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A SIP Report On Marketing On Hero
A SIP Report On Marketing On Hero
ON
Manoj Sahu
Submitted by:
Aditya Kedia
PC18MBA-010
MBA 3rd Semester
I hereby declare that the project entitled “Marketing Strategies of Hero Motocorp” under the
guidance of “Mr. Manoj Sahu” submitted in the partial fulfillment of degree of Master of
business administration (MBA) from “Gangadhar Meher University”. This is my original
work and this project work has not formed the basis for the award of any Degree to the best of
my knowledge.
ADITYA KEDIA
PC18MBA-010
Signature of student
Place: _______
Date: __/__/____
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CERTIFICATE
This is to certify that project title “Marketing Strategies of Hero Motocorp” is the original
work of ADITYA KEDIA of MBA 3th Semester and has been duly completed under my
guidance and supervision up to my satisfactory level.
This work has been done in partial fulfillment of the requirement for the award of the degree of
MBA from (GANGADHAR MEHER UNIVERSITY) and has not been submitted anywhere in
any other university for the award of any degree.
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ACKNOWLEDGEMENT
It is pleasure to acknowledge many people who knowingly and unwittingly helped me, to
complete my project. First of all let me praise god for all the blessings, which carried me through
all those years.
First & foremost, I would like to express my regards to Mr.Rudra Srivastav(External Guide)
for his constant encouragement and support. I would also like to express my immense gratitude
towards all the lecturers of our college for providing the invaluable knowledge, guidance,
encouragement extended during the completion of this project.
I extend my sincere gratitude to all my teachers and guide who made unforgettable contribution.
Due to their sincere efforts I was able to excel in the work entrusted upon me.
Last but not the least; I am grateful to my parents and my friends and all well-wishers for their
moral support and encouragement during the entire period of time.
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EXECUTIVE SUMMARY
The Indian automotive industry consists of five segments: commercial vehicles; multi-utility
vehicles & passenger cars; two-wheelers; three-wheelers; and tractors. With 7,822,963 units sold
in the domestic market and 753,591 units exported during the first nine months of FY2012. The
two-wheeler sales have witnessed a spectacular growth trend since the mid nineties. India is the
second largest producer and manufacturer of two-wheelers in the world. Indian two-wheeler
industry has got spectacular growth in the last few years. Indian two-wheeler industry had a
small beginning in the early 50s. The Automobile Products of India (API) started manufacturing
scooters in the country. Bikes are a major segment of Indian two wheeler industry, the other two
being scooters and mopeds. Indian companies are among the largest two-wheeler manufacturers
in the world. Hero Honda and Bajaj Auto are two of the Indian companies that top the list of
world companies manufacturing two-wheelers. The two-wheeler market was opened to foreign
companies in the mid 1980s. The openness of Indian market to foreign companies leads to the
arrival of new models of two-wheelers into India. Easy availability of loans from the banks,
relatively low rate of interest and the discount of prices offered by the dealers and manufacturers
lead to the increasing demand for two-wheeler vehicles in India. This lead to the strong growth
of Indian automobile industry
This research work is also based on comparative study of two-wheeler industry. The title of this
study is “Marketing Stratigies of Hero MotoCorp”. The main objective of this research is to
perform the comparative analysis of Hero MotoCorp with other industry players. Researcher has
used the both primary and secondary data to accomplish all the research objectives. Researcher
has done the questionnaire survey to gather the primary data. The interviews were conducted
with the customers of two-wheelers. This study is descriptive in nature as it includes the
questionnaire survey, which is an attribute of descriptive study.
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TABLE OF CONTENTS
1. EXECUTIVE SUMMARY...................................................................................4
2. INTRODUCTION ................................................................................................6
3. COMPANY PROFILE........................................................................................20
5. LITERATURE REVIEW....................................................................................31
7. RECOMMENDATIONS.....................................................................................63
9. BIBLIOGRAPHY...............................................................................................66
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INTRODUCTION
The Indian two-wheeler (2W) industry recorded sales volumes of 3.4 million units in Q3, 2011-
121, a growth of 11.0% (YoY) but flat (QoQ). Although the YoY volume growth of the industry
remained in double digits, the pace of growth during the last quarter was at its lowest gear in the
last three years. The deceleration in growth was contributed mainly by the motorcycles segment
which grew at a much lower rate of 9.2% (YoY) in Q3, 2011-12; even as the scooters segment
continued to post 20%+ (YoY) expansion. Overall, ICRA expects the domestic 2W industry to
report a volume growth of ~13% in 2011-12 as we expect growth to fade further in Q4, 2011-122
due to base effect.
In an environment where the northward movement of inflation, fuel prices and interest rates has
been the nemesis of the Indian automobile industry at large, the 2W industry has been the most
resilient reflected in its healthy volume growth of 15.0% (YoY) in 9m, 2011-12. The growth has
been supported by various structural positives associated with the domestic 2W industry
including favourable demographic profile, moderate 2W penetration levels (in relation to several
other emerging markets), under developed public transport system, growing urbanization and
expected strong replacement demand, besides moderate share of financed purchases. ICRA
expects these strengths, coupled with the OEMs’ thrust on exports, to aid the 2W industry to
report a volume CAGR of 10-12% over the medium term to reach a size of 21-23 million units
(domestic + exports) by 2015-16.
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Trend in Sales Volumes of the Indian 2W Industry
Although the YoY volume growth of the industry remained in double digits, the pace of growth
during the last quarter was at its lowest gear in the last three years. In an environment where the
increase in inflation, fuel prices and interest rates has been the archenemy of growth in the Indian
automobile industry at large, the 2W industry has been the most tough and was reflected in its
vigorous volume growth.
There seems to be an early mix shift underway - favoring scooters over bikes (beneficial to
Honda) and favoring executive segment over premium (benefits Hero over Bajaj) has been seen.
