero MotoCorp’s CCC = 14+18 – 58 =-26

Hero MotoCorp took 14 days to sell its finished product, it collected the money in 18
days and it paid it suppliers in 58 days.

In this case the suppliers funded the working capital of Hero Motocorp and the
company enjoyed the funds for 26 days before it finally paid its suppliers.
Companies in the spot are in a very good position as they do not have to invest their
funds in working capital.

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2 Wheeler Industry in BRAZIL

Two-wheeler market in South America is projected to cross USD7 billion by 2021.

Two-wheeler market in South America has been segmented on the basis of type into
motorcycles and scooters, out of which motorcycle two-wheeler type dominated
South America two-wheeler market during 2011-2015, and the same trend is
anticipated to continue through 2021.

Leading two-wheeler markets in South America include Brazil, Colombia and

Argentina. In 2015, these countries cumulatively garnered a volume share of more
than 75% in South America two-wheeler market.

Major companies operating in two-wheeler market in South America are Honda,

Yamaha, Dafra, Suzuki, Bajaj, Motomel, Mavilla, Kawasaki, Zanella, Lifan, Wanxin,
Zongshen, Shineray, Motor Uno, etc

On the basis of two-wheeler type, the market of South America has been categorized
into two segments, namely, motorcycles and scooters. During 2015, motorcycles
dominated the two-wheeler market in South America, due to number of advantages
such as quicker acceleration, better engine, larger fuel tank and is more easy to
maintain as compared to a scooter.

Moreover, motorcycle is expected to maintain its dominance in South America two-

wheeler market through 2021. Two-wheeler market in South America region is
largely concentrated in Brazil, Colombia and Argentina. Moreover, in 2015 above
mentioned countries cumulatively garnered a market
share of over 78% in South America two-wheeler market and these countries are
further anticipated to continue dominate the market during 2016-2021.

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SALES AND PRODUCTION STATISTICS

Below forecast statistic shows the sales value of motorcycle manufacture in Brazil
from 2009 to 2013, with forecasts up until 2020. By 2016, sales values of motorcycle
manufacture in Brazil are were projected to reach approximately 5.96 billion U.S.
dollars.

Below statistic represents the number of two-wheeler sales in Brazil between 2009
and 2014. In 2013, around 1.7 million two-wheelers were sold to customers in Brazil.
Southeastern Brazil is the region with the largest two-wheeler fleet, ahead of the
southern, northeastern, northern and center western regions.

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While above statistics shows that the two wheeler industry in Brazil is not in good
shape and the sales were continually on a downfall, the new data shared by
ABRACICLO shows some good signs.

(ABRACICLO, Press Release 2018) Last year (JAN – DEC 2018), 882,876 units
were manufactured, with strong growth in the last quarter.

Exports in the sector jumped 38.6%

The manufacturers of motorcycles installed in the Industrial Pole of Manaus (PIM)

presented stability in the production volumes of 2017 in relation to the previous year.
According to data from ABRACICLO, the Brazilian Association of Manufacturers of
Motorcycles, Mopeds, Scooters, Bicycles and Similar, 882,876 motorcycles were
manufactured in the 12 months of last year, while in 2016 887,653 units left the
factories, a difference of only 0 , 5%. The industry estimate is for growth of 5.9% in
volume to be produced in 2018.

The production of motorcycles in the last month of 2017 reached 69,008 units,
representing an increase of 110.3% compared to the same period of the previous
year, when 32,814 units were manufactured. In relation to November (83,106 units),
however, there was a decrease of 17%.

The signs of evolution in the sector's business have been perceived since the last
quarter of 2017, when 230,784 motorcycles were produced, corresponding to a 30%
growth over the same period of 2016 (174,654 units).

"The 2017 numbers strengthen the business recovery landscape of the motorcycle
industry, which conveys confidence in a year with positive results. With the continued
launch of new models and improved consumer purchasing power, including more
access to credit, sales should intensify throughout 2018, "said Marcos Fermanian,
president of Abraciclo.
ABRACICLO, the Brazilian Association of Manufacturers of Motorcycles, Mopeds,
Scooters, Bicycles and Similars, represents, in the country, the interests of two-
wheeled vehicles manufacturers, as well as investing in actions aimed at peace in
traffic and the practice of safe driving.

Wholesale Sales and Exports

Wholesale sales for concessionaires totaled 814,573 units in 2017, down 5.1%
compared to the same period in 2016 (858,120). Despite this, the on-lending to
stores in December (68,534) increased 22% compared to the same month of the
previous year (56,155). However, the 12th month of 2017 declined by 6.2%
compared to the number of units shipped to stores in November: 68,534 units versus
73,069, respectively.

Exports recorded an expressive increase of 38.6% in 2017 (81,789) compared to the

twelve months of 2016 (59,022). In the isolated analysis of December (7,107), an
increase of 11% was calculated over the same month of 2016, when 6,402
motorcycles were exported. However, in the comparison with November (7,677)
there was a fall of 7.4%.

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Argentina was the main destination for motorcycles shipped to other countries in
2017, with 56,847 units. Next are Colombia (7,767) and the United States (5,129
units).

Food & Beverage Outlets

Based on data from the National Registry of Automotive Vehicles (Renavam), retail
sales totaled 851,013 units throughout 2017, down 5.4% on the 899,793 motorcycles
issued in the previous year *. In December, 77,437 motorcycles were licensed,
representing a decrease of 4.2% over the same month of 2016 (80,837). In
comparison with November, there was an increase of 18.6% (65,277).

