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Indian two-wheeler industry

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    Overview
    The Indian two-wheeler (2W) industry recorded sales volumes of 13.4 million units in 2011-121, a growth of 14.0% over the previous year. In a year wherein growth in other automobile segments particularly, passenger vehicle (PV) and medium & heavy commercial vehicle (M&HCV), slowed down to single digits – marred by demand slowdown due to northward movement of inflation, fuel prices and interest rates – the 14% growth recorded by the 2W industry remained steady. However, the momentum in the 2W industry’s volume growth too has been losing steam lately as evident from the relatively lower volume growth of 11.0% recorded in H2, 2011-12 (YoY) against a growth of 17.1% recorded in H1, 2011-12 (YoY).

    The deceleration in growth is largely attributable to the motorcycles segment which grew at a much lower rate of 7.8% (YoY) in H2, 2011-12 vis-à-vis 16.4% in H1, 2011-12; even as the scooters segment continued to post 20%+ (YoY) expansion during both halves of the last fiscal. With this, the share of the scooters segment in the domestic 2W industry volumes increased to 19.1% in 2011-12 from 17.6% in 2010-11. Overall, ICRA expects the domestic 2W industry to report a volume growth of 8-9% in 2012-13 as base effect catches up with the industry that has demonstrated a strong volume expansion over the last three years at cumulative annual growth rate (CAGR) of 21.8%. Over the medium term, the 2W industry is expected to report a volume CAGR of 9-11% to reach a size of 24-26 million units (domestic + exports) by 2016-17, as we believe the various structural positives associated with the domestic 2W industry including favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization, strong replacement demand and moderate share of financed purchases remain intact.

    Table 1: Trend in Sales Volumes of the Indian 2W Industry
    Volumes (Units, Nos.)
    Domestic

    Motorcycles
    Scooters
    Mopeds
    Total Domestic

    2010-11

    9,019,090
    2,073,797
    697,418
    11,790,305

    Exports

    2010-11

    Motorcycles
    Scooters
    Mopeds
    Total Exports
    Source: SIAM

    Q1
    2011-12

    2,464,143
    532,867
    190,672
    3,187,682
    Q1
    2011-12

    1,480,983
    52,312
    6,295
    1,539,590

    1

    Refers to domestic sales volumes

    ICRA LIMITED

    482,566
    20,949
    1,461
    504,976

    YoY Growth (%)

    Q2
    2011-12

    Q3
    2011-12

    Q4
    2011-12

    2,558,515
    650,155
    192,859
    3,401,529

    2,556,782
    659,643
    186,472
    3,402,897

    2,514,699
    720,176
    206,863
    3,441,738

    Q2
    2011-12

    Q3
    2011-12

    Q4
    2011-12

    492,408
    24,696
    3,478
    520,582

    448,090
    23,950
    2,796
    474,836

    434,521
    21,010
    1,341
    446,872

    2010-11

    22.9%
    41.8%
    23.5%
    25.8%
    2010-11

    34.3%
    73.6%
    -8.8%
    35.0%

    Q1
    2011-12

    17.5%
    13.3%
    21.0%
    17.0%
    Q1
    2011-12

    27.1%
    100.4%
    -44.0%
    28.6%

    Q2
    2011-12

    15.4%
    29.0%
    7.0%
    17.3%
    Q2
    2011-12

    31.7%
    88.5%
    159.2%
    34.0%

    Q3
    2011-12

    9.2%
    21.6%
    2.6%
    11.0%
    Q3
    2011-12

    21.8%
    92.0%
    188.0%
    24.5%

    Q4
    2011-12

    6.3%
    29.4%
    16.4%
    11.1%
    Q4
    2011-12

    18.1%
    29.0%
    -2.3%
    18.5%

    Corporate Ratings
    Anjan Deb Ghosh
    +91 22 3047 0006
    [email protected]
    Analyst Contacts:
    Subrata Ray
    +91 22 3047 0027
    [email protected]
    Jitin Makkar
    +91 124 4545 368
    [email protected]

    MEDIUM TERM DEMAND DRIVERS STAY PUT
    An analysis of the mix of Indian populace and the structure of the Indian 2W industry brings to the fore several key attributes namely, India’s demographic advantage, moderate 2W penetration levels and shrinking of replacement cycle; factors that have combined to propel the industry’s volumes over the last 10 years from 4 million units in 2001 to 13 million units in 2011. In ICRA’s view, these growth drivers are likely to remain relevant over the medium term and continue to provide impetus to the industry’s volumes.

    Chart 1: Estimated population of India’s Youth (20-40 years age) 250

    Demographic Advantage

    229
    207

    206
    189

    200
    161

    157

    million

    150
    100

    41 million youth
    estimated to be
    added to India’s
    population mix
    over the next five
    years

    50
    0
    2001
    Male

    2011E
    Female

    2016E

    Source: Census 2001; Census 2011; ICRA’s Estimates

    In the age bracket of 20-40 years, which is the key target segment for 2W, around 77 million youth got added to the Indian population mix in the last decade, which has been the key contributor to the 2W industry’s volume growth over the last 10 years. India’s demography continues to remain favourably on its side with average age of 25 years, which is 9 years younger than China, and more than 12 years and 19 years younger than the US and Japan, respectively. Over the next five years, the incremental addition in India’s youth population is estimated to be ~41 million, a fairly large number that is likely to sustain the strong demand for 2W. The 20-40 years age group is characterized by a combination of earning power and high spending propensity, which should increase the likelihood of conversion of
    potential ownership into actual ownership.

    Chart 2: Trend in 2W Penetration in Indian Households
    18
    16

    35%

    13.8

    14

    Underpenetrated Market

    35%

    The 2W penetration level in Indian households was 12% in 2001. This low 2W penetration provided the structural thrust to the domestic industry’s volume growth over the last decade whose annualized volumes expanded by a factor of 3.4x during this period. As of 2011, the 2W penetration levels in Indian households, while having increased to 21%, continue to remain moderate and much lower than in some of the other emerging markets such as Brazil,

    Indonesia, Thailand and Taiwan. Also, the penetration rates differ vastly between India’s rural and urban areas, with rural areas being under-penetrated by a factor of 2.5x as compared to urban areas. Additionally, the social trend in favour of nuclear families is expected to further increase the number of households which could be

    potential targets for the 2W industry.

    30%

    12
    million

    40%

    16.8

    25%

    25%

    10

    7.9

    8
    5.4

    6

    20%

    14%

    15%
    10%

    4
    7%

    2

    5%

    0

    0%
    2001
    No. of Rural Households

    2011
    No. of Urban Households

    2W Penetration – Rural

    2W Penetration – Urban

    Source: Census 2011
    ICRA LIMITED

    Chart 3: Trend in 2W Population in India
    30
    25

    million

    20

    Population of 22.5
    million units, equivalent
    to cumulative 2W sales
    volumes from 1995 to
    2001

    Population of 51.8
    million units,
    equivalent to
    cumulative 2W
    sales volumes from
    2007 to 2011

    24.0

    15
    13.3

    10
    9.3
    5
    0

    2001
    2W Population – Rural

    2011
    2W Population – Urban

    Source: Census 2011, SIAM, ICRA’s Estimates
    Chart 4: Age Profile of 2W in India
    100%
    90%

    30%

    39%

    80%
    70%

    53%
    17%

    60%
    50%

    21%

    40%
    30%

    35%

    52%

    20%
    10%
    0%

    40%
    11%
    Motorcycle
    > 10 years

    Scooters
    6-10 years

    Source: SIAM, ICRA’s Estimates

    ICRA LIMITED

    Shrinking Replacement Cycle

    27.8

    Mopeds
    0-5 years

    While the 2W population in India has more than doubled over the last decade, the replacement cycle is estimated to have reduced from around 7 years (in 2001) to around 5 years (in 2011). The reduction in 2W replacement cycle implies that the average annual mileage covered per 2W has been on the rise, given that (distance run multiplied by age) of 2Ws is unlikely to have
    changed much over the years. As per industry estimates, around 50% of the total domestic sales of 2W are now made to first-time buyers, 30% to customers looking to upgrade from their existing vehicle, and 20% to buyers seeking a second vehicle for the household. The break-up suggests that currently around 50% of the sales in the domestic 2W market are made to replacement buyers.