While growth in scooters appears structural (driven by appeal of the scooter as a vehicle that cuts
across gender and age biases), while the growth in executive segment appears cyclical as
consumers baulk at high fuel prices and downshift to more fuel efficient products. A long-term
trend of consumers preferring premium bikes should resume – volumes should recover, though
timing will remain uncertain - maybe in FY14, but potentially after that too.
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To understand deeper on the available segments (Motorcycles) and the respective offerings -
1) Economy Segment -
2) Executive Segment -
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3) Premium Segment -
Even though the number of offerings in the premium segment seems high, maximum volume
churners still remain the products in executive & economy segments. With an aggressive pricing
for Pulsar 200 NS & Duke 200; Bajaj plans to gain strategically in terms of volumes over the
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period of time. Bajaj's dominance in Executive segment is the the primary reason for its high
operating margin and thus emerge as one of the most profitable 2-wheeler OEMs.
Bajaj Auto is well positioned in the motorcycle segment as the 2nd largest player with around
30% market share. Over the last decade, the company has successfully changed its image from a
scooter manufacturer to a two-wheeler manufacturer. Its product range encompasses scooterettes,
scooters and motorcycles. Though the company is miles behind Hero in terms of sales volumes,
it is now India’s most profitable two-wheeler manufacturer.
TVS Motor Company Limited is the third largest two-wheeler manufacturer in India. It is the
flagship company of the parent TVS Group employing over 40,000 people with an estimated
15 million customers. It manufactures motorcycles, scooters, mopeds and auto rickshaws. TVS
Motor is credited with many innovations in the Indian automobile industry, notable among them
being the introduction of India's first two-seater moped, the TVS 50cc. The company became the
leader in its category of sub 100 cc mopeds, having sold 7 million units. It also introduced
the TVS Scooty, which is India's second largest brand in the scooterette segment. The TVS Jive
launched in November 2009 became India's first clutch-free motorbike aimed at a stress-free
rider experience. But the growth in F12 was dismal and seems to lose ground against
competition.
Honda Motorcycle and Scooter India, Private Limited (HMSI) is the wholly owned Indian
subsidiary of Honda Motor Company, Limited, Japan. Founded in 1999, it was the fourth Honda
automotive venture in India, after Hero Honda, Kinetic Honda Motor Ltd and Honda Siel Cars
India. The entry of Honda into the Indian market as HMSI began with the launch of the Honda
Activa, a 100 cc scooter. A slightly modified trendier version of the Activa was soon launched, as
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the Honda Dio. Honda Eterno was launched thereafter to add to the portfolio of HMSI's scooters.
The Honda Unicorn was the first motorcycle released by HMSI. The Honda Shine has since been
released.
India Yamaha Motor, IYM (officially India Yamaha Motor Private Limited) is
an Indian subsidiary of Yamaha Motor Company, formed in 2008 as a joint venture
with Mitsui. It produces a range of motorcycles for domestic consumption and export. Yamaha
motors in India have been present in the market of low range economy bikes for a long time. All
bikes in their store were designed for mass market, but with the introduction of FZ-16, FZ-
S, Fazer, and R15 they have made an impression on the mid range bike market in India.
Suzuki Motorcycle India Pvt. Ltd. is a subsidiary of one of the world's leading two-wheeler
manufacturer Suzuki Motor Corporation. The company’s products include motorcycles and
scooters. The company was incorporated in 1997 in India.
Mahindra Two Wheelers Limited (MTWL) is backed by the Mahindra Engineering Services
(MES), the Italy-based design house, engines engineering and Taiwan’s Sanyang Industry
Company Limited (SYM). In 2011 Mahindra became the first Indian two-wheeler manufacturer
to enter the Moto Grand Prix Championships. This two wheeler maker formally entered the two
wheeler industry by acquiring with the successful acquisition of business assets of Kinetic Motor
Company Limited.
The Indian motorcycles segment continues to be dominated by Hero MotoCorp which has
maintained its market share at over 55% in the domestic motorcycles segment over the last five
quarters. The top three players accounted for 89.5% of the industry’s volumes in Q3, 2011-12
(92.0% in 2007-08), with Honda Motorcycles reclaiming its spot as the third largest player, a
position which it had lost out to TVS in the previous quarter after having retained it since Q4,
2009-10. In the 75-125cc segment of motorcycles (that represented 71% of total motorcycles
sales volumes in 9m, 2011-12), Hero MotoCorp continues to be a strong market leader with a
share of 74.2% in 9m, 2011-12 (70.4% in 9m, 2010-11). In the >125cc segment of motorcycles,
while Bajaj Auto continues to account for nearly half the segment’s volumes (49.1% in 9m,
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2011-12), Yamaha has been the fastest growing having improved its market share from 8.1% in
9m, 2010-11 to 10.1% in 9m, 2011-12.
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Trend in Market Share in Motorcycles Segment (Domestic)
Barring Q1, 2011-12, the growth in scooter segment’s sales volumes has generally outperformed
that of the motorcycles segment, partly due to the former’s smaller base. In Q3, 2011-12 too, the
sales volumes of the domestic scooters segment at ~660,000 units recorded a growth of 21.6%
(YoY), higher than the 9.2% growth in motorcycle sales. With this, the share of the scooters
segment in the total domestic two-wheeler volumes increased to 19.4% in Q3, 2011-12 from
17.6% in 2010-11.
