Professional Documents
Culture Documents
With sales over 4.2 million (FY 2001-02), the industry is growing at
the rate of nearly 16%. The motorcycle segment is the fastest growing
with its share in two wheeler sales increasing from 37.21% in FY1997-
98 to 68.65% in FY2001-02, to nearly 70% in FY 2002-03.
In the last five to six years, the two-wheeler market has witnessed a
marked shift towards motorcycles at the expense of scooters. In the
rural areas, consumers have come to prefer sturdier bikes to withstand
the bad road conditions. In the process the share of motorcycle
segment has grown from 48% to 70%, the share of scooters declined
drastically from 33% to 22%, while that of mopeds declined by 4%
from 19% to 15% during (FY 2001-03). Sale of scooters and mopeds
segment decreased 51.20% and 47.93% respectively over the last five
years.
1
Scooters and mopeds are rapidly losing their place in the market to the
more fuel-efficient, stylish and sturdy motorcycles. The Euro emission
norms effective from April 2000 led to the existing players in the two-
stroke segment to install catalytic converters. 4-stroke motorcycles are
now replacing all the new models. Excise duty on motorcycles has
been reduced from 32% to 24%, resulting in price reduction, which
has aided in propelling the demand for motorcycles.
With more than 40 per cent of the motorcycle demand flowing from
the rural sector, the success or failure of monsoon has a major
influence on the sales volume. After a robust growth in the first
quarter of the previous fiscal, motorcycle off take tapered during the
second-half.
2
HISTORICAL INDUSTRY
DEVELOPMENT
Gottlieb Daimler (who later teamed up with Karl Benz to form the
Daimler-Benz Corporation) is credited with building the first motorcycle
in 1885. One wheel in the front and one at the back, it had a smaller
spring-loaded outrigger wheel on each side. It was constructed mostly
of wood, the wheels were of the iron-banded wooden-spoked wagon-
type, it definitely had a "bone-crusher" chassis!
3
The Indian two-wheeler industry made a small beginning in the early
50s when Automobile Products of India (API) started manufacturing
scooters in the country. Until 1958, API and Enfield were the sole
producers.
4
The two-wheeler market was opened to foreign competition in the mid-
80s. And the then market leaders - Escorts and Enfield - were caught
unaware by the onslaught of the 100cc bikes of the four Indo-Japanese
joint ventures. With the availability of fuel-efficient low power bikes,
demand swelled, resulting in Hero Honda - then the only producer of
four stroke bikes (100cc category), gaining a top slot.
The industry had a smooth ride in the 50s, 60s and 70s when the
Government prohibited new entries and strictly controlled capacity
expansion. The industry saw a sudden growth in the 80s. The industry
witnessed a steady growth of 14% leading to a peak volume of 1.9mn
vehicles in 1990.
5
In 1990, the entire automobile industry saw a drastic fall in demand.
This resulted in a decline of 15% in 1991 and 8% in 1992, resulting in
a production loss of 0.4mn vehicles. Barring Hero Honda, all the major
producers suffered from recession in FY93 and FY94. Hero Honda
showed a marginal decline in 1992.
6
TWO WHEELER INDUSTRY: THE CURRENT
SCENARIO
But it appears that the time has come for this segment to align itself
with the overall industry growth. The growth in two-wheeler sales has
been quite steady over the past eight years and right now, there is no
reason to expect an upturn. The overall sales growth rates appear to
have been capped. There, in fact, could be a spiel for a fall in growth
in penetration levels after a decade of steady growth.
More specifically, one can argue that the higher base has been partly
achieved through generous financing packages and discount schemes.
All major two-wheeler players- Bajaj Auto, TVS Motors, LML, Kinetic
Motors and Hero Honda Motors, are battling for the motorcycle
segment. This dramatic structural shift in the industry from scooters to
motorcycles has been going on for the last five years and is expected
to have been completed.
The Indian consumer being sensitive to prices would certainly take the
lead. Besides, the industry size has become too big to sustain the
growth rates. As a result, lower margins will follow and supernormal
returns would no more be possible.
7
Research outfit Morgan Stanley Dean Witter has estimated that
profitability of players like Bajaj Auto and TVS Motors will probably
suffer as intense competition between the companies sets in. Hero
Honda will eventually have to compete on equal terms. As a result,
MSDW has lowered its rating on Hero Honda and TVS Motors to
neutral, while Bajaj Auto was already neutral. The overall Compounded
Annual Growth Rate in two-wheeler sales was 8.3 per cent between
1997 and 2000. On a high base, an improvement may not be possible.
Over the same period, the CAGR for motorcycles was 22.5 per cent.
This strong growth was fuelled by a shift away from scooters.
Now, given the share of 53.6 per cent in the total two-wheeler sales,
motorcycles have less room to grow at the expense of scooters. MSDW
as a result, expects motorcycle growth rates to move towards the
overall industry growth rate in the next one to two years.
8
Growth expectations for Hero Honda, in MSDW's opinion are valid only
for the next one-year, after which it expects the company's growth to
decelerate. Honda and Piaggio have announced their plans to enter the
Indian scooter market. Their scooter brands could cause a ripple in the
two-wheeler industry and slow the extent of migration to motorcycles
from scooters.
9
INDUSTRY STRUCTURE
Till last year, the executive segment, the fastest growing segment
among the two-wheelers, was almost monopolized by Splendor, India’s
highest selling bike. However, with a host of new vehicles flooding the
market, the market leader has started showing signs of flagging.