According to data from Renavam, in December the daily average of sales (3,872
units) increased 18.6% over November (3,264). However, in the comparison with the
same month of 2016 there was a reduction of 5.4% (3,674 units).

(*) Were disregarded the used mopeds, whose licensing next to Detrans became
compulsory from the Law No. 13,154, of 30.07.2015, and Resolution Contran n °
555/15 of 09.17.2015.

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OUTLOOK

INDIA

The domestic two wheeler industry’s volume growth was restricted to 6.9% in
FY2017 over the previous fiscal as the sector witnessed event driven headwinds that
included demonetisation in Q3FY2017 followed by Supreme Court order in
Q4FY2017 restricting registration of only BSIV compliant vehicles from 1st April
2017.

With the channel inventory of most OEMs shrinking sharply by end of FY2017
following liquidation of BSIII inventory, the first two months of FY2018 were
characterised by inventory replenishment driving the wholesale volumes.

Subsequently in June 2017, the trade undertook destocking in preparation of

implementation of Goods and Services Tax (GST) effective July 2017. Thus, the
growth rate for 4M FY2018 settled at 9.2% on YoY basis.

Notwithstanding the challenges faced till recently, ICRA expects domestic two
wheeler volumes to grow by 8-10% during FY2018 as demand recovers from both
rural and urban households.

The expectations of improved farm sentiments following two seasons of good crop as
well as reasonable expansion in agricultural output in current kharif season despite
muted price outlook coupled with benefits from rural employment guarantee schemes
augur well for the demand from rural population.

On the other hand, urban sentiments are expected to draw support from staggered
pay revision for state Government employees and pensioners as well as muted CPI
inflation.
(Indian Two-Wheeler Industry https://www.icraresearch.in/)

Below graph shows the trend of motorcycle demand in Major Countries

17
BRAZIL

Below graph shows the trend of motorcycle demand in BRAZIL and Advanced
Countries

Projections updated

From the volumes made in 2017, Abraciclo updated the variations of the sector
projections for 2018, which had been released in early December and, therefore,
were still based on estimates for the closing of that month.

The updated projections are as follows:

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CONCLUSION

Based on the research conducted it is quite clear that the Indian Two Wheeler
industry is blooming at the moment and have continuously shown a positive trend.
Factors influencing Indian Two Wheeler Industry

• Infrastructure development, especially in rural areas

• Increase in disposable income
• Innovation- development and introduction of new products, new technology,
etc.
• Product characteristics like greater utility (in terms of road space, parking
space, low cost of acquisition, etc.)
• Ease / Efficiency / Economy

Similarly on the other hand, Brazilian two wheeler industry have shown a negative
growth continuously over a period of time. Also there are no signs of improvement in
neat future.
The sector's reliance on low- income buyers makes it particularly susceptible to
sharp downturns during recessions.
The reason for this contrasting motorcycle forecast for 2018 lies in the fact that
motorcycles were not subject to the government's import quota program during 2016
so will not benefit from its removal in 2017. Instead, motorcycle sales will track the
broader decline in household spending over the year.
Demand for motorcycles will fall as household private consumption declines. And
also the unemployment rate to a forecasted 8.5% by year-end.
This mix of rising unemployment and falling economic activity will lead to a
forecasted 1% decline in private consumption as consumers will cut back on
discretionary spending in an attempt to build up savings and protect themselves
against the damaging effects of job losses.
This will, in turn, drag on new motorcycle sales.
Industry Trend Analysis - Recession Will Spark Motorcycle Sales Slump - JAN 2017.
(n.d.). Retrieved April 15, 2018, from http://www.autosinsight.com/industry-trend-
analysis-recession-will-spark-motorcycle-sales-slump-jan-2017

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REFERENCES

Automotive Two Wheeler Market - 2019 By Type, Technology & Geography. (n.d.).
Retrieved April 11, 2018, from https://www.marketsandmarkets.com/Market-
Reports/automotive-two-wheeler-market-214680653.html

Brazil auto sales to fall 10% in 2016 – UBS. (n.d.). Retrieved April 11, 2018, from
https://www.icis.com/resources/news/2015/10/13/9932707/brazil-auto-sales-to-fall-
10-in-2016-ubs/

https://www.icraresearch.in/

https://www.marklines.com/en/report/rep1521_201608

https://www.statista.com/forecasts/424485/brazil-motorcycle-manufacture-sales-
value-forecast-cnae-3091

Indian Two Wheeler Industry Analysis Research Report. (2017, December 13).
Retrieved April 11, 2018, from https://www.fintapp.com/blog/two-wheeler-industry-
analysis-research-report/

Laporte, J. (n.d.). Topic: Automotive Industry in Brazil. Retrieved April 11, 2018, from
https://www.statista.com/topics/1902/automotive-industry-in-brazil/

TechSci Research. (2017, August 17). South America Two Wheeler Market Forecast
2021- Brochure. Retrieved April 11, 2018, from
https://www.slideshare.net/TechSci_Research/south-america-two-wheeler-market-
forecast-2021-brochure?from_action=save

https://www.statista.com/statistics/615553/two-wheeler-sales-in-brazil/

http://thebrazilbusiness.com/article/market-for-motorcycles

http://www.abraciclo.com.br/dados-do-setor/38-motocicleta/77-balanco

Press Release 2018 http://www.abraciclo.com.br/2018/1147-producao-de-

motocicletas-fecha-o-ano-com-estabilidade-e-projeta-crescimento-de-5-9-para-2018

http://www.autosinsight.com/industry-trend-analysis-recession-will-spark-motorcycle-
sales-slump-jan-2017

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