INTRODUCTION

India is the third largest manufacturer of two-wheelers in the world,

and the largest manufacturer of three-wheelers. The major players in
the Two Wheeler sector are Bajaj Auto, Hero Honda, Kinetic, LML and
TVS Motors. Among two-wheelers, motorcycles have led the upsurge
(88% growth) to result in a y-o-y growth of 42% for the sector. The
Indian two-wheelers industry can be broadly classified into three major
segments -- scooters, motorcycles and mopeds.

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.

Competition has intensified over the last couple of years. Recently,

Honda Corporation of Japan announced its intentions to set up a 100%
subsidiary to manufacture scooters and motorcycles. Other players in
the two-wheeler industry include Bajaj Auto Ltd, Kinetic Motor Co Ltd,
LML, TVS Motors and Yamaha. Low – interest regime has helped in
reducing cost of loans, which will help in boosting sales of 2-wheelers,
since 80% of the two- wheelers are credit – stimulated.

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

The invention of the first two-wheeler is a much-debated issue. "Who

invented the first motorcycle?" may seem like a simple question, but
the answer is quite complicated.

Two-wheelers owe their descent to the "safety" bicycle, i.e., bicycles

with front and rear wheels of the same size, with a pedal crank
mechanism to drive the rear wheel. Those bicycles, in turn descended
from high-wheel bicycles. The high-wheelers descended from an early
type of pushbike, without pedals, propelled by the rider's feet pushing
against the ground. These appeared around 1800, used iron-banded
wagon wheels, and were called "bone-crushers," both for their jarring
ride, and their tendency to toss their riders.

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.

In 1948, Bajaj Auto began trading in imported Vespa scooters and

three-wheelers. Finally, in 1960, it set up a shop to manufacture them
in technical collaboration with Piaggio of Italy. The agreement
expired in 1971. In the initial stages, Automobile Products of India
dominated the scooter segment; Bajaj Auto later overtook it. Although
various government and private enterprises entered the fray for
scooters, the only new player that has lasted till today is LML.

Under the regulated regime, foreign companies were not allowed to

operate in India. It was a complete seller market with the waiting
period for getting a scooter from Bajaj Auto being as high as 12 years.

The motorcycles segment was no different, with only three

manufacturers viz Enfield, Ideal Jawa and Escorts. While Enfield bullet
was a four-stroke bike, Jawa and the Rajdoot were two-stroke bikes.
Enfield 350cc bikes and Escorts 175cc bike initially dominated the
motorcycle segment.

Motorcycle, the name is evolved from motorized cycle. A motorcycle

has an engine, wheels and chain exposed. Moreover, it is chain driven.
Two-stroke motorcycles are positioned as power bikes by making use
of their high power delivery to cater the young generation. Four-stroke
motorcycle is positioned as fuel-efficient and environment friendly
vehicle.

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 first Japanese motorcycles were introduced in the early eighties.

TVS Suzuki and Hero Honda brought in the first two-stroke and four-
stroke engine motorcycles respectively. These two players initially
started with assembly of Complete Knocked Down Kits, and later on
progressed to indigenous manufacturing. In the 90s the major growth
for motorcycle segment was brought in by Japanese motorcycles,
which grew at a rate of nearly 33% CAGR in the last five years.

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.

The entry of Kinetic Honda in mid-eighties with a variometric scooter

helped in providing ease of use to the scooter owners. This helped in
inducing youngsters and working women, towards buying scooters,
who were earlier, inclined towards moped purchases. In the 90s, this
trend was reversed with the introduction of scooterettes. In line with
this, the scooter segment has consistently lost its part of the market
share in the two-wheeler market.

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

If Automobile companies have been showing poor growth rates, can

the two-wheeler industry be far behind? The two-wheeler segment of
the industry had been bucking the normal trends exhibited by the
automobile industry for the past few years.

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.

The recent acceleration in motorcycle sales has led to a serious

rethinking in strategies in the two-wheeler market. Bajaj Auto and TVS
Motors are targeting volumes in the 4-stroke motorcycle segment at
the expense of margins. This is bound to lead to profitability pressures
for the two-wheeler industry as a whole, even subjecting Hero Honda
to competitive pressures.

The two-wheeler industry is expected to undergo a period of

transformation, which would involve lower margins and profitability
pressures. Both Bajaj Auto and TVS Motors have already built in these
pressures in their valuations while Hero Honda has not.

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

The Indian two-wheelers Industry can be broadly classified into the

following Segments:

 Scooters -Geared and Un-geared.

 Motorcycles.

The motorcycles segment can be classified into three broad segments

viz., the entry-level segment, executive segment and the premium
segment.

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.

The entry-level segment continues to witness competition on the price-

front. Bajaj has a stronghold of this segment with Boxer, as Hero
Honda’s Dawn, the renewed version of Joy, is a distant second. It is
this segment that is gradually eating away volumes from Scooters.

These segments as shown below constitute the

domestic two wheeler sales:

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11
12
Flash Report on Sales [Including Exports]

(A)Apr-Mar (B)Apr-Mar (C)Apr-Mar

1999-2000 2000-01 2001-02
Scooters 12,33,781 8,76,224 8,53,330
Bajaj Auto Ltd 5,70,702 3,56,512 3,65,087

Honda Motorcycle & Scooter - - 54,216

Kinetic Motor Company Ltd 1,12,676 1,19,663 1,08,627

LML Limited 2,77,157 1,61,231 1,20,790

Maharashtra Scooters Ltd. 1,46,671 96,755 61,456

TVS Motors Ltd. 1,26,575 1,42,063 1,43,154

Motorcycles 17,61,439 21,14,693 28,93,618
Bajaj Auto Ltd. 4,25,704 5,36,103 7,06,012

Hero Honda Motors Ltd. 7,51,639 10,19,267 14,12,279

Kinetic Engg. Ltd. - - 44,309

LML Limited - 36,160 44,723
Royal Enfield Motor 24,175 20,189 22,769
TVS Motors Ltd. 3,23,181 3,51,483 4,47,279

Yamaha Motor India (P) Ltd. 2,36,740 1,50,861 2,16,247

Mopeds 6,98,321 6,43,461 4,67,902

Bajaj Auto Ltd. 65,786 54,388 36,491
Kinetic Engg. Ltd. 1,58,022 1,47,532 96,434
Majestic Auto Ltd. 95,773 78,266 67,590
TVS Motors Ltd. 3,78,740 3,63,275 2,67,387
Total 2-wheelers 36,93,541 36,34,378 42,14,850

PRELUDE TO INDIAN TWO-WHEELER SECTOR

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.