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Trend in Quarterly Sales Volumes of Scooters (Domestic)
Overall, Honda Motorcycles continues to maintain its leadership position in the scooters segment
through its flagship brand Activa (besides Aviator and Dio) enjoying a market share of 50.7% in
Q3, 2011-12. While capacity shortfall at the company’s plant at Manesar (Haryana) had
restricted its volume growth in the recent past, the company began commercial production at its
new plant at Tapukara (Rajasthan) in July 2011. This has allowed the company to consolidate its
market position over the last two quarters. However, Hero MotoCorp’s demonstrated success in
improving market share (through its sole brand Pleasure) coupled with new scooter models
proposed to be launched by Hero MotoCorp, TVS and Yamaha over the short to medium could
imply shrinkage of market share gap between the market leader and others over time.
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Trend in Market Share in Scooters Segment (Domestic)
Hero MotoCorp
Revenues: In Q3, 2011-12, Hero MotoCorp’s revenues at Rs. 5,983.6 Crore grew by 16.9% YoY
and 3.4% QoQ, supported by 11.3% YoY and 2.9% QoQ increase in sales volumes and 5.0%
YoY and 0.5% QoQ increase in average realizations. Till 2010-11, exports accounted for 2.5% of
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the company’s sales volumes. Although since the time Hero MotoCorp’s JV agreement with its
erstwhile partner Honda (Japan) ceded in Dec 2010, the company has been unable to scale up its
exports much; it is likely to get more aggressive on the exports front as and when its fourth
manufacturing plant gets established (for which the company is mulling a location near one of
the ports).
Operating Profit Margins (OPM): Hero MotoCorp’s OPM at 15.0% in Q3, 2011-12, declined
marginally by 15 basis points (bps) QoQ but increased by 454 bps YoY. The YoY expansion in
HMCL’s core EBITDA margins, however, was relatively lower at 194 bps YoY on exclusion of
the estimated royalty payments made by HMCL to its erstwhile partner Honda Motor Company
(HMC, Japan) in Q3, 2010-11. Going forward, HMCL’s ability to sustain the scale required to
absorb the additional expenses being incurred for creating a new corporate brand, introduction of
new models, building of R&D capability and exploring overseas markets will govern its
profitability.
Net Profits: Hero MotoCorp’s Q3, 2011-12 PAT at Rs. 613.0 Crore grew by 42.9% YoY and
1.6% QoQ. Overall, the company’s revenues and PAT touched a record high in Q3, 2011-12.
Bajaj Auto
Revenues: In Q3, 2011-12, Bajaj Auto’s revenues at Rs. 5,063.2 Crore grew by 21.2% YoY but
declined by 3.9% QoQ) led by continued strong exports growth in both the 2W as well the three-
wheeler (3W) segments; increase in average realization due to both price increase as well as
favourable change in product mix; and favourable currency movement on exports. The company
management’s outlook on exports (~32% of 2W volumes in Q3, 2011-12) remains robust with a
target to achieve export of 1.5 million units in 2011-12E, reflecting a growth of 25% over 2010-
11.
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Operating Profit Margins (OPM): Bajaj Auto’s OPM improved to 21.0% in Q3, 2011-12,
higher by 63 bps YoY and 89 bps QoQ. The improvement in margins was supported by relatively
higher realizations from exports, operating leverage benefits and rationalization of spends on
sales promotion. The DEPB benefits were discontinued post September 2011; however, BAL has
undertaken price increase on export models (besides price increase on domestic models), which
should allow the company to sustain its margins going forward.
Net Profits: In Q3, 2011-12, while Bajaj Auto’s OPBITDA growth at 25.0% (YoY) was robust,
the company’s PAT at Rs. 795.2 Crore grew at a relatively lower rate of 19.2% (YoY). This was
due to the exceptional MTM loss of Rs. 58.9 Crore recorded by the company in Q3, 2011-12
related to the valuation of forward exchange contracts. This is a notional loss and would get
reversed on maturity of the underlying contracts (assuming the company’s actual exports remain
in line with its budgeted estimates during the term of the contract).
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TVS Motor
Revenues: In Q3, 2011-12, TVS’ Net Sales at Rs. 1,762.2 Crore grew by 7.0% YoY but declined
by 11.5% QoQ. While the company’s total 2W volumes in Q3, 2011-12 grew by 0.9% YoY and
total three-wheeler (3W) volumes declined by 11.0% YoY, the revenue growth was much higher
by virtue of favourable change in product mix. Thus, notwithstanding the increase in proportion
of low-ticket mopeds in TVS’s domestic 2W sales volumes from 39% in Q3, 2010-11 to 41% in
Q3, 2011-12, the increase in proportion of >100cc scooter (Wego) and >125cc motorcycles
(mainly Apache RTR family) in its sales mix enabled it to improve its average realization YoY.
Operating Profit Margins (OPM): TVS’ OPM at 6.5% in Q3, 2011-12 was 44 bps higher YoY
but 40 bps lower QoQ. While the company’s product mix in Q3, 2011-12 was in its favour on
YoY basis, its relative deterioration on QoQ basis accordingly translated into movement in OPM.
Net Profits: While TVS recorded OPBITDA growth of 14.6% YoY in Q3, 2011-12, the
company’s PAT growth at 1.4% YoY was much lower on account of higher tax rate and lower
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‘other income’. Also, the company’s PAT in Q3, 2011-12 declined by 26.1% on QoQ basis both
due to negative revenue growth (QoQ) as well as decline in OPM on QoQ basis.
According to industry body, the Society of Indian Automobile Manufacturers, the Indian two-
wheeler industry is expected to post an annual growth of 11-12 per cent, and the market is
expected to double every four years till 2020. According to data from Nomura and Crisil, as
many as 10 million two-wheelers were sold in India 2011-12. Vehicles in the executive
segment formed the bulk of sales at 6.5 million, followed by the economy segment (1.8
million) and premium segment (1.7 million).
The recent series of hikes in the price of petrol have played a significant role in the sale of
two-wheelers, according to SIAM, as most first-time four-wheeler buyers in rural India and
tier II and tier III cities have deferred their purchases. Two-wheelers account for a whopping
76 per cent of market share in the automobile sector in Asia’s third-largest economy.
