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Two Wheeler Industry in India: Rising Demand

By: Nikhil Gupta 10FN-121 Saurabh Thadani 10FN-102 Sharun Alipuria 10DM-147 Srikanth Konduri 10FN-109 Tushar Gupta 10DM-168 Tushar Gupta 10FN-115 Vinayak Saksena 10HR-046

Two-Wheeler Industry as seen Today


Introduction
Every possession is a statement. So are the two wheelers. In fact, two wheelers are more than that. A good-looking two-wheeler or motorbike not only impress others, but can go a long way in making your life convenient. Two wheelers like bikes and scooters are the symbol of mass transporters. Motorized two wheelers make life a hassle free journey Two wheeler manufacturers are well aware of their rising demand and hence, are teeming up the market with new products every day. Manufacturers are targeting low income sections also with some cheap motorbikes as they are increasingly becoming the potential consumers. Seeing the great demand of the two wheelers, International automobile giants are heading towards India and collaborating with the auto markets. In order to meet the skyrocketing demands of the two wheelers, day-to-day swankiest bikes with high-powered features are launched in the market to attract the maximum buyers.

Current scenario
Since January this year, the demand for models like Hero Hondas Karizma and Hunk, Bajaj Autos 100cc Discover DTS-Si and Pulsar 135 LS and Yamahas R15 has more than doubled. Bajaj Auto has a waiting list of three weeks for their top- selling product Pulsar, pushing demand for these bikes up to 80,000 units per month from 55,000 units. Honda Motorcycle & Scooter India (HMSI) has a waiting period of four weeks for their scooters Activa and Deo. This year, the motorcycle segment has grown by more than a quarter with 94 lakh bikes sold across the country. This is the highest number of bikes ever sold in the local market, with most consumers picking premium and deluxe models with capacity of 150cc. The whole of last year saw 74.3 lakh bikes sold, according to Society of Indian Automobile Manufacturers (SIAM). Two-wheeler majors clearly did not expect this surge in demand. Since January, demand has surged by 20%. Companies are streamlining operations, opening new manufacturing facilities, strengthening distribution and improving logistic operations.India Yamaha Motors has increased the number of shifts to cater to the rising demand. The company has a waiting time of 26 weeks for bikes like YZF-R15, FZ series and Fazer. The upsurge is now reflected in the sales figures. In March, India Yamaha sold 27,460 bikes, a threefold growth over last year. Honda Motorcycle & Scooter India (HMSI) is investing Rs 4.7 billion to set up a second production plant in India, with an annual capacity of 6 lakh units. The new assembly line will be operational by second half of 2011. It is also increasing capacity at its existing plant to 1.6

million units by next year. The company sold 65,888 bikes in March this year, compared with sale of 40,360 units in the same period last year. While Hero Honda, which controls nearly half of the domestic two-wheeler market, is in talks with various state governments, including Tamil Nadu, Karnataka and Gujarat, to set up a new factory. The company sold 414,638 bikes in March 2010, as compared to 3,53,342 bikes sold during the same period a year ago. At present, the Indian two-wheeler market is dominated by Hero Honda, which controls nearly half the $8 million market. Bajaj Auto is the second-largest two wheeler maker with nearly a fifth of the market.

Case study: Two Wheeler Industry in India: Rising Demand Introduction


The two wheeler industry in India has seen tremendous growth after the announcement of the new industrial policy in 1991. India is the second largest producer of two wheelers in the world. Several factors have contributed to the rise of the two wheeler industry. After liberalisation, the buying power of the Indian middle class has increased because of the increase in the disposable income. The easy availability of financial assistance from banks and other financial institutions has also been a catalyst in the fast growth of the twowheeler industry. Another major reason for the increase in demand for two wheelers is the poor public transport system in most parts of the country. Two wheelers are a convenient and cheap mode of transport for most of Indian families.

Two-Wheeler Availability and Sales in India


The Indian two-wheeler market segment includes motorcycles, scooters and mopeds. The overall market trend is upward in all the three segments. Table 6.01 exhibits the sales of two wheelers in different segments. Table 6.01 Sales of motorcycles, scooters, and mopeds in India in different years
Two wheeler type Motorcycles Scooters Mopeds 2003-2004 2004-2005 Sales (Units) 2005-2006 20062007 6196653 992985 375922 709277 976014 393415 200720082008(estimate) 2009(forecast) 6544482 1075591 431983 6996051 1183150 461358

4357732 99982 331587

5241876 983127 351169

Owing to the decline in the motorcycle, the two wheeler industry has witnessed a decline in the motorcycle segment, the two wheeler industry has witnessed a decline in sales about

5% in early 2008. Irrespective of this decline, experts are of the opinion that the two wheeler industry is on an upswing.

