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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915

GIIRJ, Vol.2 (3), MARCH (2014)

A CASE STUDY ON INDIAN BICYCLE INDUSTRY WITH SPECIAL


REFERENCE TO ATLAS CYCLE

NEHA*; ISHA VERMA**; MANPREET SHARMA***

*RESEARCH SCHOLAR,
DEPARTMENT OF COMMERCE,
DELHI SCHOOL OF ECONOMICS,
UNIVERSITY OF DELHI,
DELHI.

** RESEARCH SCHOLAR,
DEPARTMENT OF COMMERCE,
DELHI SCHOOL OF ECONOMICS,
UNIVERSITY OF DELHI,
DELHI.

***ASSISTANT PROFESSOR,
DEPARTMENT OF COMMERCE,
SHRI RAM COLLEGE OF COMMERCE,
UNIVERSITY OF DELHI,
DELHI.

ABSTRACT
Shri Janki Das Kapur, laid the foundation of Atlas Cycles Industries Ltd. in 1951. The time
witnessed its enormous growth since its inception. From being a modest shed at Sonepat to a
25 acre factory complex, the journey was travelled in a small period of 12 months. It is a 150
9001 2000 certified company. The company focuses on innovation, user friendly & quality
products. In this case we tried to analyze the strong areas, weak points, treats and
opportunities of the company with the help of SWOT Analysis. A holistic approach is being
adopted to understand the environment in which company’s operating therefore, PEST and
Porter’s Analysis also being studied. Further, the company exports bicycles in 35 countries.
BEP analysis can be used to take decisions for expanding export markets.

KEY WORDS: Atlas Cycles, BEP, Indian Bicycle Industry, PEST, Porter’s Analysis,
SWOT analysis.

CASE STUDY
ATLAS’s PROFILE
Following the dream to provide quality bicycles to his countrymen at reasonable prices, Shri
Janki Das Kapur, laid the foundation of Atlas Cycles Industries Ltd. in 1951. The time
witnessed its enormous growth since its inception. From being a modest shed at Sonepat to a
25 acre factory complex, the journey was travelled in a small period of 12 months. The
success never comes easy and requires a constant strive to move ahead with never ending
zeal, technological up gradations and right vision. Over a period of six decades the company
undertook various user friendly innovations and enjoyed a position of eminence and
leadership in the bicycle industry.
The Company started its exports in 1958 and soon became one of the top bicycle producing
companies in the world, with a capacity to produce four million bicycles per year. After
restructuring of atlas group in 2003,Shri Jai Dev Kapur, son of Shri Janki Das Kapur, became
the president of Atlas Cycles (Haryana) Ltd., an ISO 9001-2008 certified co. A firm believer
in progressive management and scientific techniques, he led a number of Atlas export

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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915
GIIRJ, Vol.2 (3), MARCH (2014)

promotion delegations abroad. It is because of his endeavor that Atlas cycle becomes leading
exporters of bicycles in more than 50 countries. The co. was presented with “Best Industrial
Relations” Award by FICCI, “Gold Mercury International Award” 1977 and EEPC award for
export excellence.Atlas Cycles (Haryana) (Atlas) is engaged in manufacturing and exporting
of bicycles. The company also offer bicycle components and steel tubes with units at
Sonepat, Sahibabad, Malanpur, Bawal and Rasoi. Atlas offers a range of bicycles which
include all terrain bikes (ATBs) and mountain bikes (MTBs), city bikes, roadsters, children
bikes, ladies bikes, suspension bikes and sports bikes. Atlas markets its products under
Campus, Columbus, Divine, Dove, Nucleus, Femina, Gold Star brands, among others. The
company primarily operates in India, where it is headquartered in Sonepat. The company
recorded revenues of INR8, 753.2 million (approximately $182.6 million) in the fiscal year
ended March 2012, an increase of 14% over 2011. The company's operating profit was
INR245 million (approximately $5.1 million) in fiscal 2012, an increase of 27.6% over 2011.
Its net profit was INR35.4 million (approximately $0.7 million) in fiscal 2012, a decrease of
6% compared to 2011.