Passenger vehicles account for 16.25 per cent.
Barely 18 months after India’s most successful two-wheeler marriage ended, Honda made its
ambitions clear by launching the 110cc Dream Yuga, its first low-cost motorcycle meant to
target the budget market ruled by Hero and Bajaj. The Dream Yuga comes at an
attractive Rs. 44,642, and will compete with Hero’s Splendor, which costs Rs. 42,950. The
Splendor is India’s top-selling bike.
Other two-wheeler companies such as Yamaha and Suzuki, too, are steadily focusing on the
mass-market segment in an attempt to dislodge the two giants—Hero and Bajaj. Yamaha last
month announced a new $280 million factory in India to nearly triple its capacity to 2.8
million motorcycles by 2018, while Suzuki Motor, which is expected to launch a mass-
market offering soon, is building a new factory to take its India capacity to close to one
million motorcycles by 2014.
Hero has a market share of around 56 per cent in the overall domestic two-wheeler market.
At 25.5 per cent, Bajaj comes a distant second, but maintains a healthy lead over Honda and
TVS, which have 7.5 per cent and 6.2 per cent market share, respectively. In terms of volume
growth over the previous fiscal year, Hero leads with 16.5 per cent, followed by Honda (13.6
per cent), Bajaj (7.4 per cent) and TVS Motors (minus 0.3 per cent). Top brands from each
stable are as follows: Hero – Passion, Splendor and Pleasure (scooter); Bajaj – Pulsar and
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Discover; Honda – Unicorn, Twister and Activa (scooter); TVS – Flame, Apache and Scooty
(scooter)
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COMPANY PROFILE
Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of
two - wheelers, based in India. In 2001, the company achieved the coveted position of being the
largest two-wheeler manufacturing companyin India and also, the 'World No.1' two-wheeler
company in terms of unit volume sales in a calendar year. Hero MotoCorp Ltd. continues to
maintain this position till date.
Vision
The story of Hero Honda began with a simple vision - the vision of a mobile and an empowered
India, powered by its bikes. Hero MotoCorp Ltd., company's new identity, reflects its
commitment towards providing world class mobility solutions with renewed focus on expanding
company's footprint in the global arena.
Mission
Hero MotoCorp's mission is to become a global enterprise fulfilling its customers' needs and
aspirations for mobility, setting benchmarks in technology, styling and quality so that it converts
its customers into its brand advocates. The company will provide an engaging environment for
its people to perform to their true potential. It will continue its focus on value creation and
enduring relationships with its partners.
Strategy
Hero MotoCorp's key strategies are to build a robust product portfolio across categories, explore
growth opportunities globally, continuously improve its operational efficiency, aggressively
expand its reach to customers, continue to invest in brand building activities and ensure customer
and shareholder delight.
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Manufacturing
Hero MotoCorp two wheelers are manufactured across three globally benchmarked
manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which are located in
the state of Haryana in northern India. The third and the latest manufacturing plant is based at
Haridwar, in the hill state of Uttrakhand.
Technology
In the 1980's the Company pioneered the introduction of fuel-efficient, environment friendly
four-stroke motorcycles in the country. It became the first company to launch the Fuel Injection
(FI) technology in Indian motorcycles, with the launch of theGlamour FI in June 2006.
Its plants use world class equipment and processes and have become a benchmark in leanness
and productivity.
Hero MotoCorp, in its endeavor to remain a pioneer in technology, will continue to innovate and
develop cutting edge products and processes
Products
Hero MotoCorp offers wide range of two wheeler products that include motorcycles and
scooters, and has set the industry standards across all the market segments.
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Distribution
The Company's growth in the two wheeler market in India is the result of an intrinsic ability to
increase reach in new geographies and growth markets. Hero MotoCorp's extensive sales and
service network now spans over to 5000 customer touch points. These comprise a mix
of authorized dealerships, service & spare parts outlets, and dealer-appointed outlets across the
country.
Brand
The new Hero is rising and is poised to shine on the global arena. Company's new identity "Hero
MotoCorp Ltd." is truly reflective of its vision to strengthen focus on mobility and technology
and creating global footprint. Building and promoting new brand identity will be central to all its
initiatives, utilizing every opportunity and leveraging its strong presence across sports,
entertainment and ground- level activation.
2010-11 Performance
Milestones
1983
Joint Collaboration Agreement with Honda Motor Co. Ltd. Japan signed
Shareholders Agreement signed
1984
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1985
1987
1989
1991
1992
Raman Munjal Vidya Mandir inaugurated - A School in the memory of founder Managing
Director, Mr. Raman Kant Munjal
1994
1997
1998
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1999
2000
2001
2002
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, 2001, 2002)
New motorcycle model - "CD Dawn" introduced
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New motorcycle model - "Splendor +" introduced
New motorcycle model - "Passion Plus" introduced
New motorcycle model - "Karizma" introduced
2004
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
15 million production milestone achieved
2007
Hero Honda is the World No. 1 for the 6th year in a row
New 'Splendor NXG' launched
New 'CD Deluxe' launched
New 'Passion Plus' launched
New motorcycle model 'Hunk' launched
20 million production milestone achieved
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2008
2009
2010
2011
New licensing arrangement signed between Hero and Honda (Hero Honda is renamed as Hero)
Launch of new refreshed versions of Glamour, Glamour Fi, CBZ Xtreme, Karizma
Crosses the landmark figure of 5 million cumulative sales in a single year
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SWOT Analysis of Hero MotorCorp
Strength
Weakness
Opportunities
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3 Scooter market is increasing thus they can be India’s leader in scooter market.