The two-wheeler sector witnessed a complete transformation in the

level of competition and growth rates as motorcycles lead the way in
offering a wider choice at competitive prices. The strong surge in
motorcycles had led the entire two-wheeler sector in posting an
incredible growth of 41% in the first half of the last year.

TWO-WHEELER INDUSTRY GROWTH IN THE

LAST TWO YEARS

The two-wheeler industry has seen a profound shift in the consumer

preference towards motorcycles from scooters. Until 1999, scooters
held the upper hand in the contribution to overall sales. The
introduction of Hero Honda’s blockbuster product Splendor was

14
instrumental in changing the scenario and the motorcycle growth
continues to outsmart scooters till date.

STRICT ENFORCEMENT OF ENVIRONMENTAL

REGULATIONS

In the years to come, stringent regulations and environmental laws

should increase replacement demand for two-wheelers. The retention
period of a two-wheeler in India is one of the highest in the world. This
should gradually decrease in the forthcoming years.

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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.

MAJOR PLAYERS IN THE INDUSTRY

The Indian two-wheeler contributes the largest volumes amongst all

the segments in automobile industry. Though the segment can be
broadly categorized into 3 sub-segments viz; scooters, motorcycles
and mopeds; some categories introduced in the market are a

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.

 Hero Honda continues to hold the coveted position of being the

largest individual two wheeler companies in the world as also
being the No.1 two wheeler joint venture of Honda Motor Co,
Worldwide. The Hero Honda Splendor has maintained its
leadership as the World No.1 two wheeler brands.

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.

The company offers the following products:

 CD 100

 CD 100 SS

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  Splendor

 Passion

 CBZ

 CD Dawn

 Karizma

 Ambition

 Ambition 135

 Splendor +

 Passion Plus

 CBZ Star

Address:

Registered & Corporate office:

HERO HONDA MOTORS LIMITED

34 Community Centre, Basant Lok

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.

Scooter production commenced in 1961. Three wheeler productions

followed in 1962. Its collaboration with Piaggio expired in 1971 and
since then the Company's scooters and three wheelers are sold under
the "Bajaj" brand name.

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

and among the top five in terms of annual turnover.

Under the "Horizontal transfer of technology" policy, Maharashtra

Scooters Ltd., a Company with 24% equity participation by the
Company and 27% participation from Maharashtra State Government's
Western Maharashtra Development Corp. was formed in 1975.
Production facilities are located at Satara, in Maharashtra State. This
helped augment production capacities. These scooters are marketed
through the Company's distribution network and under the Company's
brand name.
The Company's second plant was set up in 1984 at Aurangabad, in
Maharashtra State. In this plant, scooter production commenced in
1986, three wheeler production commenced in 1987 and scooterettes
and motorcycle facilities were commissioned in 1990 & 1991
respectively.

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).

Its main models are:

 Chetak

 Spirit

22
  CT 100

 Caliber 115

 Wind 125

 Pulsar 150 KS

 Pulsar 150 SS

 Pulsar 180 SS

 Eliminator

Address:

Mumbai - Pune Road,

Akurdi, Pune 411 035.
Tel No. : 020 772851, 776151.
Fax No. : +91-20 776387, 773398.
URL: www.Bajajauto.com

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.

It is also working towards setting up five training schools (one each in

Mumbai, Kanpur, Bangalore, Calcutta and Noida), to train mechanics
and service personnel. Beginning with 120 people in the first quarter of
1999, it hopes to build up a base of 20,000 trained mechanics over
time. Besides, its 300-dealer strength is to be over 500 soon.

Models Provided:

 Freedom DX

 Freedom Prima 110

24
  Freedom Prima 125

 Freedom Prima 125 DB

 Freedom Topper

 Graptor

Address:

Registered Office:

C 3 Panki Industrial Estate,

Kanpur - 208 022

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.

KEL manufactures a wide range of Mopeds, Scooters and Motorcycles

that are very popular in the country and are well recognized for their
fuel economy, quality and reliability.

KEL has 3 manufacturing plants, with the capacity to manufacture 4

lakh vehicles per year. Their well endowed technologically advanced
manufacturing set up has enabled them to reach high quality
standards.

The company also exports these vehicles to countries like USA,

Canada, Sweden, Latin America, Denmark and the Middle East.
The company has always been conscious of quality and customer
oriented production.

A strong service network set up across India backs Kinetic Engineering

Ltd. Kinetic Engineering are also the promoters of Kinetic Honda Motor
Ltd., a joint venture with the internationally known Honda Motor
Company of Japan.
The Models provided are:

 Nova EX / DLX / 135

 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:

D-1 Block, Plot No. 18/2,

MIDC Chinchwad,
Pune- 411 019
Tel: (020) 7474301-5

27
Fax: (020) 7475842-3

TVS MOTOR COMPANY

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.

With a strong sales and service network of 500 Authorized

Dealerships, 1018 Authorized Service Centres and over 864 Certified
Service Points, TVS is growing from strength to strength.

Products offered by the Company:

 Max 100

 Max R

 Centra

29
  Victor GL

 Victor GLX

 Fiero F2/FX

 Scooty PEP DLX

 Scotty KS

 Scotty ES

Address:

Jayalakshmi Estates
V Floor
8, Haddows Road
Chennai - 600006
Ph: 044-8272233
Fax: 044-8257121

COMPANY’S SHARE IN MARKET

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.

The current fiscal should bring in considerable bottom-line growth to

all the two-wheeler players due to positive demand outlook for the
sector. But the major concern for all the players is the acute pressure
on pricing that may impact the margins for all of them.

