INTRODUCTION: Automobile is one of the largest industries in global market.

Being the leader in product and process technologies in the manufacturing sector, it has been recognised as one of the drivers of economic growth. During the last decade, well-directed efforts have been made to provide a new look to the automobile policy for realising the sector's full potential for the economy. Steps like abolition of licensing, removal of quantitative restrictions and initiatives to bring the policy framework in consonance with WTO requirements have set the industry in a progressive track. Removal of the restrictive environment has helped restructuring, and enabled industry to absorb new technologies, aligning itself with the global development and also to realise its potential in the country. The liberalization policies have led to continuous increase in competition which has ultimately resulted in modernization in line with the global standards as well as in substantial cut in prices. Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand, especially from the population in the middle income group.

INDIAN AUTO INDUSTRY:

The total two-wheeler sales of the Indian industry accounts for around 77% of the total vehicles sold in India. With 26, 12,881 two wheelers already sold in India in the quarter from Jun-Sep 2009, the Indian wheeler industry is poised for high growth In the coming years. In terms of volume, about 6% of the two wheelers manufactured are exported.

LTM | TWO WHEELER AUTOMOBILE INDUSTRY ANALYSIS

Figure : Indian Automobile Industry

The total two-wheeler sales of the Indian industry accounts for around 77% of the total vehicles sold in India. With 26,12,881 two wheelers already sold in India in the quarter from Jun-Sep 2009, the Indian wheeler industry is poised for high growth In the coming years. In terms of volume, about 6% of the two wheelers manufactured are exported.

HISTORY:

The Britannica Encyclopedia describes a motorcycle as a bicycle or tricycle propelled by an internal-combustion engine (or, less often, by an electric engine).
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The automobile was the reply to the 19th-century dream of self-propelling the horse-drawn carriage. Similarly, the invention of the motorcycle created the self-propelled bicycle. The first commercial design was a three-wheeler built by Edward Butler in Great Britain in 1884. This employed a horizontal single-cylinder gasoline engine mounted between two steerable front wheels and connected by a drive chain to the rear wheel.

Invention of Two Wheelers

The invention of the first two-wheeler is a much-debated issue. "Who invented the first motorcycle?" may seem like a simple question, but its not true. 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 tendency to toss the rider. 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 in the back, although it had a smaller spring-loaded outrigger wheel on each side. It was constructed mostly of wood, the wheels were of the ironbanded wooden-spoked wagon-type. This two-wheeler was powered by a single-cylinder Otto-cycle engine, and may have had a spray-type carburetor. (Wilhelm Maybach, Daimler's assistant, was working on the invention of the spray carburetor at the time). If two wheels with steam propulsion can be called a motorcycle, then the first one may have been American.

Origin

of

Motor-Scooters

Edward Butler, an Englishman, built the first motor tricycle in 1884. The first gasoline-engine motorcycle to appear publicly was built by Gottlieb Daimler, of Bad Cannstatt, Germany, in 1885. The first practical engines and motorcycles were designed by the French and Belgians, followed by British, German, Italian, and American makers. The popularity of the vehicle grew, especially after 1910. During World War I the motorcycle was used by all branches of the armed forces in Europe, principally for dispatching. After the war it enjoyed a sport vogue until the Great Depression began in 1929. After World War II a revival of interest in motorcycles lasted into the late 20th century, with the vehicle being used for high-speed touring. The practice of attaching auxiliary engines to bicycles in Western Europe and parts of the United States led to the development during the 1950s of a new type of light motorcycle, the moped.
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Originating in Germany as a 50-cubic-centimetre machine with simple controls and low initial cost, it was largely free of licensing and insurance regulations

EVOLUTION OF TWO-WHEELER INDUSTRY IN INDIA:

