Federation of Automobile Dealers Associations HomeIndian Two-Wheeler IndustryICRA Sectoral Analysis - Jan 2005INTRODUCTION The Indian automotive industry consists of five segments: commercial vehicles; multi-utility vehicles & passenger cars; two-wheelers; three-wheelers; and tractors. With5,822,963 units sold in the domestic market and 453,591 units exported during the firstnine months of FY2005 (9MFY2005), the industry (excluding tractors) marked a growthof 17% over the corresponding previous. The two-wheeler sales have witnessed aspectacular growth trend since the mid nineties.Two-wheelers: Market Size & Growth In terms of volume, 4,613,436 units of two-wheelers were sold in the country in9MFY2005 with 256,765 units exported. The total two-wheeler sales of the Indianindustry accounted for around 77.5% of the total vehicles sold in the period mentioned.Figure 1 Segmental Growth of the Indian Two Wheeler Industry (FY1995-2004) After facing its worst recession during the early 1990s, the industry bounced back with a25% increase in volume sales in FY1995. However, the momentum could not besustained and sales growth dipped to 20% in FY1996 and further down to 12% inFY1997. The economic slowdown in FY1998 took a heavy toll of two-wheeler sales,with the year-on-year sales (volume) growth rate declining to 3% that year. However,sales picked up thereafter mainly on the strength of an increase in the disposable incomeof middle-income salaried people (following the implementation of the Fifth PayCommissions recommendations), higher access to relatively inexpensive financing, andincreasing availability of fuel efficient two-wheeler models. Nevertheless, thisphenomenon proved short-lived and the two-wheeler sales declined marginally inFY2001. This was followed by a revival in sales growth for the industry in FY2002.Although, the overall two-wheeler sales increased in FY2002, the scooter and mopedsegments faced de-growth. FY2003 also witnessed a healthy growth in overall two-wheeler sales led by higher growth in motorcycles even as the sales of scooters andmopeds continued to decline. Healthy growth in two-wheeler sales during FY2004 wasled by growth in motorcycles even as the scooters segment posted healthy growth whilethe mopeds continued to decline. Figure 1 presents the variations across various productsub-segments of the two-wheeler industry between FY1995 and FY2004.
Demand Drivers The demand for two-wheelers has been influenced by a number of factors over the pastfive years. The key demand drivers for the growth of the two-wheeler industry are asfollows: ▪ Inadequate public transportation system, especially in the semi-urban and ruralareas;▪ Increased availability of cheap consumer financing in the past 3-4 years;▪ Increasing availability of fuel-efficient and low-maintenance models;▪ Increasing urbanisation, which creates a need for personal transportation;▪ Changes in the demographic profile;▪ Difference between two-wheeler and passenger car prices, which makes two-wheelers the entrylevel vehicle;▪ Steady increase in per capita income over the past five years; and▪ Increasing number of models with different features to satisfy diverse consumerneeds. While the demand drivers listed here operate at the broad level, segmental demand isinfluenced by segment-specific factors.MARKET CHARACTERISTICSDemandSegmental Classification and Characteristics The three main product segments in the two-wheeler category are scooters, motorcyclesand mopeds. However, in response to evolving demographics and various other factors,other subsegments emerged, viz. scooterettes, gearless scooters, and 4-stroke scooters.While the first two emerged as a response to demographic changes, the introduction of 4-stroke scooters has followed the imposition of stringent pollution control norms in theearly 2000. Besides, these prominent sub-segments, product groups within these sub-segments have gained importance in the recent years. Examples include 125ccmotorcycles, 100-125 cc gearless scooters, etc. The characteristics of each of the threebroad segments are discussed in Table 1.Table 1Two-Wheelers: Comparative Characteristics Scooter Motorcycle MopedPrice*(Rs. as in January 2005) > 22,000 > 30,000 > 12,000Stroke 2-stroke, 4-stroke Mainly 4-stroke 2-strokeEngine Capacity (cc) 90-150 100, 125, > 125 50, 60Ignition Kick/Electronic Kick/Electronic Kick/ElectronicEngine Power (bhp) 6.5-9 7-8 and above 2-3Weight (kg) 90-100 > 100 60-70Fuel Efficiency (kms per litre) 50-75 50-80+ 70-80