INDUSTRY PROFILE
The entire market of bicycles can be divided into domestic and foreign markets. The annual
domestic demand of bicycles in India is approximately 10 million units, out of which around
2.5 million units is a government demand for the various welfare schemes.The domestic
demand in India for the cycles majorly comes from rural areas. In India more than 60 percent
of population resides in rural areas which are characterized by poor infrastructural facilities
and low income groups. These areas lack the concrete roads and the dirt roads often get
damaged during monsoons. Therefore, the rural population demand bicycle more than motor
driven vehicles. In rural area bicycle is one of the most important modes of transportation for
middle and low income groups. However, the increasing purchasing power of Indian
consumers, especially in developing areas and urban areas, is making the motor driven
vehicles to come under their affordable basket. Thus, increasingly the consumers are
switching from bicycles to motor bikes. Another major source of competition for bicycle
manufacturers is the public transportation such as buses and local trains which are cheap and
often requires less effort in commutation. Given the contracting markets and availability of
close substitutes, the level of competition within the industry is very high. The industry is
also characterized by high fixed costs and low product differentiation. Existing firms of
bicycle industry have a cost advantage as compared to new prospective firms. All these
factors work as the entry barriers for the new firms to enter the industry.
The industry has been affected by various environmental factors, such as: Production of
bicycles, depend upon the global conditions and seasonal conditions. Firms make changes in
their output according to these conditions; during recession production of bicycles was
affected adversely; Increasing consumer consciousness towards the environmental issues
(like pollution) and health issues (like obesity) positively affects the production of bicycles.
After de-licensing of the industry in July 1997, entry of foreign firms were made easy which
led to increased competition within the domestic markets. Various global firms were attracted
to Indian markets, eventually, making the innovations the need of the hour for survival of
domestic firms. China emerged as a major threat for the domestic firms because cost of inputs
to Chinese manufacturers was lesser in comparison to Indian manufacturers. And in order to
save the Indian industry it was required that the government of India should fix a floor price
for the import of bicycle from china. Government of India has fixed some quality control
standard for Indian bicycle industry which they must follow further.
The bicycle industry has various guidelines developed by Indian Government to follow.
Firstly, bicycle manufacturers cannot increase the prices of their products without prior

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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915
GIIRJ, Vol.2 (3), MARCH (2014)

approval of the government. Secondly, the distribution margin, that includes commission
agent, sole distributors and dealers, should not exceed 15 percent of sale price. Additionally,
the India Government has brought certain policies and standards that are to be adhered to by
the bicycle industry. Furthermore, international technical standards to be followed are
formulated by the International Organization for Standardization (ISO).
In world’s bicycle industry, India is a major contributor along with China, Taiwan, The
European Union, and Japan which cumulatively are responsible for 87% of global production
(http://www.worldometers.info/bicycles/). India produces approximately 10% of the world
annual bicycle production, which is estimated at 125 Million units. Exports out of India are
largely to Africa and the less developed economies and negligible to western markets
(Annual Report, Atlas Cycles Ltd, 2013). Today, the Indian bicycle manufacturing and
bicycle parts industry is widely recognized for its quality standards in the international
market.
In order to meet the competition in the global markets Indian manufacturers are trying to
innovate to improve the quality and the features in their bicycles and also to reduce the cost
and price of product. Targeting the emerging market for lifestyle consumers, manufacturers
are innovating in premium bikes. Growth in the "specials segment" (Sport Light Roadster,
mountain terrain bike and children's bicycles) was higher than in the "standard segment and
this in turn opened the opportunities for the bicycle industry. Different cycles are being made
to cater the needs of different demographic groups such as kids, ladies, gents.The difficulties
faced by the Indian companies are: high fixed cost, low product differentiation and high
excise duty. Excise duty is one of the important costs that adversely affect the production of
bicycles. Due to the hike in excise duty Indian bicycle industry is becoming uncompetitive in
comparison to Chinese bicycle industry.

COMPETITOR ANALYSIS
The major players in the bicycle industry are: Hero cycles, TI cycles of India and Avon
Cycles. Figure 1 shows the market share of these firms.

Figure 1

Market Share

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Hero Cycles
17 40 IT Cycles
Atlas Cycles

10 Avon
others
22

(http: // business. Mapsofindia.com).

HERO CYCLES: - It was formed in 1956 and is now recognized as a leading brand in India.
They possess IS0-9001, IS0-9002, BVQ 1 certification and IS0-4001. Its enormous size can
be inferred from its capacity to produce a cycle in every 9 seconds. They export products in
89 countries including U.S, Germany etc.

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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915
GIIRJ, Vol.2 (3), MARCH (2014)

TI CYCLES OF INDIA: - T I cycles of India was formed in 1949 and are IS0 9001-2004
certified company. They are one of the market leaders in Auto component, cycle, sugar,
fertilizers etc. Their key competence lies in their strong research and development facilities.
They have been distributing uninterrupted dividend since 1954. They use TQM techniques
and follow the customer centric approach.