Two-wheeler segment is one of the most important components of the automobile sector that has undergone significant changes due to shift in policy environment. The two-wheeler industry has been in existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and mopeds. In India there are some MNCs and Indian company dealing in automobile sector. The main key players who are dealing in this sector are Hero Honda, Bajaj, Yamaha, Honda, and TVS. Hero Honda is the biggest player in this sector in India as well as in the world and playing a very important role in two wheeler automobile sector. Hero Honda, Bajaj and TVS are the Indian companies and Yamaha & Honda are international automobile brand. Bajaj is the first Indian two wheeler automobile company in the market since 1945 with the name M/s Bacharj trading corporation private limited. In 1959 M/s Bacharj trading corporation private limited change its name as Bajaj Auto Ltd. Bajaj Auto obtains license from the Government of India to manufacture two- and three-wheelers vehicles in 1959. Hero Honda Motors Limited was established in 1984, as a joint venture between India's Hero Group (world's largest bicycle manufacturers) and Japan's Honda Motor Company. And created the world's single largest two wheeler company and also one of the most successful joint ventures worldwide. During the 80s, Hero Honda became the first company in India. Over 19 million Hero Honda two wheelers running on Indian roads today.TVS Motors is the third largest company in the two-wheeler industry with a market share of 16%. Infect, it is the only Indian company without a foreign collaboration in the two-wheeler industry. When the company opted out of the collaboration with Suzuki in 2002, many believed that TVS was headed towards extinction. But the company proved the doomsayers wrong and came out with a very successful `TVS Victor'. TVS Motors Ltd. originally incorporated in 1982 to manufacture two-wheelers in collaboration with Suzuki Motors of Japan, TVS was one of the leaders in two-wheeler industry. Yamaha Motor Corporation is the auto mobile company of Japan (1953) which works in India since 1955 and providing latest technology in India from last two decades. Yamaha Motor India was incorporated in august 2001 as a 100% subsidiary of Yamaha motor corporation, Japan Honda motors of Japan is not a new name in the two wheeler scenario in the country, they were in a tie up with the Firodias owned Kinetic group. However in the late 90s they parted ways after problems arose over issues like introduction of new models, advertising expenditure, marketing strategies and other related issues. In the mid 80 Honda motors of Japan joined hands with the largest bicycle maker of India the Hero cycles to create Hero Honda which in a couple of
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decades or so have gone on to become the single largest motorcycle company in the world. Though Honda has come on its own on the Indian market yet it will be providing technological support to Hero Honda for the next ten years. Thus presenting a unique situation in which the company will be in direct competition with the company which it has been associated for nearly two decades. Honda Motorcycles and Scooters India limited, a 100% subsidiary of Honda motor company Japan eventually entered the Indian market with Honda Unicorn in 2004.

LTM | TWO WHEELER AUTOMOBILE INDUSTRY ANALYSIS

INDUSTRY STRUCTURE:

India is the 2nd largest two-wheeler market in the world with a size of over Rs 100,000 mn. The total sale of two wheelers in India has touched a figure of ~7.9 mn units by March, 2007, up 11.4% from the previous fiscal figure of ~7.1 mn units. Production during the period reached 10.8 mn units, entailing a demand ratio of ~72%. In terms of sales and market share the major players of the industry are Hero Honda, Bajaj Auto and TVS Motors. Other players include Kinetic Motors, Yamaha Motor and Honda Motorcycle and Scooter India (HMSI). The composition of the industry consists of motorcycles, scooters and mopeds. Over the past decade, there has been a consumer preferential shift from mopeds to scooters and now motorcycles. On account of the shift, the motorcycle segment dominates the two-wheeler industry with a market share of close to 80%. The motorcycle segment is further sub divided into 3 classes, starting from the entry/economy class (Rs 30,000 Rs 40,000), executive class (Rs 40,000 Rs 50,000) and the premium class (>Rs 50,000). The motorcycle segment is primarily led by Hero Honda with a market share of ~59% followed by Bajaj Auto (~18%), HMSI (~9%), TVS Motors (~7%) and Yamaha (~5%). On the other hand the scooter segment is led by HMSI which has a dominant share of ~63% followed by TVS Motors (16%) and Hero Honda (~14%). When it comes to the moped segment, it is primarily dominated by TVS Motors with a market share of ~100%.

