Two Wheeler Industry in India

India is the second largest manufacturer of 2-Wheelers in the world. It stands next only to
Japan & China in terms of number of 2-wheelers produced & sold respectively (with total
sales volume of over 4.8 million in 2002-03 & over 5.3 million in 2003-04). Last few years
have not only seen rapid growth in the industry but also structural changes within the

2 Wheeler Sales in India Total 2 Wheeler Sales in India

4,000 6,000
3,500 Scooters
5,000
Mot or-cycles
3,000
Mopeds 4,000
2,500
2,000 3,000
1,500 2,000
1,000
1,000
500
- -

industry. While the total market has grown at a CAGR of 11% (in the 10 years from 1993-94
to 2002-03), the motorcycle market has grown at a CAGR of 23% in the same period with
scooter market at an almost same level & a “negative CAGR” of -3% in the mopeds segment.
Each of the components of 2-W industry (m’cycle, scooters & mopeds) has distinct profile.

Motorcycles
Hero Honda, Bajaj & TVS capture 80% share
Over 3.7 million motorcycle units were
Players in Motorcycle Market
sold in 2002-03. The growth in motorcycle
sales has been largely assisted by
100%
increasing affordability. This comes in two 90%

forms. In 1996, the top selling models 80%

were Hero Honda’s ‘CD 100’ and 70%

60%
Share

‘Splendor’, ‘Kawasaki Bajaj’ and TVS’s 50%

Max-100 R with an average entry-level 40%

1,412,279
1,029,591

1,654,703
30%
model starting with prices above Rs
761,700
530,600
407,563

20%
150456

1995-96 230194
1994-95 183671

1996-97 268945

36,000. But with the advent of 10%

competition, this has declined with entry- 0%

1993-94

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03
level of Bajaj’s ‘Boxer’ now available at
less than Rs 30,000 per unit. Eventually,
Hero Honda Bajaj TVS Yamaha Other (LML, Kinetic etc)
the price difference between a ‘boxy’
geared scooter and a ‘sleek-cum-trendier’
motorcycle has narrowed.
This has also aided the shift in demand towards m’cycles. Besides, the consistent fall in
interest rates has also benefited the industry immensely (about 40% of motorcycles are now
financed as compared to 25% three years ago.
Secondly, rising double income families and urbanisation have also led the change in
consumer preference. For quantification purpose, the NCAER estimate suggests that the
consuming class as a percentage of total households in India in FY95 was 29 m (17%).
NCAER expects the mix to change considerably with the consuming class expected to touch
91 m households in FY07 (46%). This has also been a driving factor for the industry in the
last few years.
The motorcycle sales is typically divided into 3 segments :
Economy Segment (100cc), < Rs 35,000
Bajaj Boxer With 1.2 million units (19% y-o-y growth) sold in 2002-03,
32% of total motorcycle sales is in Economy. Bajaj Boxer (in
TVS MAX 4 variants – AT, CT, CT DLX & K-Tec) is the market leader.
Hero Honda CD, JOY, SS, CD Dawn Bajaj sells around 50,000 units p.m. (about 50% market-
Yamaha Crux share). These are popular in semi-urban & rural areas. TVS is
in 2nd place. Hero Honda (till now considered not a serious
Kinetic Boss player) has launched Dawn in the segment.
 Executive Segment (100-115cc), Rs 35,000 - Rs 45,000
Bajaj Caliber With 2.12 million units (26% y-o-y growth) sold in
2002-03; 57% of motorcycle sales is in this segment.
Hero Honda Splendor, Passion Hero Honda is dominating (over 50% market-share)
TVS Victor this segment since last 5 years. Its product Splendor is
LML Freedom the largest selling motorcycle in the world (75000-
80000 units p.m.) It is being threatened by success of
Yamaha Libero, RX Series Victor (TVS 2nd placed now). Typical consumers of
Kinetic Challenger this segment are in 30-45 yrs age group who prefer
m’cycle with more stability & comfort.