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.

Bajaj is currently India's largest three-wheeler manufacturer and one

of the biggest in the world. We have long left behind our annual
turnover of Rs.72 million (1968), to last years, impressive figure of
Rs.39 billion (US$ 920 million).
Management

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

Objectives and Goals

The main objective of Bajaj Auto is not only on sharp increase in

output but also on:

 Transparency: A commitment that the business is managed

along transparent lines.

 Fairness: To all stakeholders in the Company, but especially to

minority shareholders.

34
  Disclosure: Of all relevant financial and non-financial
information in an easily understood manner.

 Supervision: Of the Company's activities by a professionally

competent and independent board of directors.

Policies

 They approach their responsibilities with ambition and

resourcefulness.

 They organize themselves for a transparent and harmonious flow

of work.

 They respect sound theory and encourage creative

experimentation.

And they make their workplace a source of pride.

Bajaj Performance

 The market for the so-called 'mature' segment, which according

to Mr.Rajiv Bajaj (joint managing director) included, geared
scooters, mopeds, step-thru's and three-wheelers.

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%.

 Next, comes the largest market of the north (55% of total

scooter market). Here too Bajaj is relatively well placed with only
LML to worry about. But the good part of the story ends right
here. As this market is a mature one, growth opportunities are
limited and Bajaj has come around to accept that only too well.

 Sale of Company's new products introduced during 1998 - 1999

viz., Spirit, Bravo, Legend and Caliber was 30% of the total
number of two wheelers sold during the period.

 Going forward, its strategy would be to position itself in the fuel-

economy segment at a competitive price point. Secondly, Bajaj
will try to capture market share by introducing top-of-the-line
scooters, which match its competitors in terms of style and
technology. Towards this, Bajaj Introduced the four-stroke
'Chetak' in November 2000 giving 65 kms/liter fuel economy and
the 'Fusion' and 'BravoHP' in October 2000 to give LML
something to think about.

 In Step-thrus, the upgraded M-80 Major was introduced in

August 1999. It incorporates a new engine that delivers higher

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%.

 Sale of Spirit scooterette has crossed 6,000 units per month.

This was followed by a new scooterette in the next quarter. With
this, the Company expects to become India's largest scooterette
manufacturer.

 The success of Pulsar has helped the company to stay clear of

adopting an aggressive price reduction strategy. Caliber 115 has
also enjoyed a fair degree of success. As a result, aided by its
cash-rich status, the company has been able to hold its ground
in the times of recession.

 Commercial production of Saffire, four-stroke automatic scooter

commenced at Bajaj Auto's new plant at Chakan
(Pune) on October 20, 1999.

 Bajaj has consistently rolled out successful models for example

one of the feathers in its crown is the Bajaj Pulsar…..a premium
bike segment motorcycle which has been a very successful
model. Bajaj Kawasaki is one other bike which created quite a
stir in the industry.

 With the Indian two-wheeler industry focused on the motorcycle

segment, Bajaj Auto now becomes the only Indian company with

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’.

 An estimated Rs.100crores has been invested in developing

‘Pulsar’ and the project took 36 months from conceptualization
to commercial production of the vehicle. Pulsar is being
manufactured at Bajaj Auto’s state-of-the-art facilities at Chakan
near Pune where all the stylish un-geared scooters such as Bajaj
Spirit and Bajaj Saffire are manufactured.

 In motorcycle segment, introduction of new Boxer AT, CT and

Caliber has been very encouraging.

Sales in number For and Upto the Month of August

2004

Products For August Upto August For August Upto August

2004 2004 2003 2003
Motorcycles 106,745 485,791 76,487 394,983
Scooters
8,898 48,071 12,570 68,314
Geared
Scooters Un-
3,205 15,900 5,427 23,457
geared
Step thrus 1,299 8,639 3,024 14,256
Total Two
120,147 558,401 97,508 501,010
wheelers

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:

 Retain the high reliability and work on easing out immediate

availability.

 Vast expansion supported by Quality circles, kanban, just-in-time

and high automation.

39
  Expanded the dealer network to reach town, cities and even
villages.

 Improve the genuine spares availability.

 Reduce the prices drastically to match local specious parts.

 Cashed on branding, image to penetrate into rural areas than

competitors.

 Came up with easy financing scheme and several occasional

discounts to establish volume leadership.

Cost Leadership:

 Macro value addition chain was exploited through out the

companies operation but also spread within micro value addition
chain i.e. dealers and distributors, through free test rides,
registration and insurance schemes.

 Macro value addition suppliers offering them hi-tech automation,

by keeping and improving the productivity.

 After exploiting value addition micro and macro chain further

establishing the cost leadership, cost cutting exercises, was
adopted to ultimately reduce the cost of 58% to a target of 55%.

40
Response Time:

 Total transparency within the dealer, distribution and works

through online.

 Delivery within 24 hours of any variant within the circle.

 Improves ecstatic and added variants to support the wide range.

 Make available any variant, any range or access to definite

information directly. Improve to customer’s perception and
loyalty to product with widening the base and strengthening the
brand loyalty.

Example: Bajaj scooter customers change over to Bajaj motorbikes.

Economics

1. Demand Forecasting:

Forecasting means to know the trend or behaviors after a period of

time. The aim of economic forecasting is to reduce the risk or
uncertainties that the firm faces in its short-term operational
decision-making and in planning for its long-term growth. A firm
must decide how much of each product to produce, what price to
charge, and how much to spend on advertising, and it must also
plan for future growth of the firm.

One of the techniques of forecasting is:

41
 Moving Averages

The simplest smoothing technique is the moving average technique.

Here the forecasted value of a time series in a given period (Month,
quarter, year, etc) is equal to the average value of a time series in a
number of previous periods e.g. with a three period moving
average, the forecasted value of a time series for the next period is
given by the average value of the time series in the previous three
method.

2. Cost cutting:

A) At Akurdi Plant:

 Replacement of 40/60 W incandescent bulbs by 7 W PL lamps in

office building.

 Installation of automatic temperature controllers in standard

room and water chilling plant at general canteen and use of solar
energy systems for canteens and paint shop.