LTM | TWO WHEELER AUTOMOBILE INDUSTRY ANALYSIS

 A GROWTH PERSPECTIVE : The composition of the two-wheeler industry has witnessed sea changes in the post-reform period. In 1991, the share of scooters was about 50 per cent of the total 2-wheeler demand in the Indian market. Motorcycle and moped had been experiencing almost equal level of shares in the total number of two-wheelers. In 2003-04, the share of motorcycles increased to 78 per cent of the total two-wheelers while the shares of scooters and mopeds declined to the level of 16 and 6 per cent respectively. A clear picture of the motorcycle segment's gaining importance during this period is exhibited by the Figures 1, 2 and 3 depicting total sales, share and annual growth during the period 1993-94 through 2003-04. We can also see the growth and importance of two wheelers in the Indian market by the graph and a circle of two wheeler production by segment

LTM | TWO WHEELER AUTOMOBILE INDUSTRY ANALYSIS

National Council of Applied Economic Research (NCAER) had forecast two-wheeler demand during the period 2002-03 through 2011-12. The forecasts had been made using econometric technique along with inputs obtained from a primary survey conducted at 14 prime cities in the country. Estimations were based on Panel Regression, which takes into account both time series and cross section variation in data. A panel data of 16 major states over a period of 5 years ending 1999 was used for the estimation of parameters. The models considered a large number of
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macro-economic, demographic and socio-economic variables to arrive at the best estimations for different two-wheeler segments. The projections have been made at all India and regional levels. Different scenarios have been presented based on different assumptions regarding the demand drivers of the two-wheeler industry. The most likely scenario assumed annual growth rate of Gross Domestic Product (GDP) to be 5.5 per cent during 2002-03 and was anticipated to increase gradually to 6.5 per cent during 2011-12. The all-India and region-wise projected growth trends for the motorcycles and scooters are presented in Table 1. The demand for mopeds is not presented in this analysis due to its already shrinking status compared to' motorcycles and scooters. It is important to remember that the above-mentioned forecast presents a long-term growth for a period of 10 years. The high growth rate in motorcycle segment at present will stabilise after a certain point beyond which a condition of equilibrium will set the growth path. Another important thing to keep in mind while interpreting these growth rates is that the forecast could consider the trend till 1999 and the model could not capture the recent developments that have taken place in last few years. However, this will not alter the regional distribution to a significant extent. Table 1 suggests two important dimensions for the two-wheeler industry. The region-wise numbers of motorcycle and scooter suggest the future market for these segments. At the all India level, the demand for motorcycles will be almost 10 times of that of the scooters. The same in the western region will be almost 20 times. It is also evident from the table that motorcycle will find its major market in the western region of the country, which will account for more than 40 per cent of its total demand. The south and the north-central region will follow this. The demand for scooters will be the maximum in the northern region, which will account for more than 50 per cent of the demand for scooters in 2011-12. Table 1: Demand Forecast for Motorcycles and Scooters for 2011-12 2-Wheeler Segment Regions South West Motorcycle Scooter North-Central East & North-East All India 883 (11.1) 10669 (14.0) 2835 4327 2624 (12.9) (16.8) (12.5)

203 219 602 99 1124 (2.6) (3.5) (2.8) (2.0) (2.08) Note: Compound Annual Rate of Growth during 2002-03 and 2011-12 is presented in parenthesis Source: Indian Automobile Industry: Optimism in the Air, Industry Insight, NCAER The present economic situation of the country makes the scenario brighter for short-term demand. Real GDP growth was at a high level of 7.4 per cent during the first quarter of 2004. Both industry and the service sectors have shown high growth during this period at the rates of
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8.0 and 9.5 per cent respectively. However, poor rainfall last year will pull down the GDP growth to some extent. Taking into account all these factors along with other leading indicators including government spending, foreign investment, inflation and export growth, NCAER has projected an average growth of GDP at 6.7 per cent during the tenth five-year plan. Its mid-term forecast suggests an expected growth of 7.4 per cent in GDP during 2004-05 to 2008-09. Very recently, IMF has portrayed a sustained global recovery in World Economic Outlook. A significant shift has also been observed in Indian households from the lower income group to the middle income group in recent years. The finance companies are also more aggressive in their marketing compared to previous years. Combining all these factors, one may visualise a higher growth rate in two-wheeler demand than presented in Table 1, particularly for the motorcycle segment. There is a large untapped market in semi-urban and rural areas of the country. Any strategic planning for the two-wheeler industry needs to identify these markets with the help of available statistical techniques. Potential markets can be identified as well as prioritised using these techniques with the help of secondary data on socio-economic parameters. For the two-wheeler industry, it is also important to identify the target groups for various categories of motorcycles and scooters. With the formal introduction of secondhand car market by the reputed car manufacturers and easy loan availability for new as well as used cars, the two-wheeler industry needs to upgrade its market information system to capture the new market and to maintain its already existing markets. Availability of easy credit for two-wheelers in rural and smaller urban areas also requires more focused attention. It is also imperative to initiate measures to make the presence of Indian two-wheeler industry felt in the global market. Adequate incentives for promoting exports and setting up of institutional mechanism such as Automobile Export Promotion Council would be of great help for further surge in demand for the Indian twowheeler industry