Victor, the flagship product of TVS, has done the trick, garnering a
sequential growth throughout the last four quarters.
10
11
12
Flash Report on Sales [Including Exports]
Ever since 1987, it is only during FY03 that the drought has been
severe enough to officially declare it as ‘drought year’. The inflation is
well under control at 3.40%, but concerns of burgeoning fiscal deficit
still remain at large.
13
While the 28% shortfall in precipitation would dampen agricultural
output during the current year, indicators on industrial output and
infrastructure activities undoubtedly point towards an economic
recovery. The IIP {The Index of Industrial Production} witnessed a y-
o-y increase of 6.1% as on September 2002, with Automobiles
clocking a 4.9% growth.
14
instrumental in changing the scenario and the motorcycle growth
continues to outsmart scooters till date.
15
Among the two and three wheelers, both selected models of Hero
Honda (Splendor and CD 100) are the most eco friendly two wheelers.
They have scored above average in vehicle and engine design and are
one of the very few, four-stroke two wheeler fitted with any kind of
pollution control equipment.
Bajaj boxer, which ranks third, has scored well in vehicle and engine
design but lacks in emission control equipment and comparatively
poorer emission.
The best performing two-stroke model ranks fourth amongst the two
wheelers. The lowest score has been obtained by Kinetic Safari moped,
which obtained average scores in design and emissions and very poor
scores in pollution control equipment and emissions.
16
combination of two or more segments. There are a lot of companies in
this Industry. The major players are:
Hero Honda Motors Ltd is one of the leading companies in the two-
wheeler industry. At present, it is the market leader in the motorcycle
segment with around 50% of the market share during FY 2003-04. The
company has emerged as one of the most successful players, much
ahead of its competitors an account of its superior and reliable product
quality complemented with excellent marketing techniques. The
company has been consistently addressing the growing demand for
motorcycles and has a cumulative customer base of over 5 million
customers, which is expected to reach 6mn mark with the rural and
semi-urban segment being the new class of consumers.
17
New model 'Dawn' recorded monthly sales of 10,000 units within
three months of launch.
The total sales turnover of the company was Rs.1, 745.21 crores
in quarter ended June 30, 2004 from Rs.1, 359.82 crores in the
corresponding period last year.
Profit before tax was Rs.885 crores and Profit after tax was 581
crores in the FY 2002-03.
The company's sales volume during the first quarter of the year
2004 also recorded a splendid increase, with sales of 6, 09,123
units of motorcycles as compared to 4, 58,779 motorcycles sold
during the first quarter of the last FY.
CD 100
CD 100 SS
18
Splendor
Passion
CBZ
CD Dawn
Karizma
Ambition
Ambition 135
Splendor +
Passion Plus
CBZ Star
Address:
19
Vasant Vihar,
New Delhi – 110057
Tel: 011 26142451 / 26144121
Fax: 011 26143321/ 26143198 / 26141830 / 26152453 / 26152132
URL:www.herohonda.com
20
Established in 1945, it was incorporated as a trading company. From
1948 till 1959, it imported scooters and three wheelers from Italy and
sold them in India. It then obtained a production license in 1959 and
struck a technical collaboration with Piaggio of Italy in 1960 and
continued with the same for the next two decades.
21
From 1961 when the annual production was about 4000 units, today
the Company has become a market leader with annual production in
excess of 1.35 million units and with product offerings in all segments
(mopeds & scooterettes, scooters, motorcycles, three wheelers).
Chetak
Spirit
22
CT 100
Caliber 115
Wind 125
Pulsar 150 KS
Pulsar 150 SS
Pulsar 180 SS
Eliminator
Address:
23
LML is one of the leading scooter manufacturers in the country; with a
30% market share in volume terms with its popular scooter brand
"Supremo". Financially, LML's turnover has grown from Rs.209.05
crores in 92-93 to Rs.832.71 crores in Sept '98. It plans to facilitate
authorized dealers with a WAN (wide area network) and sell spare
parts through the Net.
Models Provided:
Freedom DX
24
Freedom Prima 125
Freedom Topper
Graptor
Address:
Registered Office:
25
Kinetic Engineering Ltd., founded in the year 1970, is the leading
manufacturer and exporter of 2-wheelers. Born of the vision of the late
Shri H. K. Firodia, it has produced useful, heart - winning products for
over two decades.
ZX Zoom
26
Zing STD
Zing Rockin 80
Rock in Zing
Boss
Boss SP
Boss 115
Boss EX
GF – 170
Laser
Velocity
King DLX
Aquilla
Address:
27
Fax: (020) 7475842-3
28
TVS Motor Company Limited, part of the TVS Group, is one of India's
leading two-wheeler manufacturers. With a turnover of over Rs.2800
crores, the Company manufactures a wide range of motorcycles,
scooters, mopeds and scooterettes. Little wonder, it boasts of more
than 9.5 million happy customers.
The year was 1980, was a year to remember for the Indian two-
wheeler industry. For it was this year that saw India's first two-seater
moped, TVS 50, rolling out on the Indian roads. For some it was
freedom to move.
With the joint venture with Suzuki Motor Corporation in 1983, TVS-
Suzuki became the first Indian company to introduce 100 cc Indo-
Japanese motorcycles in September 1984. Through an amicable
agreement the two companies parted ways in September 2001.