Load Carrying High Highest Low*Ex-showroom Mumbai Compiled by INGRESSegmental Market Share The Indian two-wheeler industry has undergone a significant change over the past 10years with the preference changing from scooters and mopeds to motorcycles. Thescooters segment was the largest till FY1998, accounting for around 42% of the two-wheeler sales (motorcycles and mopeds accounted for 37% and 21 % of the marketrespectively, that year). However, the motorcycles segment that had witnessed highgrowth (since FY1994) became larger than the scooter segment in terms of market sharefor the first time in FY1999. Between FY1996 and 9MFY2005, the motorcycles segmentmore than doubled its share of the two-wheeler industry to 79% even as the market sharesof scooters and mopeds stood lower at 16% and 5%, respectively.Figure 2 Trends in Segmental Share in Industry Sales (FY1996-9MFY2005) While scooter sales declined sharply by 28% in FY2001, motorcycle sales reported ahealthy growth of 20%, indicating a clear shift in consumer preference. This shift, whichcontinues, has been prompted by two major factors: change in the countrys demographicprofile, and technological advancements. Over the past 10-15 years the demographic profile of the typical two-wheeler customerhas changed. The customer is likely to be salaried and in the first job. With a youngeraudience, the attributes that are sought of a two-wheeler have also changed. Followingthe opening up of the economy and the increasing exposure levels of this new targetaudience, power and styling are now as important as comfort and utility. The marketing pitch of scooters has typically emphasised reliability, price, comfort andutility across various applications. Motorcycles, on the other hand, have beentraditionally positioned as vehicles of power and style, which are rugged and moredurable. These features have now been complemented by the availability of new designsand technological innovations. Moreover, higher mileage offered by the executive andentry-level models has also attracted interest of two-wheeler customer. Given this marketpositioning of scooters and motorcycles, it is not surprising that the new set of customershas preferred motorcycles to scooters. With better ground clearance, larger wheels andbetter suspension offered by motorcycles, they are well positioned to capture the risingdemand in rural areas where these characteristics matter most. Scooters are perceived to be family vehicles, which offer more functional value such asbroader seat, bigger storage space and easier ride. However, with the second-hand carmarket developing, a preference for used cars to new two-wheelers among vehicle buyers
cannot be ruled out. Nevertheless, the past few years have witnessed a shift in preferencetowards gearless scooters (that are popular among women) within the scooters segment.Motorcycles, offer higher fuel efficiency, greater acceleration and more environment-friendliness. Given the declining difference in prices of scooters and motorcycles in thepast few years, the preference has shifted towards motorcycles. Besides a change indemographic profile, technology and reduction in the price difference betweenmotorcycles and scooters, another factor that has weighed in favour of motorcycles is thehigh re-sale value they offer. Thus, the customer is willing to pay an up-front premiumwhile purchasing a motorcycle in exchange for lower maintenance and a relatively higherresale value.SupplyManufacturers As the following graph indicates, the Indian two-wheeler industry is highly concentrated,with three players-Hero Honda Motors Ltd (HHML), Bajaj Auto Ltd (Bajaj Auto) andTVS Motor Company Ltd (TVS) - accounting for over 80% of the industry sales as in9MFY2005. The other key players in the two-wheeler industry are Kinetic MotorCompany Ltd (KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), YamahaMotors India Ltd (Yamaha), Majestic Auto