AVON CYCLES: -It was formed in 1951 under the flagship of AVON group. It is family
business promoted by PAHWAS. They make almost every part of cycle. They are certified
with 1S0 9001- 2000. They are energetically involved in make good customer relation and
corporate social responsibility. They are recognized as export house by government of India.

Table: 1

In a highly competitive market conditions and low differentiation in the industry, cost
leadership strategy is a key ingredient for competitive advantage. The main costs involved in
the bicycle industry include the raw materials such as steel, tubes and other components that
account for 60-70% of the total costs. Hero Cycle enjoys the low cost of procurement of these
raw materials because of its proximity to these raw materials in Ludhiana. Also, Hero cycles
use a diluted just-in-time procurement system which helps reducing the inventory costs.
Thus, Hero Cycle enjoys the low costs advantage over the other market players.

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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915
GIIRJ, Vol.2 (3), MARCH (2014)

Table 2: Balance sheets for the Rupee in Lacs Rupee in Lacs Rupee in Lacs
Year 2011 – 2013
Particulars 2011 2012 2013
EQUITY AND LIABILITY
SHAREHOLDER FUND
Share capital 325.19 325.19 325.19
Reserve and surplus 12014.68 12198.41 12304.46

NON CURRENT LIABILITIES


Long term borrowings 602.96 554.02 905.16
Deferred tax liability net 797 847 854
Other long term liability 141.03 150.53 152.16
Long term provision 63.73 60.36 72.5
1604.72 1611.91 1983.82
CURRET LIABILITIES
short term borrowings 7566.29 7328.9 7990.71
trade payable 12822.88 13175.03 12174.24
Other current liabilities 6859.38 7078.86 6720.82
Short term provisions 3848.17 3976.39 4198.46
Total 31096.72 31559.18 31084.23
45041.31 45694.69 45697.7
ASSETS
NON CURRENT ASSETS
FIXED ASSETS
Tangible assets 9410.63 9238.5 9094.49
Intangible assets 0 0 0
Capital WIP 595.88 316.17 418.34
Non-current investments 521.56 156.08 166.26
deferred assets (Net) 0 0 0
Long-term loan and advances 1797.3 2180.29 2359.46
Other non-current asset 15.15 42.07 10.63
12340.52 11933.11 12049.18
CURRENT ASSETS
Current investment 2115.02 1081 1353.47
Inventories 10626.96 11352.71 11274.27
trade receivables 14604.02 14888.43 13602.84
cash and bank balances 619.29 1321.67 1562.13
short term loans and advances 4715.93 5067.52 5845.28
Other current assets 19.57 50.25 10.53
32700.79 33761.58 33648.52
Total 45041.31 45694.69 45697.7

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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915
GIIRJ, Vol.2 (3), MARCH (2014)

Table3 : Income Statements for the Rupee in Lacs Rupee in Lacs Rupee in Lacs
Years 2011-2013
Particulars 2011 2012 2013
INCOME
Revenue from operation(Gross) 79,593.34 90,623.84 71,126.86
(-) Rebate 1842.33 1,595.30 1,995.31
(-) Excise duty on sales 969.72 1,496.47 1,299.65
Revenue from operation (Net) 76,781.29 87,532.07 67,831.90
Other income 143.22 240.91 182.90
Total 76,924.51 87,772.98 68,014.80
EXPENSES
Cost of goods sold 59,191.12 66,649.88 48,991.96
Purchase of trading goods 0 0 140.98
Change in inventories -660.16 224.25 287.14
Employee benefit expense 3,944.20 4,362.39 4146.86
Finance cost 1,323.85 1,946.24 1,459.94
Depreciation and amortization 570.10 722.69 706.82
OTHER EXPENSES
Manufacturing expenses 7,930.25 8,033.40 6968.5
Administration expense 1,901.64 2,922.63 1950.2
Selling expense 2,127.21 2,407.65 3008.14
Total 76,328.21 87,269.13 67,660.54
Profit before exceptional and extraordinary 596.30 503.85 354.26
items & Tax