 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:

 Reduction of avoidable losses (replacement of capacitors, switch-

off of lights, fans, pumps, cooling water pumps etc. at identified
locations during identified hours).

 Fine turning of equipment (thereopac, changed temperature

setting of air conditioning system etc.)

 Plant voltage optimization.

Marketing

Four P’s of Marketing Mix

1. Product

The term "product" is anything that can be offered to a market to

satisfy a want or need. Products that can be marketed include
Physical goods, services, experiences, events, persons, places,
properties, organizations, information, and ideas.

Components of a market offering:

Value based prices

43
 Attractiveness of
Market offering

Product features and Services mix and

Quality Quality

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.

Third level, the company prepares an expected product, a set of

attributes and conditions buyers normally expect when they buy the
product. Here in case of two wheelers it is the warranty, the after sales
service that the customers expect. At Bajaj they have special customer
care service tips which are accessible even on its website. They have a
24-hour service whereby the customers can post their queries to the
company and they try to answer the queries within a span of 7 days.

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.

Fourth level, the marketer prepares an augmented product that

exceeds customer expectations. Auto finance is one such feature which
is an unexpected service though these days it’s no more a pleasant
surprise almost all leading companies offer finance which works as an
incentive for the buyers. Augmented product adds cost and soon
becomes expected product. Bajaj Auto Finance Ltd (BAFL), a group
company of Bajaj Auto Ltd is one of the biggest retail financing
companies in the country today.

2. Price

Pricing is an important part of the marketing strategy. The

consumers demand quality products at low prices which is as good
as a tightrope walk for manufacturer as he needs to control the cost
in order to reduce price but at the same time also maintain good
quality.

The basic price-deciding factor in any product is the cost. At Bajaj

also the cost factor is taken into consideration while deciding the
prices for the products. So now we have more and more products
trying to find space in the market, which makes them, take every
possible step to eat into each others share. For products like Two-
wheeler the positioning of the product as well the price of the
product is quite important.

45
Motorcycles

 Chetak – 4 Stroke 39,485

 Spirit 29,301

 CT 100 40,083

 Caliber 115 46,062

 Wind 125 51,042

 Pulsar 150 KS 57,386

 Pulsar 150 SS 61,312

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

Bajaj Auto is an aggressive advertiser. The advertising Budget of

Bajaj Auto is more than Rs.100 Crore. Bajaj has a distinct style of
promoting its products, for every product launched there’s a new
and fresh advertising strategy, developing the firm-positioning
platform.

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...

...making her turn in ... The logo, "Pulsar". MVO: Bajaj

consternation. She pulls it away Pulsar, definitely male
slowly to reveal...
Market Segmentation rather than Product
Differentiation

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.

Management Information System

Bajaj - The IT Effect

In the dynamic environment within which all organization has to

function IT certainly has started playing a vital role. Indian
organizations are no exception to this. IT planning and implementation
in such a changing environment has become a challenging task.
However, right from the beginning the IT strategy has been to focus on
the current business needs and to use the available technology to help
in achieving the business objectives at that time.

This resulted in a 4-phase implementation:

50
Phase I - started with use of computers in accounting.

Phase II - the focus changed to manufacturing. Online computers

were used during this phased to help in achieving production targets,
improving men and machine productivity, improving quality and
reducing costs which were the major issues at a time when the
company was in the sellers market.

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:

 Technical expertise, in collaboration with Kawasaki Heavy

Industries, Japan.

 Worlds lowest cost manufactures in the market.

 Extensive service and dealer networks.

 Higher labour productivity and greater automation.

 Global-scale production.

52
  Lined up a range of 17 two wheelers covering the entire
spectrum from motorcycles to scooters.

Weaknesses:

 In the late seventies there was skid in production due to

intermittent labour problems.

 Underutilization of capacity.

 Not considered living with times.

Opportunities:

 Launching of new products and variants of existing models

backed up by appropriate marketing efforts.

 Fuel efficiency which is much higher than competitors.

 Virtual zero maintenance among the products.

 Bajaj plans to offer CNG models with euro-II compliant.

 Focusing more on motorcycles to capture the urban market.

Threats:

53
  Hero Honda's switch start automatic transmission 100cc scooter.

 Competition from MNC's.

 Government regulations.

 Dealers not adjusted with changing realities.

 Change in tastes of consumers.

 Increase of secondary or resale market for two-wheelers.

International Marketing

Based on our own brand of globalization, we have built our distribution

network over 60 countries worldwide and multiplied our exports from
1% of total turnover in Fiscal 1989-90 to over 5% in Fiscal 1996-97.

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.

In countries where we perceive a good market potential, we seek a tie

up with one of the major industrial establishments, which would be in
a position to invest in the project and which would also entail
manufacturing activities apart from marketing, distribution and after
sales services through a well-established nation-wide network.

We offer a full range of services to such business partners:

 Training in sales, service and spare parts management based on

the Bajaj distribution system.

 Active supports for setting up manufacturing facilities overseas

including transfer of technical know how.

55
  Assistance in setting up an assembly plant for assembly of
vehicles from complete knocked down (CKD) kits.

 Select machinery and equipment, training of technical personnel,

all in a phased manner as required by the regulations in the
recipient country.

Production and Operation Research

R&D Objectives and Set-up

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.

Our foreign technology partners, like Kawasaki, Kubota and Tokyo

R&D, collaborate closely with the platform teams, with transfer of the
latest technology and R&D assistance. Our designs are also subjected
to an exacting and critical assessment from our technology partners.

57
Total Quality Management

The core competency of Bajaj Auto lies in the quality provided to the
customers.

At Bajaj, they are committed to high quality standards with a motive

for productivity behind it. They believe that poor quality is the greatest
productivity deterrent of all.

The constant drive for perfection and the single-minded pursuit of

excellence of the employees makes Bajaj one of the largest
manufacturers of two and three-wheelers and gives it the resilience to

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.

The phenomenal growth in volumes, profitability and market share,

year after year, has been possible only because every aspect of the
operations is managed to perfection through effective management
systems, HRD initiatives and quality assurance and control.