STRATEGIES THAT IS RESPONSIBLE FOR SUCCESS OF TWO WHEELER AUTOMOBILE INDUSTRY;

The two-wheeler manufacturers are especially encouraged by the enthusiasm of the young riders who look for trendy products all the time. Some of the motorbike manufacturers are also targeting young ladies and making bikes available that are comfortable and cater specially to their needs. The launch of the Mopeds has revolutionized the entire concept of transportation for the women's. Mopeds are light weight, easy to drive and cost effective. In a way- Mopeds are tailor made keeping the need of young girls and working women in mind. Such is the craze for bikes, that it comprises the major percentage of the two-wheeler industry, followed by mopeds and scooters. Now, college going crowd and youths find bikes smarter and
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better for transportation. The best part about a bike is that it provides quick and easy transportation, and can be parked anywhere around. Various factors such as the availability of bikes on reasonable rates, auto loans and higher disposable incomes have contributed to an evident upsurge in the demand of bikes. There's a marked change in the preferences of the buyers, as most of them prefer bikes to scooters and mopeds. Scooters have been the darlings of Indian masses for long because of the convenience it provides to the riders. Cheap scooters have been launched by the manufacturers to reach the wider net of customers. Two-wheeler manufacturers have also introduced scooters for that are a handy mode of commuting for the physically challenged. In India, two wheelers have captured the imagination of young generation everywhere. They are as much popular in the rural areas as they are in cities and towns. The easy maintenance, affordable price and ability to adjust in any kinds of road have made them dear to one and all. Moreover, now-a-days getting finance or a loan has become a trouble free affair and the numbers of bike riders are only growing with each passing day. Your two-wheeler also needs your care and attention all the time.

RURAL INDIA WILL BOOST THE TWO WHEELER INDUSTRY GROWTH ( Rural India to be in the drivers seat)

The Indian two-wheeler industry has come long way since its humble beginning in 1948 when Bajaj Auto started importing and selling Vespa Scooters in India. Since then, the customer preferences have changed in favour of motorcycles and gearless scooterettes that score higher on technology, fuel economy and aesthetic appeal, at the expense of metalbodied geared scooters and mopeds. These changes in customer preferences have had an impact on fortunes of the players. The erstwhile leaders have either perished or have significantly lost market share, whereas new leaders have emerged. Rising income levels, reducing excise duties, higher loan tenure and loan-to-value offered by the financing companies have all fuelled the growth of two-wheeler sales in the country. Besides, mounting traffic chaos and limited parking space has also increased the demand for two-wheelers from households that can afford or actually do own a car. Furthermore, with increasing women working population, changing social philosophy and broad-mindedness, the penetration of two-wheelers that is currently at abysmally low level is expected to increase significantly going forward.

LTM | TWO WHEELER AUTOMOBILE INDUSTRY ANALYSIS

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It has developed a statistical model that attempts to forecast the domestic two wheeler sales on the basis of ownership cost and the target population that includes young populace that can afford but do not own a two wheeler. Other qualitative factors like macro-economic outlook, consumer confidence, willingness of vehicle financers to finance TWs, etc. have also been quantitatively built in demand forecasting model. It foresees the growth of two-wheeler sales to be healthy during the period FY09-14, albeit with some short-term hiccups. According to Research, rural India would drive the growth, whereas the opportunity in urban India, especially bigger cities, is limited. Abundant and low cost labour coupled with local availability of raw materials like steel, aluminium and natural rubber has placed India amongst the low cost producing centres of two-wheelers. Consequently, it anticipates buoyant growth in two-wheeler exports as well. Given the currently subdued macro-economic scenario and weak consumer confidence levels as well as cautious stance of the two-wheeler financers, it expects domestic sales growth to remain muted in the medium term. However, lower penetration and rising income levels makes the longer term outlook healthy. Abundance of low cost labour and raw material gives India an upper hand in the export market. The report on Indian Two-wheeler industry forecasts domestic sales as well as exports of two-wheelers for the next five years till FY14. TECHNOLOGY