Max 100
Max R
Centra
29
Victor GL
Victor GLX
Fiero F2/FX
Scotty KS
Scotty ES
Address:
Jayalakshmi Estates
V Floor
8, Haddows Road
Chennai - 600006
Ph: 044-8272233
Fax: 044-8257121
30
SECTOR OUTLOOK
31
The motorcycles segment is bubbling with a spate of models launched
in the last four quarters. With more players joining the fray in the
motorcycle segment, the competition should ultimately give each
player its share.
Among the two-wheeler majors, TVS Motor Ltd is taking its chances
with the massive R&D and capacity expansion plans. On similar lines,
LML is banking on its new products for growth and is coming out with a
flurry of new models in the executive segment of the motorcycles,
where the growth is highest.
BAJAJ GROUP
32
Profile of the company
The Bajaj Group came into existence during the turmoil and the heady
euphoria of India's freedom struggle. Jamnalal Bajaj, founder of the
Bajaj Group, was a confidante and disciple of Mahatma Gandhi, and
was deeply involved in the effort for freedom. The integrity,
dedication, resourcefulness and determination to succeed which are
characteristic of the Company today, are often traced back to its birth
during those long days of relentless devotion to a common cause.
Today, Rahul Bajaj is the Head of the Group. He has been the Chief
Executive Officer of Bajaj since 1968 and is recognized as one of the
most outstanding business leaders in India. As dynamic and ambitious
as his illustrious predecessors, he has been recognized for his
achievements at various national and international forums. Bajaj Auto
is the flagship of the Bajaj Group of Companies.
33
A team of seasoned professionals ably manages Bajaj Auto Ltd.
Board of Directors
Rahul Bajaj Chairman & Managing Director
Madhur Bajaj Vice Chairman & Whole-Time Director
Kantikumar R. Podar Director
Shekhar Bajaj Director
D.J. Balaji Rao Director
D.S. Mehta Whole-Time Director
J.N. Godrej Director
S.H. Khan Director
Rajiv Bajaj Joint Managing Director
Mrs. Suman Kirloskar Director
Naresh Chandra Director
Nanoo Pamnani Director
Committees of the Board
Audit Committee
S.H. Khan Chairman
J.N. Godrej
Nanoo Pamnani
D.J. Balaji Rao
Naresh Chandra
Shareholders’ & Investors’ Grievance committee
D.J. Balaji Rao Chairman
J.N. Godrej
Naresh Chandra
Remuneration committee
D.J. Balaji Rao Chairman
S.H. Khan
Naresh Chandra
34
Disclosure: Of all relevant financial and non-financial
information in an easily understood manner.
Policies
35
The geared scooter market in which Bajaj is clearly the market
leader with its Chetak and Super's till ruling strong. The
company has a stranglehold in the southern and western regions
of the country with a market share ranging between 80% to
90%.
36
power, better fuel economy and significantly lowers emissions.
This vehicle is well received by customers. M-80 four strokes will
be introduced in the current quarter. With this introduction
Company's step-through market share should exceed 60%.
37
offerings in each user segment. Starting with the entry level
Boxer series, the company’s range includes ‘Caliber’, ‘Caliber
Croma’ and ‘Aspire’ in the executive bike segment, Pulsar in the
premium bike segment, and the only cruiser bike of India the
‘Eliminator’.
38
Strategies used in the Past
Bajaj strategic plan was to establish in three main areas viz establish
volume leadership, establish cost leadership and reduce the respond
time and bring in.
Volume Leadership:
39
Expanded the dealer network to reach town, cities and even
villages.
Cost Leadership:
40
Response Time:
1. Demand Forecasting:
41
Moving Averages
2. Cost cutting:
A) At Akurdi Plant:
Use of thermo sol fuel activities for LDO for better combustion
efficiency.
42
Installation of auto control panels for minimum use of garden
lights, fountain and road lights.
B) At Waluj Plant:
Marketing
1. Product
43
Attractiveness of
Market offering
Product Levels
In planning its market offering, the company needs to think thru five
levels of the product. Each level adds more costumer value, and the
five constitute a customer value hierarchy.
First level, is the core benefit. The fundamental service or benefit
that the customer is really buys. Here in Bajaj the core product is the
vehicle. (Means for transportation)
Second level, the company has to turn the core benefit into a basic
product. The basic product would include the gears, the leather seat,
the rear view mirrors, the trunk and the petrol tank. The essential
accessories that would make the product useful.
44
They have personalized service charts, which are exclusive to each
model. This enables the customer to get the right way of taking care of
his vehicle.
2. Price
45
Motorcycles
Spirit 29,301
CT 100 40,083
46
Pulsar 180 SS 65,840
Eliminator 95,602
3. Place
Bajaj has a very wide spread dealer network of 219 dealers across
the country and abroad which provide excellent customer service.
The company has been operating in the two-wheeler industry since
decades and enjoys a favorable logistics position. Considering that
the industry demands a good availability of service stations Bajaj
definitely has a distinct edge over its competitors due to the
presence of a widespread dealer and service station network in the
remotest region of India.
Dealer Preparedness
The company must ensure that the dealers are well aware of the
product when it is launched and the dealers are equipped to provide
the after sales services as well. There is a general complain from the
47
dealers that by the time they come to know of a product in totality, the
company launches a new product. So to ensure that no such
complaints arise the dealers must be asked to do a prior homework.