Premium Segment (>115cc), > Rs 45,000

Bajaj Pulsar (150cc & 180cc), With over 4.11 lac units (57% y-o-y growth) sold in
Eliminator 2002-03, 11% of motorcycle sales is in this segment.
TVS Fiero Till last year (‘01-02), Hero Honda’s CBZ & TVS’s
Fiero were the major players. Recently (in 2002-03),
Bajaj has cornered a 45% market-share with the launch
Hero Honda Ambition (133cc) , CBZ of its indigenously developed Pulsar. Hero Honda has
slipped to 3rd position (behind Pulsar & Fiero) & has
launched Ambition (at Rs 45,551) lowest priced in the
Yamaha Enticer, Libero, RX 135
category. The segment is largely a niche market with
most of the demand fueled by replacements of
LML Energy-FX Premium segment. This segment is normally seen as
the brand ambassadors of the companies (showcasing
Kinetic GF 125 their product development capabilities) rather than
being a volume driven profit-making proposition.
Growth rate of this segment is maximum.
Thus as is clear from the above analysis, Bajaj is dominating the economy & premium
segments with the executive segment (the largest) being led by Hero Honda.

Scooter
The scooter industry is led by Bajaj & has suffered at the expense of growth in motorcycle.
The major reason has been lack of product innovation in the geared scooters (the scooter
market is divided into the geared & un-geared category -combined sales of about 70,000 units
per month, with the latter having escaped the slowdown witnessed by the geared category).
The introduction of new products in the ungeared category by new players like Honda
Scooters (sold 1.55 lac units in 2002-03 capturing 18% marketshare in total scooter market).
Honda Motorcycles & Scooters (HMSI) having already launched Activa & Dio, is expected

Players in Scooter Market Ungeared scooters

800,000
Honda
700,000
31%
600,000

500,000
Units sold

TVS
400,000
47%
300,000

200,000

100,000

- Kinetic
8%

Bajaj LM L TVS Others (Kinetic, M ajestic etc)

Bajaj
14%

to further boost the product innovation in this segment. Kinetic Motors has pitched Nova
against Activa.
 Moped
The moped industry appears to be a sinking ship (only 3.1 lac units sold in 2003-04 after 3.3
lac units of 2002-03; declined 29% in FY’03 ) & therefore has not been dealt in detail.
However it is worthwhile to mention that TVS is a major player in the field capturing over
73% market-share during 2002-03 (67% in the previous year) inspite of its sales having fallen
to 2.45 lac units in 2002-03 (previous year 2.67 lac units).

Profile of Major Players in 2-Wheeler Industry

Bajaj Hero Honda TVS LML

Products Scooters, Mopeds, Motorcycles Motorcycles, scooters, Scooters,
M' otorcycles, Three- mopeds Motorcycles
Wheelers
Prodn. Capacity 2.2 million units p.a. 2.2 million units p.a. 1 million units p.a. 2.5 lakh units per
(total) (capacity data for year (each for
m’cycle) m’cycles &
scooters)
Total Prodn (2002- 1,351,431 units 1,654,703 units (Prev. 1,109,113 units 184,476 units
03) (Prev. yr : 1.31 mill) yr : 1.41 mill) (Prev. yr : 8.57 lac) (Prev yr : 1.65
lac)
Collaborations Kawasaki (m’cycle), Honda - Daelim Motor
Kubota Corp (Diesel Co. Ltd., Korea
engine), Tokyo R&D (for motorcycles)
Co. Ltd. (2-wheelers)
Distribution 400 (dealers), 1000 458 (dealers), 268 428 (dealers), 1009 350 (dealers),
Network (2003) (Service Centers) (Service Centers) (Service Centers) Ser. Centers :
NA
General The oldest 2-wheeler Incorporated in 1984, With no technology LML is more
company in India has Hero Honda introduced partner (after buying known for its
developed in-house India’s first 4-Stroke out Suzuki), TVS finds geared scooters
R&D thereby reducing motorcycle in 100cc range no restriction in (in
its dependency on (CD100). In 2001, it targeting markets
Kawasaki. Another became the largest seller outside India (Honda
collaboration
strategic advantage for of motorcycles amongst being a technological with Piaggio,
the company is its all Honda companies & collaborator, prevents which ended in
dominant position in ventures in the world by Hero Honda from late 90s).
the 3-wheeler market selling 1 million m’cycles selling in markets However,
(overall market-share during 2001-02. where Honda is slowdown in
of 74% & 90% The strategy of the present). TVS has scooter market
market-share in the company can be divided in announced its plans of opened
passenger carrier 3 steps : entering Indonesia & motorcycle
category). Given this 1.Reduce the price of Vietnam (where
virtual monopoly in existing products & consumption patterns
development
this segment, this protect volumes. are similar to India) LML alongwith
division earns the 2.Replace the spot left besides China. TVS was the last in
highest operating vacant by phasing out of dominates the ungeared this group to
profit margin for the the product with a new scooter segment also enter
company. vehicle before competitors with Scooty. In this motorcycle
occupy the slot. 3. Build TVS aims at those who market & forms
volumes with the new want to upgrade from the second rung
product. mopeds. of
manufacturers
(alongwith
Kinetic,
Yamaha etc.)