Ltd (Majestic Auto), Royal Enfield Ltd(REL) and Honda Motorcycle & Scooter India (P) Ltd (HMSI).Figure 3 Shares of Two-Wheeler Manufacturers in Industry Sales (FY2000-9MFY2005) Although the three players have dominated the market for a relative long period of time,their individual market shares have undergone a major change. Bajaj Auto was theundisputed market leader till FY2000, accounting for 32% of the two-wheeler industryvolumes in the country that year. Bajaj Auto dominance arose from its complete holdover the scooter market. However, as the demand started shifting towards motorcycles,the company witnessed a gradual erosion of its market share. HHML, which hadconcentrated on the motorcycle segment, was the main beneficiary, and almost doubledits market share from 20% in FY2000 to 40% in 9MFY2005 to emerge as the marketleader. TVS, on the other hand, witnessed an overall decline in market share from 22% inFY2000 to 18% in 9MFY2005. The share of TVS in industry sales fluctuated on a yearon year basis till FY2003 as it changed its product mix but has declined since then.Technology Hitherto, technology transfer to the Indian two-wheeler industry took place mainlythrough: 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 early2000s. A case in point is HMSI, a 100% subsidiary of Honda, Japan. Table 2 details thealliances of some major two-wheeler manufacturers in India. Besides the below mentioned technology alliances, Suzuki Motor Corporation has alsofollowed the strategy of joint ventures (SMC reportedly acquired equity stake in IntegraOverseas Limited for manufacturing and marketing Suzuki motorcycles in India).Table 2Technological tie-ups of Select Players Nature of Alliance Company ProductBajaj Auto Technological tie-up Kawasaki Heavy Industries Ltd, Japan MotorcyclesTechnological tie-up Tokya R&D Co Ltd, Japan Two-wheelersTechnological tie-up Kubota Corp, Japan Diesel EnginesHHMLJoint Venture Honda Motor Co, Japan MotorcyclesKEL Technological tie-up Hyosung Motors & Machinery Inc MotorcyclesKEL Tie up for manufacturing and distribution Italjet, Italy ScootersLML Technological tie-up Daelim Motor Co Ltd MotorcyclesHero Motors Technological tie-up Aprilia of Italy ScootersCompiled by INGRES With the two-wheeler market, especially the motorcycle market, becoming extremelycompetitive and the life cycle of products getting shorter, the ability to offer new modelsto meet fast changing customer preferences has become imperative. In this context, theability to deliver newer products calls for sound technological backing and this hasbecome one of the critical differentiating factor among companies in the domesticmarket. Thus, the players have increased their focus on research and development withsome having indigenously developed new models as well as improved technologies tocater to the domestic market. Further, with exports being one of the thrust areas for someIndian two-wheeler companies, the Indian original equipment manufacturers (OEMs)have realised the need to upgrade their technical capabilities. These relate to three mainareas: fuel economy, environmental compliance, and performance. In India, because ofthe cost-sensitive nature of the market, fuel efficiency had been an interest area formanufacturers. It is not only that the OEMs are increasing their focus on in-house R&D, they alsoprovide support to the vendors to upgrade the technology and also assist them strikingtechnological alliances.TRENDS IN THE TWO-WHEELER INDUSTRYCompanies raising capacity to meet the growing demand
All the major two-wheeler manufacturers, viz. Bajaj Auto, HHML, TYS, HMSI andothers, have increased their manufacturing capacities in the recent past. The total capacityof these players stood at 7.8 million units per annum (FY2003) as against total marketsales of 3.8 million units in FY2002. Most of the players have either expanded capacity,or converted their existing capacities for scooters and mopeds into those formanufacturing motorcycles. The move has been prompted by the rapid growth reportedby the motorcycles segment since FY1995. HHML increased the capacity of its plants from 1.8 million units in FY2003 to 2.25million in FY2004 and has been able to achieve 