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:

The process of achieving such high levels of quality begins at the

product development stage itself and continues right up to the time
the vehicle stands gleaming in a dealer showroom.

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.

The process of quality control is extended to its dealerships and sales

and service outlets, where every dealer conducts an extensive pre-
delivery inspection before a vehicle is delivered to a customer.
Workshops are manned by skilled company-trained mechanics and
equipped with appropriate tools, testing facilities and adequate stocks
of spare parts.

The determined effort to optimize employee output has led to the

adoption of the unique V1-V10 system of cellular manufacture. This
model calls for a continuous minimization of all inputs - space, men,
material, and equipment - to achieve the same level of output.

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:

ISO 9002 Certificate awarded by the Bureau Veritas Quality

International (BVQI), to the Moped and Motorcycle Division of the
Company at Waluj, Aurangabad, in December 1994.

ISO 14001 Certificate awarded by the Bureau Veritas Quality

International (BVQI) to the Company's Plant at Waluj, Aurangabad, in
August 1997.
Current Strategies Suggested

 Bajaj auto must come out with new models in 2 and 3-wheeler
segment to sustain its market share in the comparative domestic
market.

 Bajaj auto should tighten up the supply chain mechanism and

gearing up of the distribution system. It is advised also Bajaj
auto to take steps for cutting costs, especially overheads
including salaries.

61
 It should increase focus on its 5 different products- scooters,
motorcycles, step- thru scooters, scooterettes & 3 wheelers-from
productions to dealer’s front.

 Bajaj should strengthen its marketing and sales department by

creating a separate team for different products in the coming
months.

 Stung by the declining scooter sales, Bajaj auto should

undertake a portfolio re-shuffles exercise by which the
motorcycles division will be main growth vehicle of the company.

 It should gear up towards improving its productivity levels and

they should be able to double the output with the current
workforce.

 There is a need for greater decentralization at the plant level to

ensure that each worker adds value.
 In a bid to cut costs, the company should work towards in
pushing up indigenization for its 2-wheeler models and reduce
waste at the factory level. It should also work in tandem with
vendors to identify for bringing down the cost at the latter's end.

 Bajaj auto has started a component procurement and product

development restructuring exercise called 'Scorpio'. This will
reduce the company's inventory levels and cut the vendor base
by half.

62
Cost/Price Monitoring

Bajaj should concentrate more at reducing the costs and thereby

translate this in the price of the vehicle. The cost if controlled shall
help it in competing against competitions. Bajaj is about to launch its
chopper style Eliminator motorcycle. It has been successful to a
certain extent in reducing the costs at its Akrudi pant, and this needs
to be done for the Waluj plant as well.

Technological Up-Gradation

Bajaj should plan to upgrade its technical performance with a

manufacturer who has the desired expertise and the technology for
making the power bikes. New players like Kinetic Engineering and
Kanpur based LML are coming into the picture and the competition is
bound to increase. In such a scenario the company should be proactive
rather than being reactive.

63
 HERO HONDA GROUP

Profile of the Company

"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

Chairman Mr. Brijmohan Lall Munjal

Managing Director Mr. Pawan Munjal
Joint Managing Director Mr. Akio Kazausa
Director Mr. Shinichi Nakayama
Director Mr. Satyanand Munjal
Director Mr. Om Prakash Munjal
Director Mr. M P Wadhawan
Director Mr. S P Virmani
Director Mr. O P Gupta
Director Mr. M. Sudo
Director Mr. S Toshida
Director Mr. N N Vohara
Director Mr. Pradeep Dinodia
Director Gen. (Retd.) V P Malik

Consolidated Family Business

The Hero Group is a strong family business - there is no other Group

that has so successfully managed to stay together for over 40 years.
The system is to bring in any new family member, coming of age,

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.

Hero, a name synonymous with two wheelers in India is today a multi-

unit, multi-product, geographically diversified Group of companies.
Through fully integrated operations, the Munjals roll their own steel,
make critical components such as free wheels for their bicycles, and
have the foresight to simultaneously diversify into myriad ventures,
like product designing, IT enabled services, finance and insurance, just
to name a few.

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.

The Hero Group philosophy is: "To provide excellent transportation to

the common man at easily affordable prices and to provide total
satisfaction in all its spheres of activity." Thus apart from being
customer-centric, the Hero Group also provides its employees with a

66
fine quality of life and its business associates with a total sense of
belonging.

"Engineering Satisfaction" is the prime motive of the Hero Group and it

has become a way of life and a part of the work culture of the Group.
This is what drives the Group to seek newer vistas, adopt faster
technology and create quality driven products to the utmost
satisfaction of customers, partners, dealers and vendors.

Today the Hero Group has a number of accolades and achievements to

its credit, yet consumer requirements and newer technologies provide
fresh challenges every day and at Hero the wheels of progress
continue to turn.

Glorious History

The Legend of Hero Honda

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.

This is proved by the company's sales over the years

1985-86 43,000 units

1989-90 96,200 units
1998-99 5, 30,600 units
1999-00 7, 61,210 units
2000-01 10, 29,555 units
2001-02 14, 25,195 units
2002-03 16, 77,537 units
2003-04 20, 70,147 units

Mission Statement

We at Hero Honda are continuously striving for synergy between

technology, systems, and human resources to provide products and

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."

Brij Mohan Lall Munjal - Chairman Hero Group.

Achievements and Awards

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).

 The Analyst Award 1995 presented to Hero Honda Motors

Limited on being ranked 9th amongst the most investor
rewarding Companies in India.
1996:
 Hero Honda becomes first company to server Army, Navy & Air
Force with its 100cc motorcycles.

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.

 Sir Jehangir Ghandy Medal for Industrial Peace conferred upon

the Chairman, Mr. Brijmohan Lall Munjal, by XLRI, Jamshedpur.

2001:
 Bike Maker of the Year, by Overdrive Magazine.

 Winner of the Review 200 - Asia's Leading Companies Award

(9th Rank amongst top 10 Indian Companies).