4 Financial help easily available to customers.
5 Relatively low rate of interest and the discount of prices offered by the dealers
and manufacturers lead to the increasing demand for two wheeler vehicles.
6 Large market for the high performance segment which is increasing with the
upliftment of the lifestyle of people.
7 Purchasing power has increased of customers.
8 Strategic alliance with EBR and AVL for technology transfer.
Threat
1 Honda motorcycles and scooters India has become aggressive and launching
products for mass market in 100cc eg. Dream yuga
2 Bajaj motors is a strong competition in premium segment
3 FDI announced in automobiles is 100%
4 Petrol prices are increasing thus sale of premium segment bikes may decrease
5 Aluminum and steel prices will increase.
6 Strong competition from Indian as well as international brands
7 Dependence on government policies and rising fuel prices
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RESEARCH OBJECTIVE AND METHODOLOGY
OBJECTIVE:
a. To do the comparison in two wheeler industry with special reference to Hero Motorcop
RESEARCH METHODOLOGY:
Secondary data: Company website, newspaper, magazines, books, articles and online journals
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LITERATURE REVIEW
Indian two wheeler industry saw a slight growth of 1.04% during the April-May period of 2013
compared against the same period of 2012. A total of 2,374,253 units were sold during the period
as 2,349,814 units were sold in April-May 2012.
Hero Motor Corp is the biggest manufacturer in Indian market who sold 1,035,823 units during
April-May 2013, thus registered a 3.54% decline in sales as against same period the previous
year where 1,073,815 units were sold. The provision of giving 5 year warranty on every vehicle
didn’t pay off well for Hero.
The notable highlight of the period is the flourishing sales of Vespa, as they sold 8280 units
during the period April-May 2013 and posted a growth of 247.02% as against same period last
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year. Honda, Yamaha and Royal Enfield had also posted growths while Suzuki sales took a
downturn.
The period April-May of 2013 saw the share of Hero came down to 43.63%. Honda gain some
shares and put themselves at second place replacing Bajaj. Honda holds 19.79% share as per
April-May 2013 while Bajaj has now 17.35% share.
Motorcycles
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Sales of Hero declined by 7.27% while Yamaha also saw their sales went down by 9.39%.
Apparently Honda registered 21.33% growth. Royal Enfield and Harley Davidson also wrapped
up the month with concrete sales figures.
Triggered by the decline of sales Hero’s share in motorcycle segment came down to 53.60% for
April to May period of 2013. Their former partner Honda with improved share of 11.67% stays
as third place in terms of sales in Indian two wheeler market.
Scooters
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The sales of scooter witnessed an encouraging growth by 13.88% in the April to May period of
2013 as compared to same period of 2012. Hero motor Corp had fared an uplifting growth of
44.94% during the period April-May 2013 as against April-May 2012. The newly launched
Vespa has also reassured hopes for Piaggio as 8280 units were sold out in April – May this year.
M&M has suffered a steep decline of 48%.
Honda remains mater leader in this segment and owns 50.92% of market share. Hero has again
grew in market share for the period April-May of 2013 and now holds 21.07% of Scooter market
share. To recapture the lost market share , Honda has now introduced 110cc Activa-I priced at
around Rs 44,000 and this will provide tough competition to Hero and Suzuki in coming months.
Moped
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TVS is the lone player in moped segment. But their sales had declined by 11.45% for the period
April-May of 2013 as against same period the previous year. To increase Moped sales, TVS has
started TV commercial recently.
In the current negative sentiment of the Auto sector, SIAM has lowered the growth guidance for
the four wheeler segment but has retained the guidance for the two wheelers. In our latest
analysis in our flagship magazine Dalal Street Investment Journal we have covered comparative
analysis of countries top two wheeler companies named Bajaj Auto and Hero MotoCorp.
Bajaj Auto (BAL) and Hero MotoCorp (HMCL) together have 80% of market share in the
domestic motorcycle segment. Interesting both the companies are also Sensex participants with a
weight of 2.99%. The growth angle to the companies is that they have exposure to the rural
segment where there is the next wave of growth.
The distinctive feature of their business is that BAL has three wheeler categories. BAL also
derives exports revenues which forms a major part of its revenues. HMCL also has exports
revenues but it does not have any three wheeler category.
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In the highly competitive market, both the companies have a long list of brands. BAL has a top
brand Pulsar while HMCL also has brands like CBZ, Karizma, and Splendor etc. Over the years
HMCL has played volume game while BAL has placed most of its brands in the premium
segment. BAL also markets foreign brands in India. HMCL on the other hand is also expected to
enter in the premium segment and has sourced the high end technology in partnership with a US
based company Erik Buell Racing (EBR).
On the financial front HMCL has shown a volume as well as revenue growth over the past few
years and in that terms it has outpaced the industry as well as its rival BAL. Bajaj on the other
hand is more profitable and has show a very good margin improvement in last 5 years.
There are also few other factors that we have considered in our analysis such as valuation, the
issues of the inventory pile ups, Capex plans, tax outgo’s etc and one can read that in detail in the
three page analysis in the magazine.
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SWOT Analysis of Bajaj Auto
Strengths
Weaknesses
Threats
Opportunities
Strength
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1. Huge brand equity and one of the biggest players in the two wheelers Indian market
4. TVS Group has over 40,000 employees and a customer reach of over 15 million
6. ‘Scooty’ as a brand has become a second name for the scooterrate segment
Weakness
Opportunity
Threats
40
SWOT Analysis of Yamaha Motors
Strength
3. One of the major brand in motorsport like MotoGP, World superbike etc
4. Yamaha produces scooters from 50 to 500 cc, and a range of motorcycles from 50 to 1,900 cc,
including cruiser, sport touring, sport, dual-sport, and off-road
Weakness
Opportunity
Threats
41
On one hand, growing economic well-being reflected in rising per capital GDP is likely to make
2Ws more affordable; on the other, various fundamental drivers such as low 2W penetration (in
relation to several other emerging markets), favorable demographics growing urbanization and
swelling replacement demand are expected to enable the growth momentum to sustain over the
medium term.