92% capacity utilisation. In light of theincrease in demand for motorcycles, the company plans to set up a new plant. Since itsentry in the Indian market during FY2002, HMSI has aggressively expanded its capacity.Niche markets also witnessing intense competition A significant trend witnessed over the past five years is the inclination of consumerstowards products with superior features and styling. Better awareness about internationalmodels has raised expectations of consumers on some key attributes, especially quality,styling, and performance. High competitive intensity has prompted players to launchvehicles with improved attributes at a price less than the competitive models. In an effort to satisfy the distinct needs of consumers, producers are identifyingemerging consumer preferences and developing new models. For instance, in themotorcycles segment, motorcycles with engine capacity over 150cc, is a segment that haswitnessed significant new product launches and hence, become more competitive. Theindigenously launched Pulsar 150 had met with success on its launch and thereafter, ahost of models have been launched in this segment by various players. While Bajaj Autolaunched the Pulsars (150 and 180 cc) with digital twin spark technology (DTSi) thatoffers a powerful engine and fuel efficiency of 125 cc models, model launches by otherplayers include LMLs Graptor/Beamer, HMSIs Unicorn besides the HHMLs CBZ(improved version launched in 2003-04) and TVS Fiero F2. Moreover, in the recent past,the motorcycle segment has witnessed launch of vehicles with higher engine capacity(higher than 150cc) and power (higher than 15bhp). These include models such as BajajAuto Eliminator and Royal Enfields Thunderbird followed by HHMLs Karisma. Besidesthese, KEL has launched premium segment motorcycles GF 170 and GF Laser besideslaunching products from the portfolio of its technology partner (Hyosungs Aquila andComet 250). The products in this segment cater for style conscious consumers. Quite afew players are developing models combining features such as higher engine capacity"optimum mix of power and performance, and superior styling. However, the extent ofshift to these products would depend on the positioning of such products in terms ofprice. In the scooters segment, the market for plastic-bodied variomatic scooters continues towitness growth in the scenario of overall decline in scooter volumes. Higher volumes andgrowth are especially true for certain scooter models, such as Honda Activa, that broughtin new technology (besides variomatic transmission) to further differentiate themselves.
Thus, the need to differentiate and create a niche has led to companies strengthening theirresearch and development (R&D) capabilities and reducing the development time fornew models.Increasing focus on exports For the first nine months of FY2005, two-wheeler exports increased by 37% over thecorresponding previous, led mainly by motorcycles even as exports of other two-wheelerswere healthy. While motorcycle exports increased by 40%, scooter and moped exportsincreased by 29% and 27% respectively.Motorcycle exports by Bajaj Auto, HHML and TVS have reported a tobust growth inFY2005 and are expected to increase further in the medium term.Table 3Two-Wheeler Exports from India (in numbers) FY2000 FY2001 FY2002 FY2003 FY2004 CAGR(FY2000-04) 9MFY2005Scooters 20,188 25,625 28332 30116 53148 27.4 44832Motorcycles 35,295 41,339 56,880 126122 187287 51.4 188807Mopeds 27,754 44,174 18,971 23330 24234 -3.3 22739Total 83,237 111,138 104183 179568 264669 33.5 256378Source: SIAM Although the Indian two-wheeler manufacturers have forayed on their own in their targetexport markets, there have been instances of tie-ups with the technology partners. BajajAutos tie-up with Kawasaki to jointly market Bajaj products in Philippines is a case inpoint. Under the tie-up, M/s Kawasaki Motors Philippines Corporation has beenappointed as exclusive distributors to market select Bajaj two-wheelers that include Byk,Caliber 115 and Wind 125. These vehicles are being sent to Philippines in the completelybuilt unit (CBU) form. Other strategy of expanding international presence considered byfew players is that of setting up