With the launch of products with new technologies, proper training
must also be imparted to the employees at the dealerships.
4. Promotion
One of the successful campaigns from the Bajaj has been the
commercial for the launch of Bajaj pulsar.
Bajaj Pulsar
48
Chatting merrily, three girls One's dupatta skims over the
walk by a line of motorbikes. bikes and then gets stuck...
Over the past two years, the 100cc economy segment has taken off, as
Bajaj introduced low priced motorcycles. The economy segment’s
share of the total motorcycle market has ballooned to 31% from about
20% three years ago. The 100cc executive segment continues to
dominate the motorcycle market-it forms about 56% of the total
motorcycle sales. The premium segment 125cc+ is small at 13% of
the total market. However, this premium segment is expected to be
the future growth driver.
It can be clearly seen that an attempt has been made by all the
motorcycle producing companies to lure the customers to buy their
49
bikes in the entry level segment with one of the long term objectives
to gain their loyalty towards the company so as when these customers
tend to shift towards higher segments they prefer their brands again.
50
Phase I - started with use of computers in accounting.
Phase III - in this phase Bajaj auto used the exploding technology in
the areas of CAD/CAM, Networking and Communications and Office
automation in the strategic areas of marketing and engineering.
Marketing and dealership computerization was brought into effect.
Phase IV- in this phase Bajaj auto used SAP. The my SAP Enterprise
Portal will cover 100 sales field employees, 350 dealers in the first
phase and the remaining will be covered in second phase. The dealer
portal, in addition to operating information, provides access to
unstructured information like news items, new product releases, new
product introduction, dealer discussion groups, internal market-place,
etc.
51
SWOT Analysis
Strength:
Global-scale production.
52
Lined up a range of 17 two wheelers covering the entire
spectrum from motorcycles to scooters.
Weaknesses:
Underutilization of capacity.
Opportunities:
Threats:
53
Hero Honda's switch start automatic transmission 100cc scooter.
Government regulations.
International Marketing
The countries where our products have a large market are USA,
Argentina, Colombia, Peru, Bangladesh, Sri Lanka, Italy, Sweden,
Germany, Iran and Egypt. Bajaj leads Colombia with 65% of the
scooter market, in Uruguay with 30% of the motorcycle market and in
Bangladesh with 95% of the three-wheeler market.
54
Several new models are being developed specifically for global markets
and with these we will progressively endeavor to establish our
presence in Europe too.
55
Assistance in setting up an assembly plant for assembly of
vehicles from complete knocked down (CKD) kits.
56
The objective of Bajaj Auto's R&D is to contribute towards making life
a better experience for society as a whole. At Bajaj Auto, we intend to
achieve this objective by giving priority to environmental concerns,
which include minimizing toxic emissions and optimizing the use of
natural resources while also keeping in mind the exact requirements of
the customers in a fast changing world racing towards modernization.
We intend to use R&D not only to develop products better and faster,
but to also evolve technologies that are eco-friendly, more fuel-
efficient and cost effective.
Our strength in R&D comprises 500 dedicated professionals who work
as team members on a platform concept. These platforms comprise of
engineers skilled in product engineering, manufacturing engineering,
component development, project management and quality assurance.
The primary objective of these platforms is to develop newer, better,
more efficient and less polluting vehicles for both the Indian and
International market.
57
Total Quality Management
The core competency of Bajaj Auto lies in the quality provided to the
customers.
58
take on competition from the world's biggest players. This commitment
starts with the top management and extends to every worker on the
shop floor.
At Bajaj, products are more than just a process output. They are an
expression of creative and innovative energies, in which technology
plays a passionate role. And in the midst of all this, Bajaj has never
lost sight of the human factor. Acutely tuned to lifestyles and social
conditions, Bajaj engineers are trained to develop products that
precisely match consumer needs.
The Process:
59
During the elaborate development procedure, prototypes over three
different stages are subjected to a battery of laboratory and field tests.
Besides supervising the pre-production process, Quality Assurance lays
down norms for their vendor force.
The close interaction ensures that agreed quality levels are unfailingly
maintained on the shop floor, mistakes are not rectified- they are
prevented. Cell members conduct a scrupulous self-inspection of
components while Quality Control experts measure and improve
manufacturing processes, through the application of statistical tools.
Every engine and transmission assembly, and finally every vehicle goes
through a series of static and dynamic product verification checks by
'Quality Control' before clearance for dispatch to the dealers.
Results:
60
Results have been creditable. Manpower productivity measured in
terms of number of vehicle per man-year has grown by 88% in this
decade alone. More significantly, the increase in capacity at Bajaj in
recent years has been largely due to a surge in productivity rather
than a rise in investment.
Quality Management:
Bajaj auto must come out with new models in 2 and 3-wheeler
segment to sustain its market share in the comparative domestic
market.
61
It should increase focus on its 5 different products- scooters,
motorcycles, step- thru scooters, scooterettes & 3 wheelers-from
productions to dealer’s front.
62
Cost/Price Monitoring
Technological Up-Gradation
63
HERO HONDA GROUP
"Hero", the brand name symbolizing the steely ambition of the Munjal
brothers, came into being in the year 1956. From a modest
manufacturer of bicycle components in the early 1940's to the world's
largest bicycle manufacturer today, the odyssey was fueled by one
vision - to build long-lasting relationships with everyone, including
workers, dealers and vendors. This philosophy has paid rich dividends
through the years.