    Considering that the industry has sold around 49 million 2W in the domestic market in the last five years, the total replacement demand works out to be a fairly large number. Add to this the healthy growth in sales to first-time buyers in recent years, driven in particular by sales to the rural market, the replacement opportunity could only increase in the future. From the consumer perspective, although replacement involves fresh capital spending, the inducement of upgrading to an improved technology 2W, having better

    performance, features and more attractive styling; complemented with increased spending propensity are expected to be the prime ingredients feeding replacement demand.

    SEGMENTAL ANALYSIS OF THE 2W INDUSTRY
    The motorcycles segment accounts for a bulk of 2W industry’s sales volumes; however, the scooters segment has grown relatively faster over the last five years
    Chart 5: Trend in 2W Segment Volume Mix (Domestic)
    100%
    90%

    4.5%
    12.0%

    Chart 6: Trend in segment-wise sales volume growth of 2W

    5.7%

    5.8%

    6.0%

    5.9%

    5.8%

    45%

    14.5%

    15.5%

    15.6%

    17.6%

    19.1%

    35%

    80%
    70%

    25%

    60%
    50%
    40%

    83.5%

    15%
    79.8%

    78.7%

    78.4%

    76.5%

    75.1%

    30%

    5%

    20%
    -5%

    10%
    0%
    2006-07

    Source: SIAM

    2007-08
    2008-09
    2009-10
    2010-11
    Motorcycles
    Scooters
    Mopeds

    2011-12

    2006-07

    2007-08

    2008-09

    2009-10

    2010-11

    2011-12

    -15%
    Motorcycles

    Scooters

    Mopeds

    Source: SIAM

    With sales volumes of 10.1 million units, the motorcycles segment is the largest sub-segment of the domestic 2W industry accounting for a bulk of its volumes. However, over the last five years, the motorcycles segment has seen its volume share in the domestic 2W industry slide down to 75.1% in 2011-12 from the highs of 83.5% recorded in 2006-07. Although domestic motorcycle volumes grew at 9.0% CAGR during the last five years, both the scooters segment as well as the mopeds segment grew at a much faster CAGR of 22.2% and 17.0%, respectively; contributing to reduction in the motorcycle segment’s volume share. The three 2W sub-segments are targeted at distinct consumer categories. The motorcycles are targeted at the male population in both rural areas as well as urban areas (with further segmentation based on usage pattern – family bike or individual bike, consumer profile – commuter Vs performance seeker etc); the scooters are more of an urban phenomenon targeted at the female population (TVS Scooty, Hero Pleasure), male population (Hero Maestro) as well as unisex offerings (Honda Activa, TVS Wego); mopeds are targeted at the lower middle-class segment and derive a large part of their volume share from the rural sector where they are used as a utility vehicle bearing heavy loads on rough village roads. While each
    of the three sub-segments has distinctive growth drivers, we expect the scooters segment to maintain its pace of growth faster than that of the 2W industry as a whole. The faster volume growth of the scooters segment is expected to be driven by (a) growing acceptability of gearless scooters, particularly by women; (b) rising urbanization and increasing proportion of working women; (c) expanding product offerings in the scooters segment; and (d) comparatively lower base. Accordingly, ICRA expects the scooters segment to gradually increase its share in the domestic 2W market from 19.1% in 2011-12 to ~27% by 2016-17E. With this, the volumes in the domestic scooters market are estimated to get doubled by 2016-17E over the current levels.

    ICRA LIMITED

    TREND IN SALES VOLUMES AND MARKET SHARE IN MOTORCYCLES
    Chart 7: Trend in Sales Volumes of Motorcycles (Domestic)
    10.1
    10

    million units

    6

    25%

    9.0

    20%

    7.3

    8

    30%

    15%
    5.8

    5.8

    10%
    5%

    4

    0%
    -5%

    2

    -10%
    0

    -15%
    2007-08

    2008-09
    2009-10
    Motorcyle Volumes

    2010-11
    2011-12
    Growth (YoY)

    Source: SIAM, ICRA’s Estimates
    Chart 8: Trend in Market Share in Motorcycles Segment (Domestic) 3.6%
    4.4%
    8.7%

    4.3%

    4.3%
    7.3%
    7.0%

    4.8%

    6.2%
    7.9%

    4.4%
    6.2%
    6.7%

    28.7%

    21.9%

    24.3%

    26.8%

    25.4%

    54.5%

    59.8%

    58.5%

    54.6%

    56.0%

    2007-08

    100%
    90%
    80%
    70%
    60%
    50%
    40%
    30%
    20%
    10%
    0%

    2008-09

    2009-10

    2010-11

    2011-12

    Hero MotoCorp

    Bajaj Auto

    Source: SIAM, ICRA’s Estimates
    ICRA LIMITED

    TVS

    Honda Motorcycles

    7.6%
    6.2%

    Others

    Sales Volumes Analysis – Motorcycles
    Based on SIAM data, around 70% of the motorcycles sold in India in 2011-12 belonged to the 75-125cc (engine capacity) segment, bikes which are positioned for the mass commuter segment where better fuel economy and low price are the prime customer considerations. However, the volume share of this segment has been coming down over the years with the share gradually being taken away by bikes in the 125cc and 150cc segments. While the domestic motorcycles segment recorded a volume growth of 11.9%, the >125cc sub-segment grew at a relatively faster rate of 17.4% in 2011-12. With this, the contribution of the >125 cc segment to the total motorcycle segment volumes increased from 26.0% in 2009-10 to 29.7% in 2011-12.

    Market Share Trends
    The Indian motorcycles segment continues to be dominated by Hero MotoCorp which has maintained its market share at ~55% in the domestic motorcycles segment over the last several years, despite intensifying competition. The top three players accounted for 89.0% of the industry’s volumes in 2011-12 (92.0% in 2007-08), with Honda emerging as the third largest player, having overtaken TVS since 2010-11. In the 75-125cc segment of motorcycles (that represented 70.3% of total motorcycles sales volumes in 2011-12), Hero MotoCorp continues to be a strong market leader with a share of 75.0% in 2011-12 (71.0% in 201011). In the >125cc segment of motorcycles, while Bajaj Auto continues to account for nearly half the segment’s volumes (48.0% in 2011-12), it has been ceding market share to Honda and Yamaha, whose volumes in the >125cc segment grew significantly by 27.9% and 38.8%, respectively in 2011-12. Medium Term Outlook

     ICRA expects the entry segment (bikes having price less than Rs. 40,000) volumes in the domestic market to grow at a much slower pace than the overall 2W industry and volume growth in this segment to be driven mainly by exports. This is because the segment is no longer a key focus area of OEMs due to limited scope for margin expansion and high interest rate sensitivity.  While the executive segment (bikes in the Rs. 40,000-50,000 price range) is expected to maintain its steady growth, competition is
    likely to intensify following aggressive model refurbishment and new model launch plans of most OEMs.

     The premium segment (bikes having price greater than Rs. 50,000) is expected to remain the fastest growing over the medium term, given the strong growth in purchasing power in the hands of middle-class urbanites, especially in the age group of 20-30 years. This should also translate into superior profit margins for players that are stronger in the premium segment.