71
  Entrepreneur of the Year Award conferred upon the Chairman,
Mr. Brijmohan Lall Munjal, by Ernst & Young.

 Three Leaves Award for Environment to Hero Honda by Centre

for Social & Environment Green Rating Project.

2002:
 Bike Maker of the Year, by Overdrive Magazine.

 Winner of the Review 200 - Asia’s Leading Companies Award

(4th Rank amongst top 10 Indian Companies)

 Entrepreneur of the Year Award conferred upon on the

Chairman, Mr. Brijmohan Lall Munjal, by Business Standard.

 Company of the Year for Corporate Excellence, by the Economic

Times.

 Giants International Award to the Chairman, Mr. Brijmohan Lall

Munjal, in the field of Business & Industry.

 Business Leadership Award conferred upon on the Chairman, Mr.

Brijmohan Lall Munjal, by Madras Management Association.
2003:
 Winner of the Review 200 - Asia's Leading Companies Award
(3rd Rank amongst the top 10 Indian Companies).

72
  Most Respected Company in Automobile Sector, by Business
World.

 Bike Maker of the Year by Overdrive Magazine.

Areas of Management

Hero Group > Growth Models

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

80% of the components in the manufacturing of a bike today are

outsourced to the vendors. Those vendors are located in the vicinity of
the plants and company is moving towards full employment of “Just In
Time” policy wherein the components arrive, just before they are
required to be installed on the bikes, resulting in substantial savings in
terms of inventory costs. Most vendors supply the components &
HHML shares a very nice relationship with the vendors.

In Hero Cycles Limited, the just-in-time inventory principle has been

working since the beginning of production in the unit and is functional
even till date. The raw material vendors bring in the goods get paid
instantly and by the end of the day the finished product is rolled out of
the factory. This is the Japanese style of production and in India; Hero
is probably the only company to have mastered the art of the just-in-
time inventory principle.

Ancillarisation

An integral part of the Group strategy of doing business differently was

providing support to ancillary units. There are over 300 ancillary units

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.

The Munjals have gone much beyond the conventional definition of

ancillarisation, making it a point to extend technical and managerial
support to these ancillaries. These ancillary units are manned by
friends, relatives, ex-employees or close associates of the Munjal
family since the Group patriarch, Mr. Brijmohan Lall, "… never wanted
to march alone."

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."

When it comes to workers' benefits, the Hero Group is known for

providing facilities, further ahead of the industry norms. Long before
other companies did so, Hero was giving its employees a uniform
allowance, as well as House Rent Allowance (HRA) and Leave Travel

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

Throughout the years of mammoth growth, the Group Chairman, Mr.

Lall has actively looked at diversification. A significant level of
backward integration in its manufacturing activities has been
substantial in the Group's growth and led to the establishment of the
Hero Cycles Cold Rolling Division, Munjal and Sunbeam Castings,
Munjal Auto Components and Munjal Showa Limited amongst other
component-manufacturing units.

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

The Hero Group's phenomenal growth is the result of constant

innovations, a close watch on costs and the dynamic leadership of the
Group Chairman, characterized by an ethos of entrepreneurship, of
right attitudes and building stronger relationships with investors,
partners, vendors and dealers and customers.

Marketing P’s

A. Product & Price:

Hero Honda

78
 CD 100 42,616

 CD 100 SS 43,218

 Splendor 45,778

 Splendor (Disc) 48,741

 CBZ (Disc) 59,225

 CBZ (Self) 65,193

 CD Dawn 35,217

 Karizma 76,219

 Ambition (Disc) 56,793

 Ambition (Drum) 53,580

 Ambition 135 (Drum) 50,170

 Ambition 135 (Drum – Self) 53,580

 Splendor + (Disc) 49,034

 Splendor + (Drum) 46,352

79
  Passion + (Disc) 50,883

 Passion + (Drum) 47,931

 CBZ Star 59,196

Hero Motors

 Smart 23,256

 Sting 26,615

 E Zee SX 27,407

Product Range and New Models

The Company's product range includes "Splendor" which is the largest

selling motorcycle brand in the world with over 6.9 lakhs vehicles sold

80
in 2000-01. A cumulative over 5 million customers are the real
foundation of the company's strength.

The identity of Hero Motors in the market has been established

through two of its leading international products - Hero Puch and Hero
Winner. When Hero Motors entered into a technical collaboration with
Steyr Daimler Puch of Austria, Hero Puch was born which marked a
new chapter in the two-wheeler scenario of the country. Hero Puch,
the mini-motorcycle designed by Ferdinand Porsche combined the
power (4.15 bhp) and ease of a motorcycle and at 91 km/hr, the
economy of a moped.

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.

Strong dealer company relationship with a deep sense of belonging

to the Hero fraternity, the Group's dealer network has catalyzed
growth and acted as a strong bridge between the customers and
the Group.

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

HHML is an organization, which is known for its innovative &

Aggressive Marketing. Rs.120 crores was the Annual budget for

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 also promotes sports in the country. It is also the sponsor of

the ICC world Cup 2003 and half of the Indian team represents
Hero Honda. Those players are Virender Sehwag, Mohammad Kaif,
Yuvraj Singh, Harbhajan Singh, Zaheer Khan and Sourav Ganguly
as Brand Ambassadors. Superstar Hrithik Roshan is also a Brand
Ambassador for Hero Honda Company. They will endorse the
company products, attend corporate and brand events and help
promote its "We Care" campaign comprising safety riding,
environment and friendliness Also, advertising is done at a local
level by dealers, in which HHML also contributes to help dealer
promote the dealership in the local area.

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.

Some of the Events Sponsored During the Years

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.

In the early 1990s, Hero had started an aggressive rural-oriented

campaign for its motorcycles, in order to break into the rural market.
The creative route taken by the group was by taking parallels from
popular Hindi movies to deliver the intended message. The campaign
generated high interest and the strategy did work, as demand and
brand acceptability picked up in rural areas.

But unfortunately, that was at the cost of popularity in urban areas.

The year 1993, saw the brand's ranking fall nine places to 49. Brand
preference was stronger amongst rural consumers than urban ones
and amongst lower-income-groups than the higher-income earning
segment.