India’s per capita real GDP growth of 7% (CAGR) over the last six years has contributed
substantially towards raising the standard of living of households, which in turn has been one of
the key drivers of growth for the country’s automobile industry. However, income growth is
likely to have been uneven across the different income deciles. Income at the lower end of the
distribution scale, which comprises the 2W target segment, is likely to have grown at a rate
below the overall per capita income growth rate. Yet economic wellbeing has led to a significant
increase in the number of households coming within the 2W target segment over the past few
years. As per NCAER’s estimates, the number of households having annual income between Rs.
200,000- 500,000 is estimated to have increased to 22 million in 2015-16, a scale-up by a factor
of 2.5x over 2011-12
Incidentally, this scale-up is almost similar to the expansion in the domestic 2W industry size (by
volumes) during this period. Given that economic and population growth would further expand
the universe of low to middle income earners who have the threshold purchasing future as well.
Also, significantly, 2W purchase prices and operating expenses (inflation power to buy a 2W, the
pattern of healthy industry growth is likely to hold in the foreseeable adjusted) are now around
36% lower than they were a decade back, considering that vehicle prices have not escalated
much over the years, indicating increasing in affordability of 2Ws
42
Under-penetrated market as compared to other emerging markets to provide adequate
headroom for future growth
Although India is the second largest 2W market in the world in terms of sales volumes (after
China), the 2W household penetration level in the country is much lower at around 36% than in
some of the other emerging markets such as Brazil, Indonesia, Thailand and Taiwan. Also, the
penetration rates differ between India’s rural and urban areas, with the rural areas being under-
penetrated by a factor of 3x as compared to larger cities. That said, assuming that households
having annual income less than Rs. 90,000 do not have the ability to own a 2W, the existing
household 2W penetration in India in the addressable income segment of households (i.e. income
greater than Rs. 90,000) is estimated to be around 74%12. Prima facie, this appears to be a large
figure and suggests that penetration-driven growth may be difficult for the 2W industry to
accomplish over an extended time horizon. However, the fact that in absolute terms there are still
28 million households at present in the primary target income segment that do not own a 2W, the
scope for penetration-led future growth continues to be reasonably large. Additionally, the social
trend in favor of nuclear families coupled with expected expansion of the target income segment
pie going forward is expected to further increase the number of households which could be
potential targets for the 2W industry.
A large youth population potentially offers a sizeable market for consumer products. India
currently has a very favorable demographic profile with average age of 25 years, which is 9
years younger than China, and more than 12 years and 19 years younger than the US and Japan,
respectively. As per estimates, around 33% of India’s population of 1.2 billion belongs to the age
bracket of 20-40 years. Within this, the population of males, which is the key target segment for
motorcycles, is estimated to be 206 million; and the population of females, which is the key
target segment for scooters13, is estimated to be 189 million, suggesting existence of large size
of the addressable market. On conversion of even 20% of this youth population into 2W owners,
a demand for ~80 million 2W is estimated to get generated over the medium term. Further, with
the youth population estimated to increase to 229 million by 2015E, a cumulative increase of
11% over 2011, the 2W consumption cycle appears strongly sustainable. This age group is also
43
characterized by a combination of earning power and high spending propensity, which would
increase the likelihood of conversion of potential ownership into actual ownership.
Interplay of growing urbanization and rising rural incomes augurs well for domestic 2W
demand
Urbanization has drawn people living in India’s rural and semi-rural hinterland to cities and
towns at a steady pace. The need for mobility in most Indian cities and towns therefore has
increased substantially, yet the proliferation of public transport system has not kept pace. This is
where the utility of a 2W as the most affordable mode of private transport comes to the fore.
Empirical data suggests that there is a strong positive correlation between urbanization and 2W
demand, particularly in the initial stages of economic growth. For instance, 2W penetration in
stateslike Delhi, Tamil Nadu and Maharashtra is much higher than the pan-India penetration due
to the relatively higher degree of urbanization in these states. With urbanization expected to rise
progressively, around 89 million people are estimated to be added to India’s urban spaces over
the next decade (78 million people are estimated to have got added over the last decade), which
could potentially be one of the most defining changes likely to transpire. Especially so, since this
would add fuel to allied drivers, including increase in proportion of working women and rise in
wage and salaried people that is expected to have a strong positive impact on the demand for
consumer durables.
Further, to the extent the rise in urbanization is contributed by migration of people from rural and
semi-rural regions, it would in turn support increase in remittances to the rural markets
enhancing rural incomes. Industry estimates suggest that around 60% of the rural economy now
depends on non-agricultural sources of income, such as remittances from cities, trading, and
employment in the manufacturing sector. While the increase in crop prices during the last three
years has left larger disposable incomes with rural customers, non-agrarian sources of income
have also played an important role in supporting consumption by rural masses. The interactions
between rural and urban centres could be part of a virtuous cycle, as cities have benefits beyond
their boundaries. This is validated by studies which show that rural populations adjoining large
urban centres have around 20% higher income than the rural average. Thus, the legacy of lower
penetration levels in the rural market, scarcity of public transport infrastructure and the rising
44
income levels would be positive triggers for rural 2W demand, going forward. At the same time,
rising salary levels in urban areas, shortening replacement cycles, increasing traffic congestion in
cities would be factors augmenting 2W demand in urban areas.