    TREND IN SALES VOLUMES AND MARKET SHARE IN SCOOTERS
    Chart 9: Trend in Sales Volumes of Scooters (Domestic)
    3.0

    45%
    2.6

    2.5

    35%

    2.1

    million units

    2.0

    30%
    25%

    1.5

    1.5

    1.1

    1.1

    20%

    1.0

    15%
    10%

    0.5

    5%

    0.0

    0%
    2007-08

    2008-09
    2009-10
    Scooter Volumes

    2010-11
    Growth (YoY)

    2011-12

    Source: SIAM, ICRA’s Estimates
    Chart 10: Trend in Market Share in Scooters Segment (Domestic) 100%
    90%
    80%
    70%
    60%
    50%
    40%
    30%
    20%
    10%
    0%

    40%

    0.0%
    2.3%
    9.8%
    23.8%

    0.0%
    7.5%
    13.3%
    20.9%

    4.8%
    9.6%
    14.3%

    7.7%
    11.1%

    5.2%
    11.3%

    16.5%

    16.3%

    20.5%
    21.6%

    58.9%

    2007-08
    Honda Motorcycles

    57.0%

    2008-09
    TVS

    Source: SIAM, ICRA’s Estimates

    ICRA LIMITED

    50.6%

    2009-10
    Hero MotoCorp

    19.4%

    43.1%

    47.8%

    2010-11

    2011-12

    Suzuki

    Mahindra

    Sales Volumes Analysis – Scooters
    Segment-Wise Analysis
    Barring Q1, 2011-12, the growth in scooter segment’s sales volumes has  The
    strong double-digit volume growth recorded by the motorcycles generally outperformed that of(Refer Chart 1) was not consistent across all segment in Q1, 2011-12 the motorcycles segment, partly due to the former’s smaller Entry, Executive and Premium.volumes of the domestic a segments – base. In 2011-12, the sales The volume growth was scooters segment at 2.6 million units recorded a growth of 23.6% (YoY), blend of:

    higher than the 11.9% growth in motorcycle sales. With (bikes having price  The flattish growth (~3%) of the entry segment this, the share of the scooters segment in the total domestic two-wheeler volumesof the total less than Rs. 40,000) which accounts for around 16% increased to 19.1%domestic motorcycles sales volumes

    in 2011-12 from 17.6% in 2010-11.
     The steady growth (~17%)of the executive segment (bikes in the Rs. Market Share Trends price range) which accounts for around 65% of the 40,000-50,000
    Overall, Honda continues to maintain its leadership position in the scooters total domestic motorcycles sales volumes
    segmentThe fast growing (~30%) premium segment (bikes having Dio)  through its flagship brand Activa (besides Aviator and price enjoying greater than Rs. of 47.8%which accounts for around 19% of total a market share 50,000) in 2011-12 (43.1% in 2010-11). While

    capacity domestic motorcycles sales volumes at Manesar (Haryana) had shortfall at the company’s plant
    restricted its volume growth in the recent past, the company began commercial production at its new plant at Tapukara (Rajasthan) in July Short to Medium term Outlook
    2011. This allowedentrycompany volumes in the domestic market to during ICRA expects the the segment to consolidate its market position grow at themuch slower pace than the overall 2W industry and volume MotoCorp’s a last three quarters of 2011-12. However, Hero growth to be demonstrated success in improving market the segment is not sole brand driven mainly by exports. This is because share (through its a key focus Pleasure)OEMs duewith new scooterfor margin expansion and high interestarea of coupled to limited
    scope models launched by Hero MotoCorp (Maestro), TVS (Wego),the executive segment is expected to maintain its rate sensitivity. While Suzuki (Swish) in the recent past could imply shrinkagegrowth, competition between the market leader and others over steady of market share gap is likely to intensify following aggressive time.

    existing model refurbishment and new model launch plans of most OEMs. The premium segment is expected to remain the fastest growing over the Medium Term Outlook disproportionate growth in purchasing power in medium term, given the

    ICRA hands ofthe scooters segment toespecially in the age group of 20-30 the expects middle-class urbanites, gradually increase its share in the domestic 2Wshould also translate into superior profit margins for players years. This market from 19.1% in 2011-12 to ~27% by 2016-17, growing at 16% CAGR during this period. With this, the domestic scooters market is that are stronger in the premium segment.

    estimated to nearly double in size by 2016-17 over the current levels. Thus, even as aShare Trends brands already dot the segment’s landscape and Market multitude of
    more are expected to follow, the likely expansion be the pie should offer The Indian motorcycles segment continues to in dominated by Hero sufficient volumes for Hero Honda) which has been recording the new MotoCorp (erstwhile the industry to grow profitably. For sequential entrants, market share over market share could hasten top three players gains in a faster gain in the last three quarters. The the process of profitability improvement.the industry’s volumes in Q1, 2011-12 (92.0% in accounted for 88.2% of

    2007-08), with Honda Motorcycles having overtaken TVS since Q1, 2010-11 as the third largest player after Hero MotoCorp and Bajaj Auto.

    MARKET SEGMENTATION
    100cc Motorcycle Segment
    As 2W Original Equipment Manufacturers (OEMs) attempt to segment the market,
    the endeavour so far has borne mixed results Table 2: Snapshot of 2W models in 75-110cc segment of Motorcycles Entry Segment

    Executive Segment
    Price (Rs.) [email protected]
    Price (Rs.)
    Hero CD
    36,000-42,000 [email protected],500 Hero Splendor
    43,000-46,000
    Dawn/ Deluxe
    Bajaj Platina

    39,000

    [email protected],500

    [email protected]
    [email protected],500

    Hero Passion

    45,000-50,000

    [email protected],500

    Bajaj Discover100

    43,000-45,000

    [email protected],500

    TVS Sport
    41,000-44,000
    TVS Star City
    44,000-47,000
    Honda Twister
    45,000-51,000
    Honda Dream Yuga
    45,000
    Yamaha Crux/ YBR110 38,000-45,000
    Suzuki Hayate*
    38,000-40,000
    *Hayate: 112.8 cc engine; Note: Prices mentioned are ex-showroom, Gurgaon (Haryana) Source: ICRA Research, Company websites

    Remarks
    CD Dawn, Platina, Crux and Hayate are in the lowest
    price segment of Rs. 35,000-40,000
    Splendor, Discover100 and YBR110 are in the next
    higher price segment of Rs. 43,000-45,000
    Passion, Star City and Twister are in the next higher
    price segment of Rs. 45,000-50,000

    [email protected],500
    [email protected],500
    [email protected],000
    [email protected],500
    [email protected],500
    NA

    Going by the traditional segmentation approach based on engine capacity of bikes, the 100cc segment is by far the largest segment that accounted for 64% of motorcycle sales volumes in April 2012. The 100cc segment of bikes could be further classified into three sub-segments based on price (a) Rs. 35,000-40,000; (b) Rs. 40,000-45,000; and (c) Rs. 45,000-50,000; representative of a wide price range with presence of features (or lack thereof) appealing to a diverse set of customer needs. For instance, Hero MotoCorp, the market leader in this segment, offers 20 variants distributed amongst its three brands – CD Dawn, Splendor and Passion. Apart from styling differences, the price ladder is mainly influenced by the presence of kick
    start or self start option; spoke wheel or alloy wheel option; and drum brake or disc brake option. Although all major 2W OEMs in India have a presence in this segment, none have been able to challenge the dominance of Hero MotoCorp that remains a clear leader with a market share of 76.4% in April 2012 (Refer Table 3). In fact, in 2008-09, Hero MotoCorp’s market share in this segment had touched the highs of 80%, due to subdued competition in that period following lowering of Bajaj’s focus on the 100cc segment and the absence of contemporary products in TVS’ portfolio. Since then, both Bajaj Auto and TVS have introduced new products – Bajaj launched the Discover100 in July 2009; and TVS launched the Jive (110cc bike) in December 2009. While the market share of Bajaj Auto’s Discover100 in the 100cc bike segment has hovered between 15-20% over the last two years, the volumes of TVS’ Jive have not scaled up much, even as it is uniquely positioned as the only auto-clutch bike in the country. Honda too, had launched the Twister (110cc) model in December 2009, but its monthly volumes have generally remained below 14,000 units. Still, the strong opportunity provided by this segment due to its large size is likely to continue to draw regular new product introductions from all players. In the last one month, two new bikes have been launched in this segment – Suzuki Hayate and Honda Dream Yuga. While Hayate marks Suzuki’s maiden entry into the mass segment; with Dream Yuga, Honda now has a second offering in the mass commuter segment, a product having austere looks and styling, to go along with the sportier-looking Twister.

    ICRA LIMITED

    Table 3: Monthly Sales Volumes (75-110cc segment)
    Model
    April 2012 Market Share
    Hero Dawn, Splendor, Passion
    419,199
    76.4%
    Bajaj Platina100, Discover100
    89,563
    16.3%
    TVS Star City, Sport, Jive
    26,774
    4.9%
    Honda Twister, Dream Yuga
    7,290
    1.3%
    Yamaha Crux, YBR110
    5,639
    1.0%
    Source: SIAM
    Honda Twister
    Was launched in
    December 2009;
    however, monthly
    volumes remain
    low (~7,000 units in
    April 2012).
    Honda Dream Yuga
    Launched in May
    2012; has rather
    conventional looks
    unlike the sportierlooking Twister.