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.

Suddenly, in 1996, the brand suffered a huge fall of 14 places to land

at rank 56. Hero was doing badly in almost every segment and Waking
up to this sudden dip in popularity, Hero started with a new advertising
campaign.

And by 1997, the brands ranking has picked amongst housewives,

young males and the western and southern regions, thus increasing its
overall ranking to 45. The next year, 1998, saw only a minute decrease
in ranking with the rank falling one place to 46. But a worrisome trend
emerged. Hero has lost scores in around 12 segments out of 14.

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.

A Company Par Excellence

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.

The Market Leader

Today Hero Honda has managed to achieve indigenization of over 95

percent, a Honda record worldwide. Hero Honda is at present the
largest-selling Indian motorcycle and the most fuel-efficient in its
category - the outcome of Hero Group's foresight and another classic
example of how the group strives to provide the customer with
excellence and satisfaction.

Hero Honda became the first company in the country to introduce

four-stroke motorcycles and set the standards for fuel efficiency,
pollution control and quality. It has a production capacity of 1.2 million
motorcycles, which shall be enhanced to 1.5 million motorcycles in the
coming years. It has an excellent distribution and service network
spread throughout the country. Hero Honda is the market leader in
motorcycles, with sales of over Two million motorcycles in last year
and a strong market share of 50%.

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.

Excellent marketing, finance and loan services, an efficient dealer

network, tactical promotion comprising of fuel conservation
campaigns, mobile workshops, safety driving courses and others, all
placed Hero Honda in a league distinct from the conventional. The
Company focuses on providing "Value for Money" through its pricing
strategies and after sales services.

Excellent Collaborator Relationship

Hero Honda is now the leading two-wheeler Company in India in terms

of net sales. It is both the leading two wheeler manufacturer and sales
operation among Honda's worldwide operations. The Company has
maintained excellent relationship with all stakeholders including its
collaborators. Hero Honda has emerged as the most successful joint
venture Company of Honda in the world, their relationship over 116
years old now.

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

HERO CORPORATE SERVICES

MUNJAL SHOWA LIMITED

As early as in the 1960s' very few Indian bicycle manufacturers were

interested in exports. However, the Hero Group's foray into the

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.

Hero Puch is perhaps the first Indian two-wheeler to be homologated

abroad (in Spain) and has assembly plants in Mauritius and Egypt.

93
Today Hero Puch mini-motorcycles can also be seen in Paraguay,
Mexico, Argentina, Turkey and Holland.

Group Company, Munjal Showa Limited is one of the largest suppliers

of shock absorbers to major auto giants in Japan, United States and
the United Kingdom, amongst other developed markets.

In 1993 Hero Exports was established as the International Trading

Division for Group and non-Group products. The Government of India
recognizes Hero Exports as a Trading House.

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.

FUTURE OUTLOOK OF TWO-WHEELER SECTOR

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).

All Two- Ungeared Geared Step-

Year Motorcycles Mopeds
wheelers scooters Scooters thrus
1995 2208231 23.9% 8.6% 42.6% 15.1% 9.8%

95
1996 2660005 24.8% 9.1% 40.6% 16.8% 8.7%

1997 2965474 27.1% 8.9% 38.4% 16.5% 9.1%

1998 3042347 30.0% 8.8% 35.4% 15.5% 10.3%

1999 3403471 34.6% 8.3% 32.7% 14.6% 9.8%

2000 3776719 42.7% 10.0% 25.9% 14.1% 7.3%

2001 3745516 54.1% 10.9% 16.0% 12.9% 6.1%

2002 4318531 66.2% 9.5% 12.3% 8.7% 3.3%

2003 5053562 74.4% 10.5% 6.7% 6.2% 2.2%

The factors that have prompted the change are:

 Affordability. This comes in two forms.

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.

 Rising double income families and urbanization, 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 financial year

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.

Growth in volumes will take place due to the following

factors:

98
  Increasing contribution from the services sector.

 Urbanization.

 Double income families.

 Improving road connectivity, which could unlock significant value

from the rural markets.

 Continuing poor public transport system.

 Declining interest rates.

 Wider availability of finance.

 Decreasing product life cycles.

 Increasing percentage of young population.

Apart from motorcycle segment, ungeared scooter manufacturers will

also see a sustained rise in volumes. Honda’s launch of ‘Dio’ and
Kinetic’s ‘Nova’, are both launches in the ungeared scooter segment.
Bajaj Auto and TVS expect the decline in geared scooter and moped
sales to stabilize in the near future.

Which company will benefit in the future?

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

Hero Honda Motors Limited (HHML) is a, 26:26 joint venture between

the Hero group and Japanese major, Honda Motor Co. The remaining
stake is in the hands of financial institutions and the public. The
company has earned the distinction of being the world’s largest
individual motorcycle-making company.

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.

Hero Honda has a 50% share of the motorcycles segment.

Hero Honda sold over one million motorcycles last year. It has
achieved sales of more than 2 millions in the last FY.

Hero Honda's brand equity, its distribution network, efficient

operations, quality products coupled with continuous product
introductions shall spruce up the sales. Passion is already selling more
than 15,000 vehicles a month.

Hero Honda's Splendor is already the world's largest selling two-

wheeler. It has been leading the world since 3 consecutive years.

100
Hero Honda’s legacy of a solid after sales service and brand equity will
continue to drive volume growth.

HHML’s success comes from an unprecedented success of its Splendor

model, which now contributes over 65% of sales. Sure CBZ and Street
have clocked decent volumes, but they look pale in comparison with
Splendor. This also raises concerns on the future growth of the
company.

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.

HHML being a pure motorcycle company has been working at an

operating spread of around 13%, while operating margins for BAL
stands at less than 7% (excluding other income).

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.

So, we have some unanswered questions with regards to ownership of

HHML in the future. Will it be Munjal, Honda or a JV or…well, one can
only wait to see how the dice eventually rolls out.

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.

It has a strong sales and service network of 430 Authorized

Dealerships, 1018 Authorized Service Centers and over 864 Certified
Service Points, TVS is growing from strength to strength.