64
Management
65
within the fold of the existing business or set him up in a new
business. The third generation is already actively involved in existing
as well as the new initiatives within the Group. The second and the
third generations of the family, aided by workers who typify the hardy
spirit of the Punjab, are consolidating the Group’s future with the same
zeal.
Like every success story, Hero's saga contains an element of spirit and
enterprise; of achievement through grit and determination, coupled
with vision and meticulous planning. Throughout its success trail, the
Hero Group and its members have displayed unwavering passion of
setting higher standards for themselves and delivering simply the best
to their customers.
66
fine quality of life and its business associates with a total sense of
belonging.
Glorious History
67
What started out as a Joint Venture between Hero Group, the world's
largest bicycle manufacturers and the Honda Motor Company of Japan,
has today become the World's single largest two wheeler Company.
Started with the initial investment of Rs.55 crores, it came into
existence on January 19, 1984. Hero Honda Motors Limited gave India
nothing less than a revolution on two - wheels, made even more
famous by the 'Fill it - Shut it - Forget it ' campaign. Driven by the
trust of over 5 million customers, the Hero Honda product range today
commands a market share of 50% making it a veritable giant in the
industry. Add to that technological excellence, an expansive dealer
network, and reliable after sales service and you have one of the most
customer- friendly companies.
Mission Statement
68
services that meet the quality, performance and price aspirations of
the customers. While doing so we maintain the highest standards of
ethics and societal responsibilities. Constantly innovate products and
processes, and develop teams that keep the momentum going to take
the company to excellence in the new millennium.
It’s Vision
It’s our mission to strive for synergy between technology, systems and
human resources, to produce products and services."
1990:
Pegasus Award from Readers Digest for campaigning 'One Litre
Road'.
69
1991:
Economic Times-Harvard Business School Award for Excellent
Governance to Hero Honda Motors Ltd.
Hero Honda moved into India's Top 100 Companies - Ranked 87.
1992
Honorary Membership - Indian Institution of Industrial
Engineering.
1994:
The Businessman of the Year award is conferred upon the
Chairman, Mr. Brijmohan Lall Munjal - by Business India Group
of Publications.
1995:
National Award for Outstanding contribution to the Development
of Indian Small Scale Industry (NSIC Award - Presented by
President of India).
1997:
70
Distinguished Entrepreneurship Award conferred upon the
Chairman Mr. Brijmohan Lall Munjal by, PHD Chamber of
Commerce & industry.
1998:
Business Leader of the Year conferred upon the Chairman, Mr.
Brijmohan Lall Munjal, by Business Baron.
1999:
Best Productivity Award for the best performance in Automobile
& Tractor Sector by National Productivity Council presented by
Vice President of India.
2000:
Splendor declared World No. 1 - largest selling single two-
wheeler model.
2001:
Bike Maker of the Year, by Overdrive Magazine.
71
Entrepreneur of the Year Award conferred upon the Chairman,
Mr. Brijmohan Lall Munjal, by Ernst & Young.
2002:
Bike Maker of the Year, by Overdrive Magazine.
72
Most Respected Company in Automobile Sector, by Business
World.
Areas of Management
73
The Hero Group has done business differently right from the start and
that is what has helped them to achieve break-through in the
competitive two-wheeler market. The Group's low key, but focused,
style of management has earned the company plaudits amidst
investors, employees, vendors and dealers, as also worldwide
recognition.
The growth of the Group through the years has been influenced by a
number of factors:
Inventory Control
The Hero Group through the Hero Cycles Division was the first to
introduce the concept of just-in-time inventory. The Group boasts of
superb operational efficiencies. Every assembly line worker operates
two machines simultaneously to save time and improve productivity.
74
The fact that most of the machines are either developed or fabricated
in-house, has resulted in low inventory levels.
Purchase Policy
Ancillarisation
75
today, whose production is dedicated to Hero's requirements and also
a large number of other vendors, which include some of the better-
known companies in the automotive segment.
Employee Policy
Another Striking feature within the Hero Group is the commitment and
dedication of its workers. At Hero Cycles Limited, the flagship unit of
the Group it is claimed that except for a few days during Operation
Bluestar, the plant has never had any stoppage of work. There is no
organized labour union and family members of employees find ready
employment within Hero. The philosophy with regard to labour
management is "Hero is growing, grow with Hero."
76
Allowance (LTA). Extra benefits took the form of medical check-ups,
not just for workers, but also for the immediate family members.
Financial Planning
The Hero Group benefits from the Group Chairman's financial acumen
and his grasp on technology, manufacturing and marketing. Group
Company, Hero Cycles Limited has one of the highest labour
productivity rates in the world. In Hero Honda Motors Limited, the
focus is on financial and raw material management and a low
employee turnover.
Diversification
Then there were the expansion into the automotive segment with the
setting up of Majestic Auto Limited, where the first indigenously
designed moped, Hero Majestic, went into commercial production in
1978. Then came Hero Motors that introduced Hero Puch, in
collaboration with global technology leader Steyr Daimler Puch of
77
Austria. Hero Honda Motors was established in 1984 to manufacture
100 cc motorcycles.
The Munjals also took a foray into other segments like exports,
financial services, information technology, which includes customer
response services and software development. Further expansion is
expected in the areas of Insurance and Telecommunication.