Hitherto, technology transfer to the Indian two-wheeler industry took place mainly through: licensing and technical collaboration (as in the case of Bajaj Auto and LML); and joint ventures (HHML). A third form - that is, the 100% owned subsidiary route - found favour in the early 2000s. A case in point is HMSI, a 100% subsidiary of Honda, Japan Besides the below mentioned technology alliances, Suzuki Motor Corporation has also followed the strategy of joint ventures (SMC reportedly acquired equity stake in Integra Overseas Limited for manufacturing and marketing Suzuki motorcycles in India).

Technological tie-ups of Select Players Nature of Alliance Company Product Bajaj Auto Technological tie-up Kawasaki Heavy Industries Ltd, Japan Motorcycles Technological tie-up Tokya R&D Co Ltd, Japan Two-wheelers Technological tie-up Kubota Corp, Japan Diesel Engines HHML Joint Venture Honda Motor Co, Japan Motorcycles KEL Technological tie-up Hyosung Motors & Machinery Inc Motorcycles KEL Tie up for manufacturing
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and distribution Italjet, Italy Scooters LML Technological tie-up Daelim Motor Co Ltd Motorcycles Hero Motors Technological tie-up Aprilia of Italy Scooters

With the two-wheeler market, especially the motorcycle market, becoming extremely competitive and the life cycle of products getting shorter, the ability to offer new models to meet fast changing customer preferences has become imperative. In this context, the ability to deliver newer products calls for sound technological backing and this has become one of the critical differentiating factor among companies in the domestic market. Thus, the players have increased their focus on research and development with some having indigenously developed new models as well as improved technologies to cater to the domestic market. Further, with exports being one of the thrust areas for some Indian two-wheeler companies, the Indian original equipment manufacturers (OEMs) have realised the need to upgrade their technical capabilities. These relate to three main areas: fuel economy, environmental compliance, and performance. In India, because of the cost-sensitive nature of the market, fuel efficiency had been an interest area for manufacturers. It is not only that the OEMs are increasing their focus on in-house R&D, they also provide support to the vendors to upgrade the technology and also assist them striking technological alliances.

KEY PLAYERS

Indian Automobile Two wheeler industries is dominated by Hero Honda at no 1 followed by Bajaj auto at no 2 and TVS Motors this can be clear with the following information 1) 236% growth in sales of two wheelers to 46,00,130 in 2010 from 37,22,000 two wheeler in 2009 2) 28.1% increase in the total turnover to 16099 crores in 2010 from 12565 crores in 2009 3)74.1% growth in net profit after tax to 2231.83 crores in 2010 4) Sold a landmark of 30 million TWO WHEELERS 5) 59% share in the domestic motorcycle market SOURCE: - HERO HONDA 2010 ANNUAL REPORT
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Export The export of two-wheelers from India had a CAGR of 31% in FY05-09, crossing the 1 million mark in FY09. Motorcycles constitute 96.7% to the total export of two-wheelers. The primary markets have been the developing economies of South Asia and Latin America.

MAJOR GOVT POLICIES: Government Regulations and Support The Government of India (GoI) has identified the automotive sector as a key focus area for improving Indias global competitiveness and achieving high economic growth. The Government formulated the Auto Policy for India with a vision to establish a globally competitive industry in India and to double its contribution to the economy by 2010. It intends to promote Research & Development in automotive industry by strengthening the efforts of industry in this direction by providing suitable fiscal and financial incentives. Some of the policy initiatives include: Automatic approval for foreign equity investment upto100 per cent of manufacture of automobiles and component is permitted. The customs duty on inputs and raw materials has been reduced from 20 per cent to 15 per cent. The peak rate of customs duty on parts and components of battery-operated vehicles have been reduced from 20 per cent to 10 per cent. These new regulations would strengthen Indias commitment to globalisation. Excise duty is being reduced on tyres, tubes and flaps from 24 per cent to 16 per cent. Customs duty on lead is 5 per cent. These government policies reflect the priority government accords to the automobile sector. A liberalised overall policy regime, with specific incentives, provides a very conducive environment for investments and exports in the sector.