    Suzuki Hayate
    Launched in May
    2012; Like in other
    2W segments,
    Suzuki has priced
    this new model
    also lower than
    competition.

    ICRA LIMITED

    Hero MotoCorp: Going forward, although competition for Hero MotoCorp is
    likely to intensify, we do not expect its market leadership status in the 100cc segment to come under threat any time soon. The target segment for 100cc bikes are largely commuters and families, with the purchase meant to address the consumers’ basic transportation needs at high fuel economy and low operating costs. Despite being amongst the oldest 2W brands in India, Hero MotoCorp’s CD Dawn/ Deluxe, Splendor and Passion models continue to enjoy strong brand equity in both rural as well as urban markets, supported by regular product upgrades even as the fundamental platform of these models has remained largely unchanged. The Splendor brand alone has sold some 17 million units since its launch in 1994; a testimony that familiarity breeds consumer confidence, not contempt.

    Bajaj Auto: Bajaj Auto had lowered its focus on the lower cc motorcycle segment in 2008-09 to focus more on the Pulsar brand in the higher cc performance bike segment. However, the exit from the 100cc segment lasted only for a brief while as the company staged a comeback soon thereafter through the launch of Discover100 realizing that the market for lower-priced commuter bikes was unlikely to fade away at the pace envisaged. Although the Discover100 is now amongst the top three selling bikes in India, Bajaj Auto remains a distant second ranker in the 100cc bikes segment. The company has recently initiated a fresh marketing campaign positioning the Discover100 as a superior product to challenge the leadership of Hero MotoCorp; however, its ability to grow market share and sustain it thereafter remains to be seen in the backdrop of its past record of strategy flip-flop and multiple product portfolio realignments. Adopting a clear product and brand strategy is all the more imperative for Bajaj Auto now given that it may be difficult for it to compete with the likes of Hero MotoCorp and Honda on the basis of other factors such as product strength, distribution network strength or lower price. If it could do so, Bajaj Auto would enhance its ability to remain a relevant competitor in the 100cc segment.

    Honda: When Honda had launched the Twister (110 cc) in December 2009, it was expected to redefine the 100cc segment of motorcycles on the back of its aggressive styling, higher horse power, better power-to-weight ratio and competitive pricing. However, the target consumer segment (lower-middle to
    middle income group) perhaps preferred to attach greater preference to conventional looks, lower overall cost of ownership and higher resale value than the attributes which the Twister stood for. Honda seems to have drawn on these consumer insights to have launched a second bike in the commuter segment, Dream Yuga – a model that has plane looks but is priced Rs. 2,500 higher than the entry level Splendor NXG. While it remains to be seen to what extent this new model from Honda’s stable grows its volumes, the biggest challenge for Honda would be to strengthen its distribution network, brand and mind share, particularly in the rural market which is expected to be the primary growth driver for 100cc bikes over the medium term.

    125cc Motorcycle Segment
    An evenly contested segment with no dominant leader
    Table 4: Snapshot of 2W models in 110-125cc segment of Motorcycles Price (Rs.)
    [email protected] Remarks
    Pricing parity exists in the similar feature
    variants of Super Splendor/ Glamour/
    Hero Super Splendor
    51,000
    [email protected],000
    Shine/ YBR125/ SS125 – in the price range
    of Rs. 50,000-55,000
    Hero Glamour
    52,000-54,000
    [email protected],000
    Discover125 and Slingshot are more
    Bajaj Discover125
    48,000-50,000 [email protected],000
    competitively priced than other 125cc bikes
    Honda Shine
    48,000-55,000 [email protected],500
    Honda Stunner
    56,000 [email protected],000
    Yamaha YBR125
    51,000 [email protected],500
    Yamaha SS125
    55,000 [email protected],500
    Slingshot
    48,000-50,000
    NA
    Note: Prices mentioned are ex-showroom, Gurgaon (Haryana)
    Source: ICRA Research, Company websites

    Table 5: Monthly Sales Volumes (110-125cc segment)
    Model
    April 2012 Market Share
    Honda Shine, Stunner
    52,600
    31.7%
    Hero Super Splendor, Glamour
    49,980
    30.2%
    Bajaj Discover125
    46,060
    27.8%
    TVS Flame
    13,108
    7.9%
    Yamaha SS125, YBR125
    2,188
    1.3%
    Suzuki Slingshot
    1,748
    1.1%
    Source: SIAM
    The market share of top three players is more evenly
    balanced in the 125cc segment of motorcycles, unlike in
    the 100cc segment.

    The 125cc segment of motorcycles accounted for 19% of total motorcycle sales
    volumes in April 2012. Like the 100cc segment of motorcycles, the 125cc segment too is targeted at the commuter category but those commuters who desire superior performance characteristics compared to typical 100cc bikes (in terms of power, acceleration and ride quality) and are willing to compromise on fuel economy to an extent. In this segment, the top three players are Honda, Hero MotoCorp and Bajaj Auto, each having a market share in the region of ~30% (Refer Table 5). Honda: The company has two product offerings in the 125cc motorcycles segment viz., Shine and Stunner. While the Honda Shine is more of a commuter bike, the Honda Stunner has attributes of a performance bike reflected in its aggressive styling and higher engine power than other bikes in the segment. Thus, each of the two Honda products in this segment has a distinct product positioning. Hero MotoCorp: Hero MotoCorp’s offerings in the 125cc segment – Super Splendor and Glamour – also have limited conflicting overlap in terms of product positioning. In ICRA’s view, one of the key benefits enjoyed by the 125cc and >125cc bikes of Hero MotoCorp is the large pool of customer footfalls in the sales showrooms of Hero MotoCorp’s dealers for the company’s 100cc bikes Splendor and Passion. Even if a small proportion of these customers up-trade from Splendor/ Passion to Super Splendor and Glamour, it could translate into a steady demand pattern for the company’s higher cc bikes, which highlights the statistical advantage that favours market leaders.

    Bajaj Auto: Bajaj Auto had first launched the Discover brand in 2004 as a replacement of its Wind125 and Caliber125 brands. The company followed it up with six line extensions, out of which three models currently remain and are offered with 100cc, 125cc and 150 cc engine configurations (the rest having been discontinued). Each of the existing Discover models are priced more competitively than other models in respective segments; yet Bajaj Auto’s EBITDA margins remain industry leading, highlighting the company’s ability to effectively manage product development and operating costs. Notwithstanding the multiple product portfolio rejigs done by Bajaj Auto in the past, the company has been successful in going beyond conventional customer segmentation approach. This is evident from Bajaj Auto’s introduction of the Discover 150cc, targeted as a family bike for the commuter segment wishing to ride a higher displacement bike. Likewise, the
    Pulsar 135cc is also targeted at the commuter segment aspiring to experience sports biking.

    ICRA LIMITED

    150-220cc Motorcycle Segment
    Characterized by high model clutter and high degree of market segmentation Table 6: Snapshot of 2W models in 150-220cc segment of Motorcycles OEM
    Brand
    Price (Rs.)
    [email protected]
    Achiever
    58,000
    [email protected],000
    Hunk
    65,000-68,000
    [email protected],500
    CBZ
    66,000-69,000
    [email protected],500
    Hero MotoCorp
    Impulse
    70,000
    [email protected],500
    Karizma220
    79,000
    [email protected]
    Karizma ZMR
    99,000
    [email protected]
    Discover 150
    52,000
    [email protected],500
    Pulsar135
    59,000
    [email protected],000
    Bajaj Auto
    Pulsar 150
    67,000
    [email protected],000
    Pulsar180
    70,000
    [email protected]
    Pulsar220
    82,000
    [email protected]
    Apache RTR160
    70,000
    [email protected],500
    TVS
    Apache RTR180
    86,000
    [email protected]
    Unicorn
    64,000
    [email protected],000
    Honda
    Unicorn Dazzler
    68,000
    [email protected],500
    CBR150
    120,000
    [email protected],500
    SZ-X, SZ-R
    56,000-59,000
    [email protected],500
    Yamaha
    FZ-16, FZ-S, Fazer 70,000-77,000
    [email protected],500
    R-15
    111,000
    [email protected],500
    Suzuki
    GS-150R
    62,123
    [email protected],500
    Note: Prices mentioned are ex-showroom, Gurgaon (Haryana)
    Source: ICRA Research, Company websites