Profit before extraordinary items & Tax


Profit before tax 596.30 503.85 354.26

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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915
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Table:4 Relevant information from financial Rupee Rupee in Rupee in


statement of atlas cycles in Lacs Lacs Lacs
Particulars 2011 2012 2013
Interest paid 1323.85 1946.24 1459.94
Purchase of finished goods 0 0 0
Directors’ fee 17.82 19.98 20.74
Wages and Salary 3,205.60 3440.43 3359.05
Lease rent and other rent 313.76 526.36 390.79
Selling and distribution expense 2127.21 2407.65 3008.14
Travel expense 581.68 705.62 580.64
Consumption of stores & spare parts 3220.44 3254.23 3379.1
Repair and maintenance 668.93 608.8 602.53
Depreciation 570.1 722.69 706.82
Power fuel and water charges 864.41 912.2 807.68
Insurance premium paid 46.49 34.98 41.9
Labour process &transportation 1643.57 1764.09 399.35
Royalties, technical know-how fees etc. 0 0 0
Compensation to employees 738.6 921.96 787.81
Raw material expense 59191.1 66649.88 48991.96
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Packaging expense 1532.9 1494.08 1779.84

Teaching notes
Neha, Isha Verma, Manpreet Sharma.

SUBJECT AREA
The main focus of the case study is on issues concerning ATLAS cycle and emerging market
between Chinese bicycle industry and Indian bicycle industry. To understand the above issue
we are undertaking a SWOT analysis, PEST analysis, Porter’s five forces model and
competitor analysis. We also calculate the break-even level of business operation to outline
the importance of break-even level in decision making process.

Study level
 Case can be used as a teaching tool in the following courses.
 MBA/post graduate program in management in strategic management, management
control system and Management Accounting.
 It can be used to make student understand about break-even level, PEST, SWOT and
porter’s five forces model.
 It can be used to make them understand about the importance of break-even analysis
for business.

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GALAXY International Interdisciplinary Research Journal_______________________ ISSN 2347-6915
GIIRJ, Vol.2 (3), MARCH (2014)

EXPECTED LEARNING OUTCOMES


1. By doing a SWOT analysis. The student can identify the strength, Weakness,
opportunities and threat of ATLAS CYCLE.
2. By doing PEST analysis student can discuss the political and legal, Economic, social
and the technological environment of the company.
3. By applying porter’s five forces student can analyze the company.
4. Use of breakeven level of company in decision making process i.e. whether the
company should increase their production to expand its export operations.

Discussion questions
SWOT ANALYSIS

Strengths
 Rich experience and strong financial soundness.
 Atlas Brand is well accepted both in Indian as well as International Market and
one of the largest cycle manufacturers in the world.
 To achieve effectiveness and efficiency of operation, reliability of financial
reporting and compliance with applicable laws, rules, and regulations and
compliance of significant policies, the Company has a well-defined system of
internal control throughout the organization.
 To improve efficiency and internal control company has introduced Microsoft-
Navision 2009, an Enterprise Resource Planning (ERP) system.
 Regular training as per ISO requirement is being provided at all levels. Cordial
relations in the industry are being maintained in all units. Training at all levels has
been a continuous process in the Company.
Weakness
 Rising input cost i.e. prices of sheets, strips, Tyres, Tubes and other related
chemicals are governed by external forces including its trend in International
Market.
 Further as it is the product of necessity, it is not easy to increase to price on
frequent intervals.
Opportunities
 Ability to expand more in international markets.
 Expanding market demand in the lifestyle segment.
Threats
 A sluggish growth of between 4-6% annually.
 Product obsolescence visa-vise non-acceptance of model could adversely affect
the revenue stream and profitability.
 Volatile steel prices and a new burden of 2% excise duty are a deterrent to the
growth of the cycle industry.
 Small manufacturers in the unorganized sector have set up their units which
certainly pose a threat to the organized sector.
 Cheap import from China supplying cheap and substandard products in the market
is also threatening our bicycle industry.
 Steel Prices are changing on regular basis and there is a wide fluctuation in
chemical industry and other metals including Nickels, Brass etc., which are
governed by some external forces.

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PEST:
Economic
1. Atlas cycle is among those companies which boast up scale of operation globally.
2. Raw material and labour are cheaper in India.
Social
1. Due to environment problem and health issues scope for urban consumers are higher.
2. Due to improper roads in rural area scope for rural consumers is higher.
Technological
1. Consumer friendly and large range of product.
2. Innovative product line.
Political and legal
1. Government has a stringent quality control standard for bicycle manufactures.
2. High excise duty may have an adverse effect on bicycle manufactures.