In Conclusion
Marketing P’s
Hero Honda
78
CD 100 42,616
CD 100 SS 43,218
Splendor 45,778
CD Dawn 35,217
Karizma 76,219
79
Passion + (Disc) 50,883
Hero Motors
Smart 23,256
Sting 26,615
E Zee SX 27,407
80
in 2000-01. A cumulative over 5 million customers are the real
foundation of the company's strength.
B. Place
Dealer Network
81
At Hero essentially they have a completely customer-driven
approach. A nation-wide dealer network comprising of over 3,500
bicycle dealers, 350 dealers for mopeds and 225 franchise holders
for motorcycles, ensures convenient access to the Group's products
across the country.
Sales agents from Hero travels to all the corners of the country,
visiting dealers and send back daily postcards with information on
the stock position that day, turnover, fresh purchases, anticipated
demand and also competitor action in the region.
There are more than 1000 committed dealers & service outlets
spread across the country. The authorized workshop have well laid
out standards for motorcycle servicing supported by fully equipped
infrastructure in terms of quality precision instruments, pneumatic
tools & a team of highly trained service technicians. Having your
motorcycle serviced at an authorized workshop ensures highest
standards of service quality and reliability.
C. Promotion
82
market for the financial year 2002-2003. All the mediums are used
extensively, be it print or mass media like T.V & hoardings.
HHML has print ads that the customer gets to see almost every day
in newspapers, magazines, etc. This has increased the brand recall
by a significant number. They also have their bikes featured in
various TV programs like top drive on star news and others which
act as a strong reference.
1993
Hero Cup – Five Nation Cricket Tournament.
83
1999
Masters Golf Championship.
7th Cricket World Cup in England.
2000
NKP Salve Challenger Trophy.
Stardust Hero Honda Millennium Honors Award.
Masters Golf Championship.
20th Cinema Express Award.
2002
India-England Women's Cricket Series.
Masters Golf Championship.
Second Indian Television Academy Award.
21st Cinema Express Award.
India-England Test Series.
First Indian Television Academy Award.
2003
8th Cricket World Cup in South Africa.
2004
ICC Champions Trophy in England.
Brand Ambassadors
84
85
The Number Game
86
Hero is one of the few vehicle brands that, despite the fluctuations,
have never managed to go out of the A&M Top Brands Survey. This is
probably because of its envious high-sales record in the two-wheeler
market. But its popularity (in terms of brand awareness and recall)
does seem to be facing a somewhat downward trend. Hero in 1992
had a rank of 40 and a power score of 26. This, needless to say, has
been Hero's highest rank and power score till date. At that time, Hero
had a higher ranking than its main competitor in the bicycles market,
Atlas, in the main earners and young adults segment. Its worst
performance was amongst housewives.
The years 1994 and 1995 saw an increase in ranking with the rank
increasing to 44 and then to 42. Its best performance across segments
87
was amongst young adults, the main-earning segment and in the
Hindi-speaking regions. Hero's performance in the urban segment also
improved due to the launch of new models.
Hero Honda was still the largest selling motorcycle company but other
companies such as TVS, Bajaj and Yamaha had started to catch up.
This led to Hero's rank decreasing to a low of 54 in 1999. Its
performance in urban areas had dragged it down a few notches.
88
A rich background of manufacturing high value, reasonably priced
products, an uncompromising pursuit of the goals to attain quality
along with customer satisfaction, the resulting affinity in working
cultures - brought the world's largest manufacturer of motorcycles in
collaboration with the world's largest bicycle manufacturer, bringing
forth a market leader. Honda Motor Company of Japan and the Hero
Group entered a joint venture to setup Hero Honda Motors Limited in
1984.
Customer-centric
89
The Company's success has been driven by customer centric policies
and teamwork to achieve progress and productivity. The philosophy of
Hero Honda emphasizes the "Pursuit of Excellence" in designing and
manufacturing technologically and qualitatively superior products and
in creating economic value for its stakeholders. It takes care of its
customers through value based competitive pricing and good after
sales service.
ERP Implementation
90
The Company has successfully implemented SAP R/3 (ERP Program -
"Project Synergy") thereby enabling proper planning and company
wide efficiency. The modules were implemented and stabilized in a
record 10 months period. It speaks of the commitment of the
management and the implementation team towards making it
processes accountable and efficient.
Exports
91
HERO CYCLES
HERO HONDA
HERO PUCH
92
overseas markets in 1963 pioneered Indian exports in the bicycle
segment. It was a move prompted essentially by the need to remain
attuned to the global market place.
While initial exports were restricted to Africa and the Middle East,
today more than 50 percent of the exports from Hero Cycles Limited
meet the demands of sophisticated markets in Europe and America.
This is primarily because of appropriate product development and
excellent quality that Hero offers.
The Group has been continuously upgrading technology and has set up
special units - like Gujarat Cycles Limited (now Munjal Auto Industries
Limited), to meet international quality standards. Munjal Auto
Industries Limited has state-of-the-art equipments imported from
Europe and Taiwan. The unit is designed to match international
standards and is an Export Oriented Unit (EOU). Its products are
supplied to the International Markets of developed countries like U.K,
Germany, France, etc.
The Group's exports have gone beyond cycles and their components.
The success of the Hero Majestic moped did not remain confined to
Indian shores. Finding enthusiastic buyers across the world, it became
the largest exported moped from India.