assembly lines in select South East Asian countries eitheron their own or in partnership with local players. Besides, plans of select overseastechnology partners to source from their Indian partners and plans of global majors todevelop their Indian manufacturing unit as a sourcing hub may also lead to increase intwo-wheeler exports from India.Companywise two-wheeler exports since FY2000 are presented in the following Table 4.Table 4Company-wise two-wheeler exports (FY2000-9MFY2005) FY2000 FY2001 FY2002 FY2003 FY2004 CAGR(FY2000-04) 9MFY2005Bajaj Auto 14924 16112 28527 53366 90210 56.8 87225HHML10061 10324 13023 21165 39254 40.5 43441HMSI 0 0 1293 10916 31414 n.a 27734
TVS 7265 6621 7765 9636 28093 40.2 36666Yamaha 15197 20446 20321 45546 32906 21.3 27539Others 35790 57635 32752 39053 42792 4.6 33773Total 83237 111138 103681 179682 264669 33.5 256378Source: SIAMVehicle Emission Norms Emission norms for all categories of petrol and diesel vehicles at the manufacturing stagewere introduced for the first time in India in 1990 and were made stricter in 1996. Whenthe 1996 norms were introduced, it resulted in certain models being withdrawn from themarket. With Stage I India 2000 emission norms coming into place, the cost ofdeveloping suitable technology has remained high. The emission norms that are currently in force for two-wheelers and three-wheelers aremore stringent than the Euro II norms. The roadmap suggested for emission norms fortwo/three-wheelers by the Expert Committee on Auto Fuel Policy is as follows:For two-/three-wheelers the emission norms are recommended to be the same in theentire country:For new vehicles:Bharat Stage II norms throughout the country from April 1, 2005Bharat Stage III norms to be applicable preferably from April 1, 2008 but not later thanApril 1, 2010.For reducing pollution from in-use vehicles ▪ New pollution under control (PUC) checking system for all categories of vehiclesto be put in place by April 1, 2005▪ Inspection & maintenance (I&M) system for all categories of vehicles to be putplace by April 1, 2010▪ Performance checking system of catalytic converters and conversion kits installedin vehicles to be put in place by April 1, 2007. Table 5 presents the emission norms for two-wheelers that were in place in the past, theIndia 2000 emission norms, and the norms that have been implemented for April 2005(Stage II) and proposed for 2008 (Stage III).Table 5Exhaust Emission Norms
Vehicle Pollutants Old Norms 1996 2000 2005* 2008/10**Tow-wheelers (gm/Km) CO 12-30 4.5 2.0 1.5 1HC+Nox 8-12 3.6 2.0 1.5 1Three-wheelers (petrol) CO 12-30 6.8 4.0 2.25 1.25HC+Nox 8-12 5.4 1.5 2 1.25Three-wheelers (Diesel) CO 1 1.1HC+Nox 0.85 1PM 0.10 0.05CO: Carbon Monoxide; HC: Hydrocarbon; Nox: Nitrogen Oxide, PM: Particulate Matter,* Maximum Sulphur parts per million (ppm) permissible of 150 and ** MaximumSulphur ppm permissible of 50 Compiled by INGRES To be able to meet the exhaust norms, the Auto Fuel Policy has suggested followingtechnologies:Table 6Technologies for meeting the emission norms for Spark Ignited Vehicles 2/3 - wheelersLevel of Emission Norms 2-Stroke Technology 4-Stroke TechnologyEuro I/India 2000 Intake, exhaust, combustion optimisation Catalytic converter 4-Stroke engine technologyEuro II/Bharat Stage II Secondary air injection Caatalytic Converter Hot tube Secondary air injectionEuro III/Bharat Stage III Fuel injection Catalytic converter Fuel injection Carburetor + catalytic converterEuro IV/Bharat Stage IV To be developed Learn burn Fuel injection + catalytic converterSource: National Auto Fuel Policy The adoption of new technologies for compliance with stricter emission norms mayaffect the prices of vehicles. Some two-wheeler manufacturers are testing electronic fuelinjection systems for motorcycles. To begin with, electronic systems are likely to beintroduced in premium segment motorcycles.Fiscal Policy The Union Budget for 2001-02 had lowered the excise duty on two-wheelers (withengine capacity in excess of 75 cc) from 24% to 16%. The manufacturers responded tothis by passing on a relatively large part of the excise cut to customers. The UnionBudget thereafter have left the excise duty on two-wheelers unchanged. But the Union