PORTER’S FIVE FORCES ANALYSIS OF ATLAS CYCLES


1. Rivalry among existing competitors - HIGH
 High exit barriers.
 High fixed cost.
 Difficult for the company to show product differentiation.
2. Threat of new entrants – LOW
 Capital intensive industry requires huge capital to enter in the market.
 Cost of existing player is lower therefore a threat from new entrants is quite
low.
 Chinese bicycle manufacturers are entering into the domestic market therefore
it is difficult for the new entrant to earn profit.
3. Threat of substitute –LOW
 Consumers are highly aware about environmental problems; therefore they
don't want to substitute other mode of transportation completely with bicycle.
 Price of other modes of transportation is higher than a bicycle.
 Now days consumer are health conscious and cycling is good for health
therefore they are not trying to substitute it with another mode of
transportation.
4. Bargaining power of consumers- HIGH
 Consumers are price sensitive and cost to them in switching from one product
to other is less therefore their bargaining power is high.
5. Bargaining power of supplier –LOW
 India is developing country therefore labor and raw materials are abundant.
 No product differentiation.

BREAK-EVEN POINT ANALYSIS


1. P/V Ratio Contribution/Sales*100
2. Break- even
point Fixed cost/P/V Ratio
3. Contribution Sales net -Variable Cost

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Table 5: Division of Cost between Rupee in Lacs Rupee in Lacs Rupee in Lacs
Variable and Fixed Cost
Particulars 2011 2012 2013
OPERATING EXPENSE
/VARIABLE EXPENSE

Raw material expense 59191.12 66649.88 48991.96


Packaging expense 1532.9 1494.08 1779.84
Purchase of finished goods 0 0 0
Wages and salary 3,205.60 3440.43 3359.05
Selling and distribution expense 2127.21 2407.65 3008.14
Travel expense 581.68 705.62 580.64
Power ,fuel and water charges 864.41 912.2 807.68
Consumption of stores & spare parts 3220.44 3254.23 3379.1
Labour process & transportation 1643.57 1764.09 399.35
TOTAL VARIABLE COST 72366.93 80628.18 62305.76

FIXED COST
Royalties, technical know-how fees etc. 0 0 0
Lease rent and other rent 313.76 526.36 390.79
Repair and maintenance 668.93 608.8 602.53
Insurance premium paid 46.49 34.98 41.9
Outsourced professional jobs 0 0 0
Directors’ fee 17.82 19.98 20.74
Interest paid 1323.85 1946.24 1459.94
Depreciation 570.1 722.69 706.82
Compensation to employee 738.6 921.96 787.81
TOTAL FIXED COST 3679.55 4781.01 4010.53
Interest paid 1323.85 1946.24 1459.94
Depreciation 570.1 722.69 706.82
Compensation to employee 738.6 921.96 787.81
TOTAL OPERATING FIXED COST 8962.47 11982.77 9940.41

Table 6 : Breakeven Values for the year 2011 Rupee in Rupee in Rupee in
to 2013 Lacs Lacs Lacs
2011 2012 2013
Break-even point fixed cost/P/V Ratio 1558.89 1519.255 1220.1589
P/V Ratio Contribution/Sales*100 5.749265 7.887269 8.1468159
Contribution Sales net -Variable Cost 4,414.36 6,903.89 552,614.00

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In the above two tables (Table 5 and Table 6), we can see that BEP of the company is
constantly showing a decreasing trend which shows that the company is able to achieve
break-even level at lower sales level. The main reason is P/V Ratio which is constantly
increasing as company is able to reduce itscost of operations. From the above results, we can
conclude that they have the ability to reduce their cost of production and have sufficient
ability to increase their market share in exports. Therefore, the management must think about
expanding export operations.

REFERENCES
1. http://articles.economictimes.indiatimes.com/2013-07-05/news/40391907_1_bicycle-
industry-cycle-manufacturers-central-excise
2. http://www.atlascycles.co.in/about_ag.asp
3. http://www.atlascycles.co.in/about_management.asp
4. http://www.atlascycles.co.in/dom_export_division.asp
5. http://www.atlascycles.co.in/manufacturing.asp
6. http://www.atlasbicycles.com/pdf/ar-2011-12.pdf
7. http://www.atlasbicycles.com/pdf/ar-2012-13.pdf
8. http://www.atlascyclesonepat.com/story.htm
9. http: // business. Mapsofindia.com
10. Dr.P.C.Tulsian. (2011). COST ACCOUNTING FOR CA-PCC/IPCC. NEW DELHI:
S.CHAND & COMPANY LTD.
11. http://economictimes.indiatimes.com/atlas-cycles-(haryana)-
ltd/infocompanyhistory/companyid-14002.cms
12. http://www.herocycles.com/global.php
13. Monica Singhania, N. S. R. a. N. M., 2013. Hero Cycles:operating break-evens.
Emerald Group Publishing Limited, III(35), p. 26.
14. http://www.myatlascycle.com/
15. http://www.worldometers.info/bicycles/

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