93
Today Hero Puch mini-motorcycles can also be seen in Paraguay,
Mexico, Argentina, Turkey and Holland.
And the latest diversification for the Group in the export market is in
the area of Software exports and the development of overseas
relationships in the domain of IT and IT enabled services through Hero
Corporate Services Limited.
94
The dynamics of the Indian two-wheeler industry has changed
significantly over the last six years. There is a continuation of shift in
demand towards motorcycles from geared scooters. In absolute terms,
total industry volumes in Financial Year 2002 were 4.3 m units. As is
evident from the graph below, motorcycles have got a lion’s share in a
matter of just six years (66% of total two-wheeler sector volumes or
2.9 m units in FY02).
95
1996 2660005 24.8% 9.1% 40.6% 16.8% 8.7%
96
Firstly, in 1996, the top selling models were Hero Honda’s ‘CD 100’
and ‘Splendor’, ‘Kawasaki Bajaj’ and TVS Max-100 R with an
average entry-level model starting with prices above Rs. 36, 000
per unit. But with the advent of competition, this had declined with
entry level of Bajaj’s ‘Boxer’ available at less than Rs. 30,000 per
unit. Eventually, the price difference between a ‘boxy’ geared
scooter and a ‘sleek-cum-trendier’ motorcycle had narrowed. This
had also aided the shift in demand.
Secondly, the consistent fall in interest rates has also benefited the
industry immensely. In an analyst meet of TVS Motors in mid 2002,
the company said that, as much as 40% of its motorcycle sales are
financed. It will be safe to assume higher numbers for the industry
as well. Just to put things in perspective, in absolute terms, two-
wheelers bought through vehicle financing stands at around 1.7
million units.
97
1995 was 29 million (17%). NCAER expects the mix to change
considerably with the consuming class expected to touch 91
million households in financial year 2007 (46%). This has also
been a driving factor for the industry in the last few years.
The graph below, which shows the correlation between GDP and the
two-wheeler sector, highlights this significance. But over the longer-
term horizon of 3-5 years, we remain positive on the sector.
98
Increasing contribution from the services sector.
Urbanization.
99
As far as the motorcycle segment is concerned, Hero Honda, TVS
Motor and Bajaj Auto seem to be well poised to capitalize on the
growth opportunity purely due to a wider distribution network and an
impressive new model launch.
Hero Honda
The volumes of HHML have been growing at 40% p.a. over the last
five years. It generates a return of over 50% on its capital
employed in the business. Hero Honda is operating on a negative
working capital since Financial Year 1996.
100
Hero Honda’s legacy of a solid after sales service and brand equity will
continue to drive volume growth.
With LML and now BAL coming into their own with newer models, it's
only a matter of time before the Splendors of the world start fading
away. It is strongly believed, that the lack of suitable product offerings
from BAL, TVS and others earlier allowed HHML to dominate and
benefit from the massive shift in consumer preferences from scooters
to motorcycles. The past is history.
BAL with its Caliber has threatened the seemingly unstoppable growth
of Splendor. An upgraded Boxer and introduction of new models like
Eliminator and Pulsar are a clear market segmentation exercise from
BAL, which is already beginning to show results.
It is also worth noting that the 26% shareholding of the Munjal family
is a joint holding of every fraction of the family and transmission to
any one fraction of the next generation is unlikely to be automatic. And
101
adding fuel to the entire future of HHML is a growing interest amongst
some family members to foray into IT-enabled services and the likes.
Such diversifications would only mean less dedication to the core
business of HHML by the new generation of Munjals.
TVS Motor Co
TVS Motor Company Limited, part of the TVS Group, is one of India's
leading two-wheeler manufacturers. With a turnover of over Rs.1800
102
crores, the Company manufactures a wide range of motorcycles,
scooters, mopeds and scooterettes. Little wonder, it boasts of more
than 5 million happy customers.
TVS’s heavy reliance on few models like ‘Victor’, ‘Fiero’ and ‘Scooty’ for
growth and absence of models in the entry level segment would mean
a slower growth in its market share in the medium-term.
The Fiero F2 and Scooty Pep both had been designed to set new
standards in style and performance as also convenience.
LML
103
a year-on-year basis in its motorcycle sales. The company's motorcycle
sales grew from 2,398 units in June 2002 to 16,781 units in June
2003, representing a six-fold increase. This phenomenal growth in
motorcycles comes entirely from the Freedom, which was launched in
Uttar Pradesh in July 2002 and progressively in other parts of India in
September-October 2002.
Motorcycle sales, for the first three months of the financial year 2003-
04, stood at 55,259 units compared to 7,278 units in the previous
year. The growth in motorcycle sales comes from Freedom model,
whose total population on road had crossed 1, 80,000 units within a
year of its launch.
CONCLUSION
104
The two-wheeler industry is passing through a very interesting phase.
Developments such as the entry of more number of players into the
motorcycle market, price discounts offered by producers, monsoon
failure and growing competitive pressure have changed the underlying
basics of the industry.
The year ended March 2002 may not have been particularly good for
the stock market, but not so for two-wheeler stocks. The market's
affinity for two-wheeler stocks - Bajaj Auto, Hero Honda and TVS
Motor is explained by the robust demand for motorcycles.
Suzuki, the global major, which recently severed its ties with TVS
Motor Company, has now decided to set-up manufacturing facilities in
the country. Apart from international companies, there is growing
competitive pressure from existing domestic producers as well.