According to estimates, around 50% of the total domestic sales of 2W are now made to first time
buyers, 30% to customers looking to upgrade from their existing vehicle, and 20% to buyers
seeking a second vehicle for the household. The break-up suggests that currently around 50% of
the sales in the domestic 2W market are made to replacement buyers. Industry estimates also
suggest that the 2W ownership cycle has now shrunk to less than five years. Considering that the
industry has sold around 79 million 2W in the domestic market since the turn of the century, the
total replacement demand works out to a fairly large number. Add to this the healthy growth in
sales to first-time buyers in recent years, driven in particular by sales to the rural market, the
replacement opportunity could only increase in the future. From the consumer perspective,
although replacement involves fresh capital spending, the inducement of upgrading to an
improved technology 2W, having better performance, features and more attractive styling;
complemented with increased spending propensity are expected to be the prime ingredients
feeding replacement demand.
With demand drivers appearing in place to support the domestic 2W industry growth, the supply
side enablers too will have a key role to play in catalyzing the growth process. Amongst various
factors, adequacy of manufacturing capacity; availability of assorted products across 2W
categories suited to diverse customer segments; accessibility of customer touch points and
effective customer communication strategies hold prime importance in complementing the
underlying demand. At the same time it also creates some competition concerns which we need
to analyze.
45
Large additional capacity creation necessary to meet the expected strong 2W demand
The 2W Original Equipment Manufacturers (OEMs) have made regular investments over the
years to meet the consistent rise in demand. The installed capacity of the top three player’s viz.,
Hero Honda Motors Limited (HHML), Bajaj Auto Limited (BAL) and TVS Motor Company
Limited (TVS), which together command a market share of over 80% in the domestic 2W
market, rose from 8.4 million units in 2005-06 to 12.9 million units in 2012-13 incurring a
cumulative capex of around Rs. 3,700 Crore over this period.
However, barring the 2010-11 and 2011-12 periods, the overall capacity utilization in the
industry has remained healthy. Generally, the variance in production volumes between the
highest and the lowest production month during a year is around 25-30%, which implies that
capacity utilization in the region of 75-80% is the typical industry norm. However, in 2012-13,
the capacity utilization of the top three players at around 87% was the highest in the last several
years, reducing the capacity buffer available. Notwithstanding the above, the primary reason for
the OEMs’ inability to fully meet the prevailing demand in 2012-13 was the shortage of
components from select suppliers, rather than in-house capacity constraints. Further, in 2012-13,
the industry had to grapple with labor shortage issues due to insufficiency of skilled manpower
which impacted production in labor intensive units particularly. To cater to the expected rise in
future 2W demand, many OEMs have announced capacity expansion plans comprising of both
Greenfield as well as Brownfield investments, which is expected to make capacity utilization
revert to its historical levels. As per estimates, to achieve industry volumes of 21-23 million units
by 2015-16 (domestic and export), the OEMs will need to invest around Rs. 4,500 Crore over the
next five years for expanding their in-house capacity.
46
Distribution network: Unfair trade practices on the part of firms?
To get the best returns from the distribution network, an OEM strategy that balances the
necessity to expand customer touch points while ensuring adequate dealer profitability and
minimal channel conflict is crucial. Ideally, the distribution network of an OEM in a city should
be large enough to provide both sales as well as service convenience to customers; yet it should
be small enough such that every outlet could have optimum capacity utilization. Considering that
the overall 2W market continues to be under penetrated, most OEMs have maintained their focus
on expanding their sales-cum-service outlets especially in the semi urban and the rural areas.
Current established dealers have helped OEMs scale up their networks quickly by setting up
satellite dealerships along with service facilities in the neighboring smaller towns. As per
estimates, the rural market now accounts for around 45% of total domestic 2W sales volumes
elevating their significance in the OEMs’ business strategies.
The Indian two wheeler market is increasingly becoming a price warfield17. Everyone and their
competitor wants to win the title of the 'World's cheapest bike' and the customer has become the
47
King. But the question remains if this price based competition is good for the health of the
industry? Isn't everyone eating their own margins in the quest for greater market share and
farther market expansion? And where does this leave smaller players like LML (going through
some very tough times as of now), Kinetic (good scooters, questionable field network, trying
hard in motorcycles) and even Yamaha and TVS? A dominant firm like Hero Honda or Bajaj
Auto can arm twist suppliers to deliver parts cheaper, which the suppliers won't mind doing
considering the volumes that these two dominant player offer. Both the Munjal and Bajaj
families are also typical in the way they promote companies run by their brothers, cousins, in-
laws etc. etc. So Bajaj Auto can always ask for cheaper rates from a Varroc or Auragabad
Electricals while Hero Honda can do the same with MAC or Munjal Showa or Omax Auto. But
what happens to LML (still makes a lot of its components, very archaic), Kinetic (mostly
independent suppliers), TVS (Sundram Group suppliers, who anyways act independent, very
professional but is it the best way forward?), Yamaha (independent suppliers) or a new entrant
like Suzuki (they will buy components from anyone except a Munjal family or a Sundram
company)? Without volumes, one is not in a position to get the best prices. Without the best
component prices, the price of the final product goes up. But then these small players have to
fight Bajaj Auto. So they reduce the selling price of the bike which implies the decline in the
margins for these firms.
48
PRIMARY FINDINGS AND ANALYSIS
For Customers
16% respondents know two brands however 33% respondents know four brands
49
Q2. Which type of two wheeler you prefer most?
40% respondents prefer regular motorcycles however 26% respondents prefer step thru’s
50
Q3. Which attributes do you like most in your two-wheeler?
28% respondents like stability at higher speed however 21% respondents like mileage
51
Q4. What is your source of finance?
17% respondents collect money from auto loan however 19% respondents collect money through
debit card
52
Q5. What are the external factors that influence you about purchasing bike?
26% respondents mostly influenced by family members however 18% respondents mostly
influnced by social factor
53
Q6. Which brand right now you are having?