    The >150cc segment of motorcycles accounted for 17% of total motorcycle sales volumes in April 2012. These premium segment bikes are characterized by greater visual appeal, higher speeds, heady acceleration and superior ride, handling and braking attributes. The price point of these bikes starts from Rs. 60,000 (although there are few exceptions) and runs into lakhs of rupees as one goes up the engine capacity, power rating and technology ladder. This category is the most segmented and includes:



    Performance bikes, ranging from 150cc to 220 cc, and consisting of Bajaj Auto’s Pulsar family, Hero MotoCorp’s Glamour, Achiever, CBZ Extreme, Hunk, Impulse and Karizma;, Honda’s Unicorn, and TVS’ Apache RTR, besides models from the stable of Suzuki and Yamaha

    Leisure bikes such as Royal Enfield’s Bullet, Thunderbird and Classic (350cc and 500cc)
    Cruiser bikes of Harley Davidson and Triumph
    Super bike range consisting of Bajaj Auto’s Kawasaki Ninja, Honda’s CB 1000R, Suzuki’s Hayabusa, Yamaha’s YZF-R1 and bikes introduced by Hyosung, Ducati etc

    The discussion in this section, however, is restricted to bikes in the 150-220cc segment. Overall, this segment is expected to remain the fastest growing one over the medium term, given the rising purchasing power of middle-class urbanites, especially in the age group of 20-30 years. This should also translate into superior profit margins for players that are stronger in the premium segment.

    Bajaj Auto: When Bajaj Auto had launched the Pulsar150 model in 2001, it was with the objective of building a strong brand in a segment where Hero MotoCorp (the overall market leader) was not as strong as it was in the 100cc commuter segment. The segment itself was quite small then in terms of volumes, but was expected to be a fast growing one over the next decade. The next decade indeed was a high growth period for the >150cc segment and Bajaj Auto’s Pulsar was a key brand that helped expand the segment’s pie. The company has introduced several line extensions since then – two that are >150cc viz., Pulsar 180cc and Pulsar 220cc; and one that is sub 150cc viz., Pulsar 135cc (Pulsar200-NS is also scheduled to be launched in Q1, 2012-13). What had started as a quintessential flanking attack on Hero MotoCorp, and a successful one too reflected in the >50% market share enjoyed by the Pulsar brand during the better part of the last decade, is now finding itself surrounded by a large number of competing brands from the stable of Hero MotoCorp, Yamaha, Honda and TVS. Still, the Pulsar family of bikes continues to out-volume the rest by a long way. From a strategic perspective, the ability of Bajaj Auto to sustain its leadership position in the 150-220cc segment of bikes holds a critical importance for it; something which can have a virtuous effect on its Discover brand as well. To strengthen its position in the >150cc segment of bikes, in India and internationally, Bajaj Auto had acquired 14.7% equity stake in the Austria-based KTM Power Sports AG in 2007 and has gradually increased its equity ownership in the company to around 47%. The company also launched the KTM Duke200 in India in January 2007 at a price tag of Rs. 1.17 lakh (ex-showroom, Delhi) and proposes to launch the new Pulsar 200NS in Q1, 2012-13, a model that uses the same platform and engine as the Duke200. Bajaj Auto and KTM plan to take their synergistic product development partnership further and are understood to be currently developing several new bikes for the domestic and global markets.
    These initiatives are likely to enable Bajaj Auto maintain its stronghold in the premium motorcycles space over the medium term. ICRA LIMITED

    Table 7: Monthly Sales Volumes (150-220cc); Source: SIAM
    OEM
    April 2012
    Market Share
    Brand
    Bajaj Auto
    Discover150, Pulsar135, Pulsar150, Pulsar180, Pulsar220, Avenger 64,605
    46.8%
    Hero MotoCorp
    Achiever, Hunk, CBZ, Impulse, Karizma
    25,294
    18.3%
    Yamaha
    SZ, FZ, Fazer, R15
    19,110
    13.9%
    Honda
    Unicorn, Dazzler, CBR 150R
    17,068
    12.4%
    TVS
    Apache RTR160, RTR180
    10,981
    8.0%
    Suzuki
    GS150R
    880
    0.6%
    Hero MotoCorp: In the 150cc segment of motorcycles, Hero MotoCorp offers four brands – Achiever, Hunk, CBZ and the recently launched Impulse. While the Hero Achiever is pitched against Bajaj Auto’s Discover150 in terms of target customer segment and is priced at the lower-end of the premium segment; both
    the Hunk as well as the CBZ compete with Bajaj Auto’s Pulsar150 and are priced between Rs. 65,000-70,000. Even as the Hunk and the CBZ are priced quite similarly; yet each carries a distinct positioning (one has masculine styling, the other is a performance bike). To challenge the Pulsar brand, Hero MotoCorp has chosen to have a wider product portfolio relying on the principle of force – two is better than one. Hero MotoCorp has also launched an off-roader bike Impulse (150cc) recently that is targeted at a niche segment; however, in our opinion, the Impulse brand is unlikely to contribute meaningfully to the overall volumes of Hero MotoCorp’s 150cc bikes portfolio. Over the last one year, Hero MotoCorp’s advertising spends have been directed largely towards communicating its new corporate brand “Hero” and the share of individual brands in total advertisement spends has been relatively lower. As competition intensifies in the premium segment with even greater market segmentation on the cards, we believe it will be essential for Hero MotoCorp to continue its investments in building individual brands for sustaining its market position. Yamaha: Despite having a presence of over 25 years in the Indian market, Yamaha, the second largest two-wheeler manufacturer in the world, continues to have a low single-digit market share in the domestic motorcycles segment. This has been partly due to the company’s relatively lower focus on the Indian market in the past and partly due its frequent model churn. Having discontinued several brands in the past such as Alba, G5 and Gladiator, Yamaha’s quest for achieving a balanced product portfolio continues to evolve. Although the domestic scale of Yamaha is small in relation to the size of the Indian 2W industry, the company remains a full-range player with products offered across segments, exposing it to the risk of having spread itself too thin. Yet, Yamaha remains amongst the fastest growing motorcycle companies in India, albeit on a smaller base, with growth driven in particular by its 150cc segment bikes (i) SZ-X and SZ-R for the price conscious commuters seeking to have a higher cc bike; (ii) FZ-16, FZ-S and Fazer as sporty 150cc models; and (iii) R-15 as the super sports bike. In our view, Yamaha’s biggest challenge for sustaining its volume growth in India is going to be its ability to win over its own past which implies restoring the confidence of vendors, dealers and other stakeholders that may have suffered earlier due to the company’s lower focus on the Indian market. The company, however, has announced fresh
    capital investments in India towards setting-up a new plant in Tamil Nadu with an investment of Rs. 1,500 Crore (proposed to be incurred over the next five years), a pointer to the now rising commitment of Yamaha towards the Indian market. The company has also announced its intention to capture a share of 10% in the domestic 2W market to achieve sales volumes of 2 million units by 2016-17 (0.4 million units in 2011-12), implying a sales volume CAGR of 41%, which is significantly higher than the sales volume CAGR of 11% recorded by the company during the last five years. Even as the premium segment of motorcycles is currently at an inflection point, we believe Yamaha’s ability to grow volumes at the pace envisaged is likely to be met with strong challenges including commensurate expansion of dealership network and fending off competition which remains formidable, particularly from Bajaj Auto. Honda: Honda too has been sprucing up its offerings in the premium segment of motorcycles, but its pace of new model introductions has been relatively slow vis-à-vis other players. The company had launched the Unicorn in 2004, the Unicorn Dazzler in 2010 – in the usual Rs. 65,000-70,000 price range. Lately, the company has also launched its sports bikes CBR150 and CBR250R, priced upwards of Rs. 1.2 lakh. From being a company which thus far derived a bulk of its sales volumes from the scooters segment, Honda is now getting aggressive in the motorcycles segment as well; but its initial focus is likely to be restricted to the entry segment. The market for premium segment motorcycles is largely concentrated in urban centres. Since Honda already has a well-established distribution network in urban areas, the company should have ideally done better in terms of leveraging the opportunity offered by the growing size of premium segment motorcycles. However, the company’s capacities have remained largely allocated towards scooters production over the last several years with the company ranked a distant #4 in the 150-220cc of motorcycles. Over the medium term, we expect Honda’s endeavour to grow its market share in the motorcycles segment to be led by its entry segment offerings. By implication, even as Honda may remain a full range player, its market share in the premium segment is less likely to see any major push and its pace of product refurbishments is likely to remain slower vis-à-vis competition over the medium term.