Comparison of Critical Parameters

Parameter Hero Honda TVS Bajaj Yamaha

Engg Skills Technology backup Inhouse R&D and Technology backup 100% sub., so
from Honda technology is from Kawasaki, also has access to
comparable to best in house R&D is all technology
in its class well developed of Yamaha
Customer Successive failure of Recently Victor & Pulsar & Boxer have Enticer has
Focus recent launches (e.g., Scooty (ungeared) been good been fairly
Dawn) raises doubt; have been very demonstrator of successful
 seems to have lost successful customer focus
touch.
Distribution reach Extensive reach Strong in South Covers almost entire More focussed
covers almost entire India, building up India on urban areas
India in North also

The Shareholding Pattern

Hero Honda Bajaj TVS LML

Promoters : 26% Promoters : 29.16% Promoters : 58.44% Promoters : 49.91%
Foreign Promoters : Rest with FIs, Public, Rest with FIs, FIIs, Rest with FIs, FIIs,
26% Mutual Funds, GDR Mutual Funds etc. Mutual Funds, NRIs
etc. etc.
Rest with FIs, Public,
Mutual Funds etc.
Equity : Rs 399.4 mil Rs 1011.8 million Rs 231 million Rs 436.6 million

Explanation for rapid 2W Growth in India

The growth of 2-wheelers (total population of over 45 million in India) can be partly
explained by the shift in income groups of Indian households (particularly post
liberalization). The NCAER in its latest report on market demographics has clearly indicated
that post-liberalization (ie FY92 to FY96) Indian households have graduated to higher
income groups as can be seen in the table below.
Distribution Of Households In %age
Annual income Income group FY86 FY96
(Rs at FY96 prices) Urban Rural Total Urban Rural Total
<=25,000 Low 42.1 73.6 65.2 27.9 57.2 48.9
25,001 - 50,000 Low Middle 35.8 21.4 25.2 34.9 29.0 30.7
50,001 - 77,000 Middle 15.2 4.0 6.9 20.3 8.6 11.9
77,001 – 106,000 Upper Middle 3.9 0.7 1.5 9.6 3.1 5.0
> 106,000 High 3.1 0.3 1.1 7.3 2.0 3.5

Growth In Income Groups (%) In Pre And Post Reform Period

Income group FY86 to FY89 FY93 to FY96
Urban Rural Total Urban Rural Total
Low 0.93 -0.20 -0.01 -7.03 -3.03 -3.72
Low Middle 3.34 4.91 4.33 5.46 10.20 8.59
Middle 8.53 17.82 12.72 11.96 3.11 7.01
Upper Middle 18.52 16.39 17.83 11.90 12.25 12.06
High 9.57 13.90 10.65 18.22 15.68 17.14
Total 4.14 2.04 2.61 3.50 1.44 2.01
Source from NCAER

As seen from the above tables, the number of households in the low income group has fallen
since FY86 and has been more pronounced in the post-reform period. On the other hand, the
number of households in the middle, upper middle and high income groups, which form the
consumer base for two wheelers, have increased.

Corporate Planning Deptt.