LML and Kinetic, whose presence hitherto was confined to the scooter
market, have now entered the motorcycle segment. As a result, the
battle for market share is set to intensify further.
105
continuity of market growth, a gradual move up in the value change
and a tight leash on costs by industry leaders to effectively counter
sporadic price-led competition.
Currently all the major players in the industry- Hero Honda, Bajaj Auto
and TVS Motors have nearly equal scores in all the competitive
positions, with the rest of the players lagging behind in the run.
Hero Honda had been the first company in the Indian market to have
envisaged the motorcycle market as an opportunity market and
invested wholeheartedly in it. Due to its superior and reliable products
and excellent services reached the number 1 position. It has placed
most of its bikes in the early stages in the Utility segment appealing to
the masses. Its product positioning has also been very good, which
has also attracted other players in the market and driven growth in the
sector. But Hero Honda has surely held the first mover advantage.
Bajaj on the other hand, has been the second mover in the segment.
Realizing the potential of the motorcycle segment it started looking
into it and due to its focus and continued efforts and ability to
understand the market has been able to give Hero Honda a run for its
106
money. It has provided the consumers cheaper and more fuel efficient
bikes, increased product lines and above all has now taken a
substantial market in the Premium segment.
Other players in the market are following suite to both Hero Honda and
Bajaj Auto. TVS Motors and Yamaha have been forced to tow the line
and upgrade their products from two-stroke to four-stroke bikes in line
with the emission norms specified. They could not analyze the market
potential by themselves, thus lag behind.
Bajaj Auto has been the faster of the two since it has come to terms
with the motorcycle market potential. Its new product launches are an
example to this fact as it is launching a product in all the three
segments to garner more volume base and customer loyalty by
providing customers products that provide an alternative as well as
value for money.
Only Yamaha Motors has the financial muscle and product range to
compete with the three giants Hero Honda, Bajaj and TVS Motors. It
has the technical know-how and good products in international arena.
It has to understand the Indian market and the Indian customer in
107
order to have a good product mix in India. It is expected that Yamaha
to make a place for itself in the industry in the next three to four years
by setting up its own subsidiary in India or through a collaboration
with one of the Indian company.
I feel in the next two years there will be a change in the segmentation
of the market with newly defined segments in terms of price and
engine capacity. All the three segments will move in an upward
direction in terms of engine capacity.
RECOMMENDATIONS
108
Motorcycles race ahead
Also, the soft interest rate regime over the last two years has
resulted in a steady drop in lending rates. As a result, the cost of
retail loan has fallen steadily which, in turn, has prompted
consumers to go in for motorcycles, though they are a costlier than
scooters.
After some sharp drop in volumes, TVS Motor found the demand for
its two-stroke bikes picking up after it cut prices. This has lured the
Kinetic group and LML. LML launched Energy and Adreno models,
while Kinetic Engineering came up with Challenger.
109
Existing majors — Hero Honda and Bajaj — have taken efforts to
enhance their presence in the fast growing four-stroke segment.
With a series of successful launches such as Boxer, Caliber and
Caliber Croma, Bajaj has turned out to be a star performer in terms
of improvement in turnover and increase in market capitalization.
110
consumers away. Bajaj continues to dominate the geared scooter
market with LML a distant No 2.
Kinetic Motor launched its Marvel model, while Bajaj came up with
Saffire. Honda Motor of Japan has launched the Activa model
produced by its local subsidiary. In the sub-100cc category, Scooty
continues to be the market leader, while Bajaj (through Spirit) and
Kinetic (through Style) have a presence in this product category.
111
particular) has affected moped demand. Mopeds also appear to be
losing their earlier image of an ideal entry-level vehicle.
This apart, the depressed scenarios in the farm sector and the
pressure on crop realizations have affected demand from the key
rural market segment.
While the moped demand could see a revival, industry leaders feel
that it is unlikely to reach earlier levels. The market leader, TVS
Motor, has decided to launch four-stroke mopeds, which might
revive demand.
Given this backdrop, it is evident that model launches are critical for
survival and growth. With more models coming up, the related
expenses such as advertisement and other promotional outgo are
112
sure to go up. Industry majors have already upped their ad-spends
over the recent years.
Hero Honda and TVS Motor have gone a step ahead by roping in
celebrities as brand ambassadors. Hero Honda has launched an
advertisement featuring Sourav Ganguly and Hrithik Roshan, while
TVS has signed a contract with Sachin Tendulkar. With competitive
pressure on the rise, the companies would raise the load of
promotional activities, which could bring pressure on profit margins.
113
resulted in the market place becoming crowded with numerous
models.
With more products vying for consumer attention, the product life-
cycle could get shortened. As a result, it would be all the more
imperative for companies to launch models at fairly frequent
intervals. This would be the single-most important factor for
success. This has already been evident in Bajaj's and TVS' recent
performance.
114
The state of competition in an industry depends on five basic
forces:
115
positioning of the company in its industry, clarify the areas where
strategic change may yield greatest payoff, highlight the places where
industry trends promise to hold the greatest significance as either
opportunities or threats.
116
The barriers to entry & exit are high. The investment required to
compete with these giants would be significant. Thus it is very
difficult for newcomers to enter this sector. The industry
attractiveness is low not due to profit margin but due to intense &
well established competitors.
117