    ICRA LIMITED

    Scooters Segment
    As the pie grows in size, the number of claimants too on the rise Table 8: Snapshot of Scooter Brands
    OEM
    Brand
    Pleasure 102cc
    Hero MotoCorp
    Maestro 109cc
    Scooty 88cc
    TVS
    Wego 110cc
    Dio 109cc
    Honda
    Activa 109cc
    Aviator 109cc
    Access 124cc
    Suzuki
    Swish124cc
    Piaggio
    Vespa 125c

    Price (Rs.)
    42,000
    46,000
    42,000-45,000
    49,000
    44,000
    46,000
    47,000-52,000
    45,000
    46,000
    67,000

    Note: Prices mentioned are ex-showroom, Gurgaon (Haryana)
    Source: ICRA Research, Company website

    [email protected]
    [email protected],000
    [email protected],500
    [email protected],500
    [email protected],500
    [email protected],500
    [email protected],500
    [email protected],000
    [email protected],000
    [email protected],000
    [email protected],500

    Table 9: Monthly Sales Volumes (Scooters)
    OEM
    Brand
    Honda
    Activa, Dio, Aviator
    Hero
    Pleasure, Maestro
    Suzuki
    Access, Swish
    Scooty Teenz, Streak, Pep+
    TVS
    Wego
    Duro, Rodeo, Flyte
    M&M
    Kine
    Piaggio
    Vespa
    Source: SIAM

    April 2012
    115,846
    40,354
    27,995
    20,073
    12,663
    9,939
    252
    802

    Market Share
    50.8%
    17.7%
    12.3%
    8.8%
    5.6%
    4.4%
    0.1%
    0.4%

    Like the motorcycles segment, the scooters segment too has experienced a trend in growing segmentation with the category having three differentiated sub-segments consisting of sub-100cc models, 100cc models and 125cc models, each having its own value proposition and target segment. While the sub-100cc segment scooters are light weight having fibre-bodies, the 125cc scooters are positioned as power scooters with metal bodies. Amongst these three sub-segments, the 100cc scooters subsegment remains the largest, whose share in the total scooters market increased from 67% in 2010-11 to 70% in 2011-12. Honda: In the Indian 2W market, one premise that remains valid across 2W segments is that brand strength precedes company primacy. This is evident from the fact that there is a conspicuous absence of across-the-board market leadership for any one player, or in other words select players enjoy segment-specific leadership. This is true for the 100cc segment of motorcycles (where Splendor and Passion brands are the clear market leaders), the 150cc segment of motorcycles (where the Pulsar brand rules the roost) as even the Scooters segment (where Honda’s Activa brand
    far outsells competition). When scooter sales were flagging a decade ago, it was Honda’s Activa brand that had revived the segment and its pioneer coterie of products (Dio, Activa and Aviator) continue to command over 50% market share in the scooters segment. Honda has regularly refurbished its three scooter offerings over the years, with the latest one being the introduction of the 109cc engine in the Dio, replacing the earlier 102cc displacement engine. Although over the last couple of years Honda’s market share had suffered due to capacity constraints, the commencement of operations of the company’s second plant at Tapukara (Rajasthan), from July 2011 is expected to give it the headroom to scale-up production and consolidate its market position. We believe competition for Honda’s scooters is not strong enough yet, notwithstanding several new product launches by other OEMs over the last few months (including Hero’s Maestro, Suzuki’s Swish and Piaggio’s Vespa); and the company is expected to retain its top slot in the scooters segment. Hero MotoCorp: The company had made a debut in the Scooters segment in January 2006 with the launch of the Pleasure model in the ungeared scooters segment, whose sales volumes have grown from around 92,000 units in 2006-07 to over 400,000 units in 2011-12, a volume CAGR of 35%. The company’s market share in the scooters segment, on the back of its sole brand Pleasure, has also grown from 9.8% to 16.3% during the above period. While the market leader’s flagship brand Activa is positioned as a unisex scooter, Hero MotoCorp’s Pleasure is targeted at the female population. With the launch of its new product Maestro in March 2012, targeted at the male population, the company has continued with its strategy (as evident even in other 2W segments) of having specific products for specific market segments. Overall, we believe Hero MotoCorp’s scooter volumes to continue to maintain a healthy growth rate over the medium term, in line with the industry, while maintaining its position as the second largest player in the scooters segment. ICRA LIMITED

    TVS: Based on industry volumes in 2011-12, TVS was the second largest player in the domestic scooters segment with a market share of 19.4%. However, the company’s market share has been sliding sharply since February 2012, being below 15% in each of the last three months. With this, Hero MotoCorp’s scooter volumes have overtaken that of TVS with the latter sliding down to
    the third place in the ranks of the domestic scooters segment. TVS has the widest portfolio of products in the scooters segment including the 60cc Scooty Teenz, the 88cc Scooty Streak and Scooty Pep+ models and the 110cc Wego model. However, the trend in demand for sub-100cc scooters has been softening over the last several years, reflected in the reduction in proportion of sub-100cc scooters in the overall scooters market from 28% in 2006-07 to 15% in 2011-12. To sustain its market share in this growing segment, the company plans to launch two new products in 2012/ 2013 – (a) a new 125cc scooter to compete with the likes of Suzuki Access125 and Mahindra Duro125; and (b) a new 100cc hybrid two-wheeler whose test marketing is proposed to be initiated from June 2012 onwards before its launch in 2013. While the company’s product strategy in the scooters segment appears to be targeted at having models across segments, it will have to be synchronized with the pricing strategy, given that most of the company’s offerings currently are priced higher than competition’s.

    Suzuki: In terms of value proposition, Suzuki’s scooter Access125 scores well over competition given that it is a higher powered, higher engine capacity scooter that also comes along with a penetrative price tag. When other scooters offered by competition were either sub-100cc or 100cc, Suzuki, through the launch of the Access125 in September 2007, endeavoured to create a new segment of power scooters. Since the first year of its launch, Suzuki’s market share has increased from 2.3% in 2007-08 to 11.3% in 2011-12, registering a volume CAGR of 86% (on a low base). In February 2012, Suzuki launched a new brand Swish125 that is similar to the Access125 in terms of platform, features and engine specifications; except that it comes with an improved styling and lower weight (115 kgs Vs 110 kgs) that should improve fuel efficiency. Since the target segment for both Access125 as well as Swish125 remain the same, we believe the brands are more likely to cannibalize into each others’ volumes rather than increase the addressable market for Suzuki.

    ICRA LIMITED

    HERO MOTOCORP LIMITED – Performance Overview (Q4, 2011-12)
    ICRA Ratings

    Operating Income
    YoY Growth (%)
    OPBDIT
    Less: Depreciation
    Other Income
    Exceptional Gain/Loss
    PBT
    Less: Tax
    PAT

    Q4 FY12

    Q3 FY12

    5,350.9
    30.7%
    789.9
    237.4
    106.2
    658.8
    157.2
    501.6

    5,962.5
    11.4%
    852.9
    280.4
    177.4
    746.9
    143.3
    603.6

    5,983.6
    16.9%
    895.1
    298.7
    127.4
    723.8
    110.8
    613.0

    14.8%
    OPBDIT/OI (%)
    9.4%
    PAT/OI (%)
    Source: Company Data, ICRA Estimates

    Operating Income
    Growth (%) – YoY
    OPBDIT
    PAT
    OPBDIT/OI (%)
    PAT/OI (%)

