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INDUSTRY ANALYSIS
INDUSTRIAL WORK OUT
TEAM MEMBERS
AZHAR K.P
SHABEEB
HARSHINA S
AJAS MON
FAHAD ABOOBAKER
ASIF
INTRODUCTION
The Indian automotive industry consists of five segments:
commercial vehicles; multi-utility vehicles & passenger cars;
two-wheelers; three-wheelers; and tractors. With 7,822,963
units sold in the domestic market and 753,591 units exported
during the first nine months of FY2007, the industry (excluding
tractors) marked a growth of 43% over the corresponding
previous. The two-wheeler sales have witnessed a spectacular
growth trend since the mid nineties.
say without much of a doubt that the 1955 Bullet was one of
the initial hits of the Indian two-wheeler industry and till
today it continues to be a darling of the motorcycle
enthusiasts.
After facing its worst recession during the early 1990s, the
industry bounced back with a 25% increase in volume sales in
FY1995. However, the momentum could not be sustained and
sales growth dipped to 20% in FY1996 and further down to
12% in FY1997. The economic slowdown in FY1998 took a
heavy toll of two-wheeler sales, with the year-on-year sales
(volume) growth rate declining to 3% that year. However, sales
picked up thereafter mainly on the strength of an increase in
the disposable income of middle-income salaried people
(following the implementation of the Fifth Pay Commission's
recommendations), higher access to relatively inexpensive
financing, and increasing availability of fuel efficient two-
wheeler models. Nevertheless, this phenomenon proved short-
lived and the two-wheeler sales declined marginally in FY2001.
This was followed by a revival in sales growth for the industry
in FY2002. Although, the overall two-wheeler sales increased in
FY2002, the scooter and moped segments faced de-growth.
FY2003 also witnessed a healthy growth in overall two-wheeler
sales led by higher growth in motorcycles even as the sales of
scooters and mopeds continued to decline. Healthy growth in
two-wheeler sales during FY2004 was led by growth in
motorcycles even as the scooters segment posted healthy
growth while the mopeds continued to decline.
Demand Drivers
MARKET CHARACTERISTICS
Demand
Technology
HHML increased the capacity of its plants from 1.8 million units
in FY2003 to 2.25 million in FY2006 and has been able to
achieve 92% capacity utilisation. In light of the increase in
demand for motorcycles, the company plans to set up a new
plant. Since its entry in the Indian market during FY2002, HMSI
has aggressively expanded its capacity.
RECENT DEVOLPMENTS
The fanfare of biennial Auto Expo and the grand plans for new
launches backed by handsome sales to start with were followed
by pressures of rising input costs, lack of retail finance and a
nosedive in demand--it was a roller-coaster ride for the two-
wheeler industry in 2008.
The irony that encapsulated the sector was reflected in the fact
that when all the manufacturers were crying hoarse about
difficulties in selling products, sales during the January-
November actually grew. When some companies were finding it
difficult to sell motorcycles in the price range of Rs 35,000 to
Rs 65,000, some others thought of launching bikes priced
around Rs 50 lakh.
The year also saw the home grown companies seeking to
assert themselves in terms of technological development, albeit
it leading to a court battle over patent between Bajaj Auto Ltd
and TVS Motor Co.On other hand, four-wheeler major
Mahindra& Mahindra saw an opportunity to test waters in two-
wheeler space by forming a joint venture with Kinetic Motor.
Italian superbike maker Ducati's launch of a range of bikes,
priced between Rs 15 lakh and Rs 50 lakh, and arrival of
Suzuki's Hyabusa tagged at Rs 12.5 lakh were undoubtedly
talking points, but the industry talk for most of the year
revolved around sliding sales, triggered by high interest rates
and lack of retail financing.
The industry was unanimous that the decision by a majority of
banks and financial institutions to either stay away from two-
wheeler financing or tighten the norms has resulted in
slowdown in retail uptake, hurting the sector.
Fiscal Policy
The Union Budget for 2001-02 had lowered the excise duty on
two-wheelers (with engine capacity in excess of 75 cc) from
24% to 16%. The manufacturers responded to this by passing
on a relatively large part of the excise cut to customers. The
Union Budget thereafter have left the excise duty on two-
wheelers unchanged. But the Union Budget 2007-08 provides
for a weighted deduction of 150% for investments in R&D. This
may facilitate increasing R&D allocations and allow for
improvement in the technical as well as product development
skills of the Indian companies.