Major Player in the Market


Hero Honda Motors Ltd, Bajaj Holding & Invest. Ltd, and TVS Motor Co. Ltd are the three major players in the market. Hero Honda is the market leader in the two-wheeler industry. It became the first Indian company to cross cumulative sales of 7 million units in 2003. With a campaign slogan of Fill it- Shut it- Forget it. Hero Honda has been consistently growing after its inception. Bajaj also has a firm footing in the market and is ranked the second in the market. TVS is the third largest two-wheeler company in India. Table 6.02, 6.03, 6.04 give some statistics about the two-wheeler industry. Table 6.02 Market segmentation of two wheelers Segment North East West South Share (%) 32 9 27 32

Table 6.03 Product variations in two-wheelers Type Motorcycles Scooters Mopeds Share (%) 66 22 11

Table 6.04 Leading players in the two wheeler industry Company Hero Honda Bajaj Auto TVS motors Yamaha Honda Motors LML Kinetic Engineering Majestic Auto Royal Enfield Share (%) 36 23 21 5 5 4 4 4 0.5

Case study Questions


1. It has been mentioned in the case that the market share of the motor cycles is 66%. For a random sample of 50 potential customers, what is expected number of customers who will purchase motor cycles? What is the probability that 10 or fewer customers will purchase motor cycles? Conditions for applying Binomial Distribution: a. Outcome is mutually exclusive: Here the customer will either buy a motorcycle or not buy it. Hence the outcome is mutually exclusive. b. Random variable is result of counts: Here it can be counted the number of customers who will buy a motorcycle. c. Trials are independent: Here it can be clearly seen that the decision to buy the motorcycle by the third customer does not make any impact on the decision of the tenth customer. d. Probability remains same for each trial: The probability that a customer will buy a motorcycle or not will remain the same from one trial to another. Since we are able to fulfil all the conditions of Binomial distribution hence we can apply the Binomial theorem here. Probability p = 0.66 n = 50 E(x) = n * p = 0.66 * 50 = 33 Approximately 33 customers are expected to purchase motorcycles from a random sample of 50 potential customers. X=Number of customers who will purchase motorcycles P(X10) = P(X=0) + P(X=1) + P(X=2) + ........... + P(X=10) = 50C0 * (0.66)0 *(0.34)50 + 50C1 * (0.66)1 * (0.34)49 + 50C2 *(0.66)2 * (0.34) 48+ ..................+ 50C10 * (0.66)10 * (0.34)40 = 3.338 * 10-11 The interpretation from the above value is that number of customers buying motorcycles will be more than the 10 since the probability of 10 or less than 10 customers buying the motorcycles is negligible.

2. Suppose Hero Honda has implemented a quality improvement programme. The company believes that the major complaints are Poisson distributed at an average rate of 10 complaints/ 10,000 motor cycles sold in the first month of the sales. To verify the result, the company collects the data about the sales of the first 10,000 motorcycles sold. It obtains the information that 35 customers have major complaints about the motorcycles that they have purchased. The management is very particular about the quality of its product. Use Poisson distribution and examine whether the average rate of complaints has increased or whether these complaints are by chance. X = Number of Complaints = 10 per 10,000 motorcycles P(X = 35) = e- x/x! = e-10*1035 / 35! = 4.4 * 10-10 The interpretation which can be made from above analysis is that since the probability is very low we can infer that the complaints have happened by chance. 3. Suppose Hero Honda has 120 dealers distributed all over the country. The company wants to conduct a dealer satisfaction survey. The company wants to select five dealers from the whole list of dealers. It has 12 dealers in Madhya Pradesh. What is the probability that one or more randomly selected dealer is located in Madhya Pradesh? X = Selecting a dealer in Madhya Pradesh P(X=1) = 12/120 = 0.1 P(X1) = 1 P(X=0) = 1 5C0 * (0.1)0 * (0.9)5 = 0.41 The probability that one or more out of a group of 5 dealers to be selected from the entire list 0f 120 dealers is located in Madhya Pradesh is 41%.

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