    Q1 FY11
    4,264.6
    11.9%
    570.5
    491.7
    13.4%
    11.5%

    14.3%
    10.1%

    Q2 FY11
    4,511.3
    11.7%
    567.3
    505.6
    12.6%
    11.2%

    Source: Company Data, ICRA Estimates; Amounts in Rs. Crore

    ICRA LIMITED

    15.0%
    10.2%

    Q3 FY11
    5,118.2
    34.2%
    533.1
    429.0
    10.4%
    8.4%

    Q4 FY11
    5,350.9
    30.7%
    789.9
    501.6
    14.8%
    9.4%

    Q1 FY12
    5,637.6
    32.2%
    772.1
    557.9
    13.7%
    9.9%

    Q2 FY12
    5,784.3
    28.2%
    873.7
    603.6
    15.1%
    10.4%

    Q3FY12
    5,983.6
    16.9%
    895.1
    613.0
    15.0%
    10.2%

    Q4FY12
    5,962.5
    11.4%
    852.9
    603.6
    14.3%
    10.1%

    5.7

    Others

    8.8

    Price Performance (%)
    3M
    -5.0%
    -6.3%
    -8.6%

    HMCL
    BSE Auto
    CNX Nifty

    12M
    -1.5%
    6.4%
    -12.9%

    Relative Stock Price Movement
    130
    110
    90
    70

    Hero MotoCorp

    BSE Auto

    Bloomberg Code
    HMCL
    Market Capitalization Rs. 36,879 Cr
    Valuations
    FY13e
    FY14e
    Price/Earnings
    13.4
    12.5
    EV/ EBITDA
    10.1
    8.9
    Source: Bloomberg Consensus Estimates

    May-12

    Q4 FY11

    Profitability – HMCL’s OPBDIT margins at 14.3% in Q4, 2011-12 declined by 46 basis points (bps) YoY and 66 bps QoQ due to increase in raw material costs, which could not be neutralized fully through price hikes. The margin decline may have been higher but for the steadily rising share of production of HMCL’s Haridwar plant (that entails relatively superior profit margins) in the overall production mix vis-a-vis the company’s other two plants at Gurgaon and Dharuhera. Going forward, the direction of commodity price movement, besides HMCL’s ability to sustain the scale required to absorb the additional expenses being incurred for creating a new corporate brand, introduction of new models, building of R&D capability, exploring overseas markets for exports would be the key factors influencing the company’s margins. HMCL’s Q4 2011-12 PAT at Rs. 603.6 Crore grew by 20.3% YoY but declined by 1.5% QoQ. Overall in 2011-12, HMCL’s PAT was also supported by lower effective tax rate of 17.0%, against 19.8% in 2010-11 due to higher proportion of sales from Haridwar plant where the company currently gets 100% income tax exemption.

    DIIs

    Jan-12

    Rs. 4,289.8 Crore

    33.4

    M ar-12

    Net Worth, March 31, 2012

    52.2

    FIIs

    Nov-11

    Rs 2,378.1 Crore

    Promoters

    Jul-11

    PAT FY12

    Brands

    Shareholding Pattern (%)

    Sep -11

    Net Sales FY12

    Gurgaon, Dharuhera, Haridwar
    CD Dawn, CD Deluxe, Splendor,
    Passion, Super Splendor, Glamour,
    Achiever, Hunk, CBZ Xtreme, Impulse
    Karizma, Pleasure, Maestro
    Rs. 23,368.1 Crore

    May-11

    Manufacturing Facilities

    Jan-11

    Mr. B. M. Munjal

    M ar-11

    Chairman

    [ICRA]AAA
    [ICRA]A1+
    Stable

    Nov-10

    1984

    Long Term
    Short Term
    Outlook

    Jul-10

    Year of Incorporation

    Revenue Growth – In Q4, 2011-12, Hero MotoCorp Limited (HMCL) reported revenues of Rs. 5,962.5 Crore, a growth of 11.4% (YoY). The company’s revenue growth was driven by 8.1% YoY growth in sales volumes and 3.1% YoY growth in average realizations. While HMCL had recorded a volume growth of 18.1% (YoY) in 9m 2011-12, the company’s volume growth slowed down to 8.1% (YoY) in Q4 2011-12, given the higher base of Q4 2010-11. In fact, after having recorded positive sequential volume growth over the last eight quarters, HMCL’s QoQ sales volume growth turned negative at -1.1% in Q4 2011-12. Overall, HMCL’s sales volumes grew by 15.4% in 2011-12 over the previous year to reach 6.2 million units. For 2012-13, the management expects HMCL’s sales volumes to grow by 9-10%; and export volumes to grow substantially over the next four years.

    Sep -10

    Hero MotoCorp – Fact Sheet

    May-10

    Volume growth slows down in line with the two-wheeler industry

    BAJAJ AUTO LIMITED – Performance Overview (Q4, 2011-12)

    Q4 FY11
    4,200.0
    23.1%
    861.5
    30.1
    101.0
    724.6
    1,656.9
    256.5
    1,400.4

    Q4 FY12
    4,651.4
    11.4%
    920.6
    43.4
    139.5
    20.3
    1,035.1
    263.1
    772.0

    Q3 FY12
    5,063.2
    20.2%
    1,061.4
    32.1
    90.8
    (58.9)
    1,061.2
    266.0
    795.2

    20.5%
    OPBDIT/OI (%)
    33.3%
    PAT/OI (%)
    Source: Company Data, ICRA Estimates

    19.8%
    16.6%

    21.0%
    15.7%

    Operating Income
    YoY Growth (%)
    OPBDIT
    Less: Depreciation
    Other Income
    Exceptional Gain/Loss
    PBT
    Less: Tax
    PAT

    Standalone
    Operating Income
    Growth (%) – YoY
    OPBDIT
    PAT
    OPBDIT/OI (%)
    PAT/OI (%)

    Q1 FY11
    3,890.1
    65.4%
    776.9
    590.2
    20.0%
    15.2%

    Q2 FY11
    4,341.8
    49.7%
    897.2
    682.1
    20.7%
    15.7%

    Source: Company Data, ICRA Estimates; Amounts in Rs. Crore

    ICRA LIMITED

    Q3 FY11
    4,177.1
    27.2%
    849.3
    667.1
    20.3%
    16.0%

    Profitability: BAL’s reported OPBDIT margins at 19.8% in Q4, 2011-12 declined by 72 bps YoY and 117 bps QoQ, largely due to reclassification of line items as per revised Schedule VI and partly due to relatively weaker product mix. The management maintains that BAL’s OPBDIT margins for 2012-13 are expected to remain at around 20%. However, since 100% exemption on income tax currently available for BAL’s Pantnagar plant is going to reduce to 30% from
    2012-13 onwards, the resultant increase in average tax rate is expected to weigh on the company’s net margins during the current fiscal.

    Q4 FY11
    4,200.0
    23.1%
    861.5
    1400.4
    20.5%
    33.3%

    Q1 FY12
    4,777.3
    22.7%
    910.8
    711.1
    19.1%
    14.9%

    Q2 FY12
    5,267.3
    19.3%
    1057.4
    725.8
    20.1%
    13.8%

    Q3FY12
    5,063.2
    20.2%
    1061.4
    795.2
    21.0%
    15.7%

    Q4FY12
    4,651.4
    11.4%
    920.6
    772.0
    19.8%
    16.6%

    8.4

    Others

    25.1

    Price Performance (%)
    3M
    -16.3%
    -6.3%
    -8.6%

    BAL
    BSE Auto
    CNX Nifty

    12M
    7.1%
    6.4%
    -12.9%

    Relative Stock Price Movement
    170
    160
    150
    140
    130
    120
    110
    100

    Bajaj Auto

    M ay-12

    Standalone

    DIIs

    Jan-12

    Rs. 6,041.1 Crore

    16.4

    M ar-1 2

    Net Worth, March 31, 2012

    50.0

    FIIs

    No v-11

    Rs. 3,004.1 Crore

    Promoters

    Ju l-1 1

    PAT FY12

    Brands

    Shareholding Pattern (%)

    Se p -11

    Revenues FY12

    Akurdi, Chakan, Waluj, Pantnagar
    2W: Boxer, Platina, Discover, Pulsar,
    Avenger; 3W: GC Series, RE Series,
    Mega Max
    Rs. 19,529.0 Crore

    M ay-11

    Manufacturing Facilities

    Jan-11

    Mr. Rahul Bajaj

    M ar-1 1

    Chairman

    NA
    NA
    NA

    No v-10

    1945

    Long Term
    Short Term
    Outlook

    Ju l-1 0

    Year of Incorporation

    Revenue Growth – In Q4, 2011-12, Bajaj Auto Limited (BAL) reported revenues of Rs. 4,651.4 Crore, a growth of 11.4% (YoY). The company’s revenue growth was driven by 7.3% YoY growth in sales volumes (2W + 3W) and 3.9% YoY growth in average realizations. While BAL had recorded a volume growth of 15.9% (YoY) in 9m 2011-12, the company’s volume growth slowed down to 7.3% (YoY) in Q4 2011-12, mainly due to sharp slowdown in its 2W sales in the domestic market. Against 11.1% volume growth recorded by the industry in Q4, 2011-12, BAL’s domestic 2W sales volumes declined by 0.1% during the last quarter (the domestic 2W segment accounts for ~60% of BAL’s volumes). However, continued strong growth of 27.9% (YoY) in 2W exports, which constitute ~30% of BAL’s volume mix, partially neutralized the impact of slowdown experienced by BAL in the domestic 2W segment. BAL’s 2W exports growth was driven by rising sales to the African continent, even as sales to Sri Lanka (that accounts for ~20% of BAL’s exports) suffered following the hike in import duty by the country that caused around 30-35% increase in 2W retail prices. For H1, 2012-13, the management expects BAL’s domestic 2W sales volumes to grow by 6%; and sales volumes (2W+3W) for 2012-13 to touch 5 million units, a growth of 15% over 2011-12.