20% respondents have Hero Honda however 18% respondents have Bajaj
54
Q7. Should Company go for innovation in context to development of new bike?
79% respondents replied yes that company should go for innovation in context to development of
new bike
55
Q8. While going for the development of new bike which point the company should keep in
mind?
22% respondents replied that company should focus on less fuel consumption however 18%
respondents replied that company should focus on stylish design
56
Q9. According to you which company`s model you like most and why?
21% respondents replied that they like Hero Honda however 18% respondents replied that they
like Yamaha
57
For Retailer
58
Q2. In which of the following brand do you deal?
22% respondents replied that mostly they deal in Hero Honda however 24% respondents mostly
deal in Yamaha
59
Q3. Which brand is more demanding by the customer?
23% respondents replied that Hero Honds is more demanding by customer however 21%
respondents replied that Yamaha is more demanding by the cutomer
60
Q4. What kind of feature mostly customers demand while they come to purchase two
wheeler?
25% respondents replied that customer mostly demand for good quality two wheeler however
20% respondents replied that mostly customer look for low fuel consumption
61
Q5. Do customers demand for low price vehicle?
67% respondentsn replied yes that customers demand for low price vehicle
62
Q6. Are they ready to buy good quality two wheeler at any price?
51% respondents replied yes that cutomer are ready to buy good quality two wheelers at any
price
63
Q7. Do they prefer brand name while buying a two wheeler?
64
Q8. Do they consider after sale services?
85% respondents replied yes that they consider after sale service
65
RECOMMENDATIONS
The two wheeler companies should focus on gearless scooters. The market share of
gearless scooters is increasing at a healthy rate. Bajaj is virtually absent in this range that
caters to the needs of women and families. Presently Honda, Hero Honda and TVS are
big players in this segment.
Entry into four wheeler segment Bajaj has entered into a joint venture with Renault-
Nissan in the development of a small car priced at $3000. This is a significant move
because it directly competes with Tata NANO. Bajaj has also displayed its small car
prototype in the recently held auto expo. It promises double the mileage as compared to
any car in the economy segment and is also considering the option of introducing Diesel
and LPG variants. The four wheeler segment will also be able to hedge any risk that
might arise because of the two wheeler industry and would profit from retaining
consumers switching from two wheelers
Scaling Up Service Centers Companies need to scale up its service centers both in
numbers and in capacity. Keeping in line with its growth target for the next 5 years, the
service centers should not only cater to two wheelers but should also be upgraded to cater
to the needs of four wheelers that companies plans to launch.
66
CONCLUSION & IMPLICATIONS
Cutomers
16% respondents know two brands however 33% respondents know four brands
40% respondents prefer regular motorcycles however 26% respondents prefer step thru’s
28% respondents like stability at higher speed however 21% respondents like mileage
17% respondents collect money from auto loan however 19% respondents collect money through
debit card
26% respondents mostly influenced by family members however 18% respondents mostly
influnced by social factor
20% respondents have Hero Honda however 18% respondents have Bajaj
79% respondents replied yes that company should go for innovation in context to development of
new bike
22% respondents replied that company should focus on less fuel consumption however 18%
respondents replied that company should focus on stylish design
21% respondents replied that they like Hero Honda however 18% respondents replied that they
like Yamaha
For dealers
22% respondents replied that mostly they deal in Hero Honda however 24% respondents mostly
deal in Yamaha
23% respondents replied that Hero Honds is more demanding by customer however 21%
respondents replied that Yamaha is more demanding by the cutomer
67
25% respondents replied that customer mostly demand for good quality two wheeler however
20% respondents replied that mostly customer look for low fuel consumption
67% respondentsn replied yes that customers demand for low price vehicle
51% respondents replied yes that cutomer are ready to buy good quality two wheelers at any
price
85% respondents replied yes that they consider after sale service
68
BIBLIOGRAPHY
BAJAJ AUTO LTD- RIDING TOWARDS DARKNESS, : 23rd March 2011 Creating
Successful New Products: Challenges for Indian Industry
Rishikesha T. Krishnan & Ganesh N. Prabhu, 31 July 1999 Government of India. 1980. Sixth
Five Year Plan (1980-85). New Delhi: Planning Commission.
Shapiro, C., “Aftermarkets and Consumer Welfare: Making Sense of Kodak”, Antitrust Law
Journal, Vol. 63, 1994.
The Evolution and Structure of the Two-wheeler Industry in India: Sunila George (IIM
Bangalore), Raghbendra Jha (ANU, Canberra), Hari K. Nagarajan (IIM Bangalore and
NCAER, Delhi), 2001 The State of Competition in the Indian Manufacturing Sector
T.A. Bhavani and N.R. Bhanumurthy, Institute of Economic Growth, March 2007 TRADE
LIBERALIZATION AND PRICE-COST MARGIN IN INDIAN INDUSTRIES (B.N. Goldar
and S.C. Aggarwal, 2005)
69
COPY OF THE QUESTIONNAIRE
For Customers
Q5. What are the external factors that influence you about purchasing bike?
Family Member Social Culture
Economic Business Need
70
Q8. While going for the development of new bike which point the company should keep in
mind?
Stylish Design Fast Pickup Less fuel Consumption
Comfortable Easy to drive features
Cost Effective
Q9. According to you which company`s model you like most and why?
Bajaj Hero Honda Suzuki Motor
Mahindra Two Wheeler Kinetic Motor LML India
Yamha
71
For Retailer
Q4. What kind of feature mostly customers demand while the come to purchase two wheeler?
Good Quality Stylish Comfortable
Long Lastic Low Fuel Consumption Easy to drive
Q6. Are they ready to buy good quality two wheeler at any price?
Yes No
Q7. Will they prefer brand name while buying a two wheeler?
Yes No
72