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

LML is one of the leading scooter manufacturers in the country. Two-

wheeler manufacturer LML in June 2003 recorded a six-fold growth on

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.

In January 2003 the company also introduced the premium version of

the Freedom in select markets, which has also been extremely well
received. This impressive growth signals the company’s turnaround.

LML has decided to brand its new generation primary dealerships as

‘LML Global’. These will showcase all LML scooter and motorcycle
models in a roomy environment ranging from 1,000 to 2,000 sq.ft. The
showrooms will have tea and coffee vending machines and a
cybercafé.

CONCLUSION

Changing Landscape of the two-wheeler industry

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 impact of these developments is reflected in a change in market

share, a divergent trend in share price and the sharp swing in the
price-earnings multiple.

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.

Attractive growth rates in the motorcycle segment, has intensified

competitive activity in the past two years. With product configurations
across players converging, effective sales and marketing skills will
likely determine future success. It is believed that there will be

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.

Motorcycles embody the best features of a two-wheeler such as fuel

efficiency, ruggedness and greater product differentiation. Our
population profile (skewed towards the youth) and a rising service
class tilts the balance in favor of motorcycles.

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.

Exports now constitute about 4% of total two-wheeler sales. This is

expected to increase to 12% in FY 2005. Kawasaki, Bajaj’s technical
partner, has decided to outsource its sub-200cc motorcycle
requirements from Bajaj. This can be the singular reason for concern
for the other players in the market.

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.

In regards to TVS Motors, it has to launch products in all the three

segments to build in from here. It cannot rely on a single product
Victor to see it through this intense competition. Its ability to launch
new reliable and quality products has decreased due to an end in its
technical collaboration with Suzuki.

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

Opportunities and Threats for the Industry

108
 Motorcycles race ahead

There are no signs of a reversal in the growing consumer

preference for motorcycles to scooters. Riding comfort, better
control and superior mileage have attracted consumers to
motorcycles.

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.

In the motorcycle market, the consumer preference has tended to

be skewed in favour of four-stroke models. With petrol prices ruling
firm, it is not all that surprising to find the growing consumer
preference for four-stroke bikes that offer superior mileage.

As a result, two-stroke motorcycles have lost ground heavily in

recent years. Bajaj Auto has practically stopped producing two-
stroke bikes, while other two-stroke producers such as Yamaha and
TVS Motor have also turned to four-stroke models.

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.

 Scooters on a downhill ride

Scooters continue to lose favour at the market place. In the geared

scooter segment, the lack of choice and practically, no major
improvement in product features, design and styling have driven

110
consumers away. Bajaj continues to dominate the geared scooter
market with LML a distant No 2.

In the scooter market, the ungeared models could turn out to be

the dark horse. The ease of usage and relatively lower product
weight make ungeared scooters a popular choice, especially among
women. Moreover, this product segment has seen more product
launches compared to the geared models.

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.

The recent success of Activa is a pointer that a good product with

different style and design would always find market acceptance.

If the companies manage to come up with more such products,

scooters could stage a comeback in the two-wheeler market.

 Mopeds losing out

After growing at a steady pace during the mid-1990s, mopeds

appear to be losing their prominence in the two-wheeler market.
The drop in the price of motorcycle (second-hand bikes, in

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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.

 New models hold the key

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

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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.

This apart, the necessity to launch models at regular interval would

also push up development and other related expense such as
technical know-how and royalty payment. The bottom-line is that
the scope for any major expansion in profit margin may be
relatively limited from current levels. The earnings growth would be
driven more by volumes.

 Competition on the rise

The growing popularity of motorcycles has resulted in more players

vying for a place in this market. Besides the top three companies,
three others are fighting for a place in the segment. This has

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 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.

Backed by successful model launches, both have managed to

enhance their market share in the motorcycle market. This, in turn,
has led to an improvement in their financial performance.

After a considerable time, it came up with Passion, which has

enjoyed reasonable success at the market place. Other offerings
such as CBZ and Street enjoyed muted success.

There would be a limited market potential for higher priced

products. But we would be interested in such products as it helps in
developing our technical capabilities though we may not always
make money. The Rs 50,000 mark is probably a serious
psychological barrier. Below this price segment is where there would
be huge volumes.
Porters 5 Forces of Competition

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The state of competition in an industry depends on five basic
forces:

Customers, Suppliers, Potential Entrants, Substitutes & the Industry.

The collective strength of these forces determines the ultimate profit
potential of an industry.

Knowledge of the underlying sources of competitive pressure provides

the groundwork for a strategic agenda of action. They highlight the
critical strengths and weaknesses of the company, animate the

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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.

 Rivalry among existing firms – High

The two-wheeler industry is categorized by intense competition

mainly between the three majors – Bajaj Auto, Hero Honda & T V S
Motor Co. There are also some small players who are gaining
market share such as LML & Kinetic. The industry is constantly
witnessing price-cuts, freebies & product launches.

 Threat of Substitute Product – High

The two-wheeler industry faces direct competition from the automobile

sector. With the increase in disposable income & increase in bank
finance people prefer to have cars rather than two wheelers. Thus the
demand for cars affects the demand for two-wheelers. If the demand
for cars falls, the demand for two-wheelers will rise.

 Barriers to entry –High

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 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.

 Bargaining power of suppliers – Poor

The two-wheeler industry, rely on only a few selected vendors. Thus

the bargaining power is poor. Around 60% - 90% of the product is
outsourced thus the suppliers have a direct impact on the
companies cost & profitability.

 Bargaining power of buyers –High

The bargaining power of the buyers is high. There are a variety of

products available to customers to choose from. The customer is
treated “as a king”. The marketers have segmented the market into
three categories namely entry level, executive & premium category.
It has been observed that companies which have ignored the
customers have suffered – Bajaj Auto, which once operated without
a marketing department, but instead had a dispatch department.
However the rules of the game have changed. The customer should
be the focus of all activities. All activities Production & Marketing
should be done keeping the consumer in mind.

With this I end my memorable odyssey………..

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