    Se p -10

    Bajaj Auto – Fact Sheet

    ICRA Ratings

    M ay-10

    As domestic volume growth slows down, sustenance of exports momentum becomes crucial for sustaining earnings growth

    BSE Auto

    Bloomberg Code
    BJAUT
    Market Capitalization Rs. 43,503 Cr
    Valuations
    FY12e
    FY13e
    Price/Earnings
    12.8
    11.4
    Price/Sales
    9.5
    8.8
    Source: Bloomberg Consensus Estimates

    TVS MOTOR COMPANY LIMITED – Performance Overview (Q4, 2011-12)

    Rs. 131.6 Crore

    Net Worth, March 31, 2012

    Rs. 725.3 Crore

    Standalone

    Q4 FY11
    1,633.5
    34.6%
    109.1
    42.1
    0.3
    61.6
    19.9
    41.7

    Operating Income
    YoY Growth (%)
    OPBDIT
    Less: Depreciation
    Other Income
    Exceptional Gain/Loss
    PBT
    Less: Tax
    PAT

    6.7%
    OPBDIT/OI (%)
    2.6%
    PAT/OI (%)
    Source: Company Data, ICRA Estimates

    Standalone
    Operating Income
    Growth (%) – YoY
    OPBDIT
    PAT
    OPBDIT/OI (%)
    PAT/OI (%)

    Q1 FY11
    1,393.0
    40.4%
    103.7
    40.4
    7.4%
    2.9%

    Q4 FY12
    1,627.2
    -0.1%
    98.9
    31.7
    8.3
    62.2
    5.0
    57.2
    6.1%
    3.5%

    Q2 FY11
    1,616.2
    42.5%
    122.8
    54.8
    7.6%
    3.4%

    Source: Company Data, ICRA Estimates; Amounts in Rs. Crore

    ICRA LIMITED

    Q3 FY12
    1,762.2
    7.4%
    122.3
    36.4
    0.1
    75.6
    19.0
    56.5
    6.9%
    3.2%

    Q3 FY11
    1,646.7
    50.4%
    117.1
    55.8
    7.1%
    3.4%

    Profitability: TVS’ OPBDIT margins at 6.1% in Q4, 2011-12 declined by 60 bps YoY and 86 bps QoQ mainly due to increase in employee expenses. However, in view of ‘other income’ of Rs. 8.3 Crore and lower tax rate, TVS’s PAT grew by 37.3% YoY in Q4, 2011-12. The company’s PAT, on a consolidated basis, continues to be weighed down by losses at the Indonesian subsidiary. Consequently, TVS’ consolidated PAT grew at a much lower rate of 3.4% in 2011-12 compared to PAT growth of 28.0% reported on a standalone basis. The management expects losses in the Indonesian subsidiary to reduce in 2012-13 on the back of expected traction in volumes led by increase in dealer count along with planned increase in exports from Indonesia to other geographies.

    Q4 FY11
    1,633.5
    34.6%
    109.1
    41.7
    6.7%
    2.6%

    Q1 FY12
    1,746.0
    24.7%
    125.4
    58.8
    7.2%
    3.4%

    Q2 FY12
    1,991.8
    22.8%
    146.0
    76.5
    7.3%
    3.8%

    Q3FY12
    1,762.2
    7.4%
    122.3
    56.5
    6.9%
    3.2%

    Q4FY12
    1,627.2
    -0.1%
    98.9
    57.2
    6.1%
    3.5%

    16.5

    Others

    21.6

    Price Performance (%)
    3M
    -27.0%
    -6.3%
    -8.6%

    TVS
    BSE Auto
    CNX Nifty

    12M
    -35.8%
    6.4%
    -12.9%

    Relative Stock Price Movement
    160
    140
    120
    100
    80
    60

    TVS Motor

    May-12

    PAT (Concern Share) FY12

    DIIs

    Jan-12

    Rs. 7,419.8 Crore

    2.6

    Mar-12

    Revenues FY12

    59.3

    FIIs

    Nov-11

    Consolidated

    Promoters

    Jul-11

    Brands

    Shareholding Pattern (%)

    Sep-11

    Hosur, Mysore, Nalagarh
    2W: Sport, Star City, Jive, Flame,
    Apache RTR, Scooty, Wego; 3W: King

    May-11

    Manufacturing Facilities

    Jan-11

    Mr. Venu Srinivasan

    Mar-11

    Chairman

    NA
    NA
    NA

    Nov-10

    1982

    Long Term
    Short Term
    Outlook

    Jul-10

    Year of Incorporation

    Revenue Growth – In Q4, 2011-12, TVS Motor Company Limited (TVS) reported revenues of Rs. 1,627.2 Crore, which were flat on YoY basis; and were 7.5% lower on QoQ basis. While the 2W industry’s domestic volume growth had also moderated to 11.1% YoY in Q4, 2011-12 (vis-avis 15.0% YoY volume growth in 9m, 2011-12), the slowdown in TVS’ domestic 2W volumes was much steeper, with the company’s domestic 2W volumes expanding by only 2.2% YoY. This apart, TVS’ 2W exports as well as 3W volumes also declined sharply by 17.6% and 36.0% in Q4, 2011-12, respectively, contributing to the company’s relatively weaker revenue growth compared to the industry at large. The company plans to launch a series of new products in 2012-13 along with upgrades of existing products. TVS recently launched the 2012 edition of the Apache Series RTR, while one new executive segment motorcycle is planned to be launched in August 2012. The company plans to launch another motorcycle and a new scooter in Q4, 2012-13. These new product launches are expected to enable the company grow faster than the domestic 2W industry in 2012-13.

    Sep-10

    TVS Motor – Fact Sheet

    ICRA Ratings

    May-10

    Weaker product portfolio hampers revenue growth; company planning several new 2W model launches in 2012-13

    BSE Auto

    Bloomberg Code
    TVSL
    Market Capitalization Rs. 1,634 Cr
    Valuations
    FY12e
    FY13e
    Price/Earnings
    7.1
    6.6
    Price/Sales
    5.2
    4.8
    Source: Bloomberg Consensus Estimates

    Analyst Contacts
    Analysts

    Contacts

    Mumbai
    Subrata Ray

    [email protected]

    022 – 3047 0027

    [email protected]
    [email protected]
    [email protected]

    0124 – 4545303
    0124 – 4545328
    0124 – 4545368

    [email protected]

    044 – 45964314

    Delhi
    Anupama Arora
    Shamsher Dewan
    Jitin Makkar

    Chennai
    Pavethra Ponniah

    ICRA Limited
    An Associate of Moody’s Investors Service
    CORPORATE OFFICE

    Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300; Fax: +91 124 4545350
    Email: [email protected], Website: www.icra.in
    REGISTERED OFFICE

    1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001 Tel: +91 11 23357940-50; Fax: +91 11 23357014
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    2433 1390 Chennai: Tel + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Fax + (91 44) 2434 3663 Kolkata: Tel + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91 80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79) 2658 4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373 5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231 © Copyright, 2011 ICRA Limited. All Rights Reserved.

    Contents may be used freely with due acknowledgement to ICRA. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.

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