CHALLENGES / OPPORTUNITIES From the financiers' perspective, servicing this industry and this customer segment is an operationally intensive exercise, covering locations that fall outside city limits and being dependent on correspondent banking relationships and a robust collection infrastructure.
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In the case of a downturn, caution enters the equation as financiers look to keep NPAs under control. The customer typically belongs to the lower-middle and middle class. For this segment, aspirations have outpaced real income growth leading to a greater propensity to borrow and spend. With rising inflation, this segment has found itself over-leveraged. The hardening of interest rates at such a juncture leads to the customer postponing or deferring a new purchase. This is what has happened to the two-wheeler industry today. The one-lakh-rupee car is seen to be another threat to the two-wheeler industry but the truth is that the running and maintenance cost and the sheer convenience of a twowheeler, given our infrastructure, are difficult to replace. However we must wait and judge the aspirational impact of owning a car on the Indian consumer. Manufacturers are also working at increased segmenting of the market launching products aimed a newer segments like girls and women. Newer products, such as electrically powered motorbikes are also being introduced in the market. The market also is seeing a lot of action in the 150cc plus market. At the same time, brand building and promotional spends of top manufacturers have not shown significant reduction, keeping the category in the minds of potential customers. dealers and financiers have to work together even more closely. Manufacturers have a very strong relationship with their suppliers and dealers but very often view the financier as an external 'service provider'. The financier has to have greater integration in the entire supply chain, working towards maximising customer solutions and services.

FINANCIALS OF THE INDUSTRY / FINANCIAL ANALYSIS o Financial Year '09

A total of 7.4 m two-wheelers were sold in India in FY09, a growth of 2.6% over the previous year. Motorcycles accounted for 81% of the total two wheelers sold. Although economic growth remained decent at 7%, lack of financing, especially in the semi urban and rural areas impeded volume growth. Also, as a result of credit squeeze, motorcycle sales were driven largely by growth in cash sales. The scooters (geared & ungeared) improved their sales considerably, largely due to improved performance of the ungeared scooter segment. The 3-wheeler segment performed poorly as overall volumes (domestic and exports) declined 2% YoY, led by 37% fall in goods carriers. The passenger segment on the other hand grew by 11%.
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PREDICT FUTURE / PROJECTION: o The government spending on infrastructure in roads and airports and higher GDP growth in the future will benefit the auto sector in general o In the 2-wheeler segment, motorcycles are expected to witness a flurry of new model launches. Though the market size is expected to grow by 10% to 12%, competitive pressure could keep prices and margins under control. TVS, Honda and Hero Honda are poised to benefit from higher demand for ungeared scooters in the urban and rural markets. o Riding the wave of structural changes taking place in the country, the tractor industry has registered growth for three consecutive years until FY08. However, while fiscal FY08 saw volumes drop marginally, the same inched back into positive territory, witnessing a growth of 1%. While good monsoon is a positive for the sector, given the fact that the country has had erratic rainfall in the past, there is a risk of further fall in demand if rain gods play spoilsport. But the longer-term picture is impressive in light of poor mechanisation levels in the countrys farm sector and the thrust of the government on improving the rural infrastructure. o With an estimated 40% of CVs plying on the roads 10 years old, demand for HCVs is expected to grow by 7% to 8% over the long term. While the industry is going through cyclical hiccups currently, we expect this factor to weaken in the future on account of strong structural tailwinds. The privatisation of select state transport undertakings bodes well for the bus segment.

The dynamics of the Indian two-wheeler industry has changed significantly over the last five years. While everyone knows the continuation of shift in demand towards motorcycles from geared scooters, the question is whether the robustness will continue in the future? The answer to this is a sum of various parts. But before going into the future growthprospects, a historical perspective is of significance. The two-wheeler industry comprising of motorcycles, geared scooters, ungeared scooters, mopeds and step-thrus has grown at a CAGR of 7.8% over the last six years. In absolute terms, total industry volumes in FY02 were 4.3 m units. As is evident from the graph below, motorcycles have got a lions share in a matter of just six years (66% of total two-wheeler sector volumes or 2.9 m units in FY02). What prompted this change is a combination of various factors. The first is affordability. This comes in two forms. In 1996, the top selling models were Hero Hondas CD 100 and Splendor, Kawasaki Bajaj and TVSs 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 has declined with entry-level of Bajajs Boxer now available at less than Rs 30,000
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per unit. Eventually, the price difference between a boxy geared scooter and a sleekcum-trendier motorcycle has narrowed. This has also aided the shift in demand. Besides, 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 m units. Secondly, rising double income families and urbanisation have also led the change in consumer preference. For quantification purpose, the NCAER estimate suggests that the consuming class as a percentage of total households in India in FY95 was 29 m (17%). NCAER expects the mix to change considerably with the consuming class expected to touch 91 m households in FY07 (46%). This has also been a driving factor for the industry in the last few years. Having looked at the historicals, the road ahead in the near term of 1-2 years is going to be tough for all players. Poor monsoon in the first half of the current fiscal is likely to have an impact on agricultural sector. Since demand in the country is largely agriculture sector driven, two-wheeler volume prospects thus, do not look promising. But over the longer-term horizon of 3-5 years, we remain positive on the sector. Increasing contribution from the services sector, urbanisation, double income families, favorable interest rates and improving road connectivity, which could unlock significant value from the rural markets, will boost volume growth. We expect the two-wheeler industry to post around 7.8% CAGR growth in volumes over the next five years. Apart from motorcycle segment, ungeared scooter manufacturers will also see a sustained rise in volumes. In the last one year, not even a single new model has been launched targeted at the geared scooter segment. Hondas launch of Dio and Kinetics Nova, are both launches in the ungeared scooter segment. Though Bajaj Auto and TVS expect the decline in geared scooter and moped sales to stabilise in the near future, we however, expect a continuation of the weakening trend going forward. Which company will benefit in the future? As far as the motorcycle segment is concerned, Hero Honda and Bajaj Auto seem to be well poised to capitalise on the growth opportunity purely due to a wider distribution network and an impressive new model launch. Hero Hondas legacy of a solid after sales service and brand equity will continue to drive volume growth. TVSs 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. Apart from domestic markets, these three players are also targeting South East Asian markets for future growth. Kawasaki, for instance, has plans to utilise Bajajs manufacturing facility in Pune as a global outsourcing base for select markets. This will keep volumes ticking for

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Bajaj. While we remain positive on volumes for all three companies, barring TVS, operating margins will remain under pressure for the other two.

CONCLUSION: all the economic indicators remain positive. The demographics of the country remain favourable for the industry and there is a tremendous tailwind in the economy and a spirit of prevailing optimism in the country. In conclusion we can say that there are great opportunities and possibilities in the automobile industry especially the 2-Wheeler sector. But hike in the fuel price is influencing the market of this industry. There is a need of a very liberal policy for the fuel prices and requires a great good deal with fuel supplying countries. Though the performance of the industry is better instead of high and unfavorable fuel policy.

BIBLIOGRAPHY: o http://www.businessworld.in/bw/2010_10_22_The_Life_After_Separation.html o http://www.crawford.anu.edu.au/acde/asarc/pdf/papers/2002/WP2002_02.pdf o http://www.businessworld.in/bw/2011_03_17_HeroHonda_Split_Hurts_Valuatio n.html o http://infiniterhyme.blogspot.com/2010/09/two-wheeler-industry-engines-of.html o http://articles.economictimes.indiatimes.com/2010-1217/news/28407673_1_hero-honda-motorcycle-market-honda-motorcycle o http://www.fadaweb.com/itw_industry.htm o http://www.siam.in o http://economictimes.indiatimes.com/articleshow/msid-2461907,prtpage-1.cms o http://www.scribd.com/doc/27342657/Financial-Analysis-Indian-2-WheelerIndustry

LTM | TWO WHEELER AUTOMOBILE INDUSTRY ANALYSIS

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