Indian Two-Wheeler Industry
ICRA Sectoral Analysis - Jan 2005
INTRODUCTION
The Indian automotive industry consists of five segments:
commercial vehicles; multi-utility vehicles & passenger
cars; two-wheelers; three-wheelers; and tractors. With 5,822,963
units sold in the domestic market and 453,591 units exported
during the first nine months of FY2005 (9MFY2005), the industry
(excluding tractors) marked a growth of 17% over the corresponding
previous. The two-wheeler sales have witnessed a spectacular
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 in 9MFY2005 with 256,765 units exported.
The total two-wheeler sales of the Indian industry 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 a 25% increase in volume
sales in FY1995. However, the momentum could not be sustained
and sales growth dipped to 20% in FY1996 and further down
to 12% in FY1997. 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 income of middle-income salaried
people (following the implementation of the Fifth Pay Commission's
recommendations), higher access to relatively inexpensive
financing, and increasing availability of fuel efficient
two-wheeler models. Nevertheless, this phenomenon proved
short-lived and the two-wheeler sales declined marginally
in FY2001. 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 moped segments
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 and mopeds continued to decline.
Healthy growth in two-wheeler sales during FY2004 was led
by growth in motorcycles even as the scooters segment posted
healthy growth while the mopeds continued to decline. Figure
1 presents the variations across various product sub-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 past five years. The key demand drivers
for the growth of the two-wheeler industry are as follows:
| ▪ |
Inadequate
public transportation system, especially in the
semi-urban and rural areas; |
| ▪ |
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 consumer needs. |
While the demand drivers listed here operate at the broad
level, segmental demand is influenced by segment-specific
factors.
MARKET CHARACTERISTICS
Demand
Segmental Classification and Characteristics
The three main product segments in the two-wheeler category
are scooters, motorcycles and 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 the early 2000. Besides, these prominent
sub-segments, product groups within these sub-segments have
gained importance in the recent years. Examples include
125cc motorcycles, 100-125 cc gearless scooters, etc. The
characteristics of each of the three broad segments are
discussed in Table 1.
| Table
1 |
| Two-Wheelers:
Comparative Characteristics |
| |
Scooter |
Motorcycle |
Moped |
| Price*(Rs.
as in January 2005) |
>
22,000 |
>
30,000 |
>
12,000 |
| Stroke |
2-stroke,
4-stroke |
Mainly
4-stroke |
2-stroke |
| Engine
Capacity (cc) |
90-150 |
100,
125, > 125 |
50,
60 |
| Ignition |
Kick/Electronic |
Kick/Electronic |
Kick/Electronic |
| Engine
Power (bhp) |
6.5-9 |
7-8
and above |
2-3 |
| Weight
(kg) |
90-100 |
>
100 |
60-70 |
| Fuel
Efficiency (kms per litre) |
50-75 |
50-80+ |
70-80 |
| Load
Carrying |
High |
Highest |
Low |
*Ex-showroom
Mumbai
Compiled by INGRES |
Segmental Market Share
The Indian two-wheeler industry has undergone a significant
change over the past 10 years with the preference changing
from scooters and mopeds to motorcycles. The scooters 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 market respectively, that year).
However, the motorcycles segment that had witnessed high
growth (since FY1994) became larger than the scooter segment
in terms of market share for the first time in FY1999. Between
FY1996 and 9MFY2005, the motorcycles segment more than doubled
its share of the two-wheeler industry to 79% even as the
market shares of 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 a healthy growth of 20%, indicating a clear
shift in consumer preference. This shift, which continues,
has been prompted by two major factors: change in the country's
demographic profile, and technological advancements.
Over the past 10-15 years the demographic profile of the
typical two-wheeler customer has changed. The customer is
likely to be salaried and in the first job. With a younger
audience, the attributes that are sought of a two-wheeler
have also changed. Following the opening up of the economy
and the increasing exposure levels of this new target audience,
power and styling are now as important as comfort and utility.
The marketing pitch of scooters has typically emphasised
reliability, price, comfort and utility across various applications.
Motorcycles, on the other hand, have been traditionally
positioned as vehicles of power and style, which are rugged
and more durable. These features have now been complemented
by the availability of new designs and technological innovations.
Moreover, higher mileage offered by the executive and entry-level
models has also attracted interest of two-wheeler customer.
Given this market positioning of scooters and motorcycles,
it is not surprising that the new set of customers has preferred
motorcycles to scooters. With better ground clearance, larger
wheels and better suspension offered by motorcycles, they
are well positioned to capture the rising demand in rural
areas where these characteristics matter most.
Scooters are perceived to be family vehicles, which offer
more functional value such as broader seat, bigger storage
space and easier ride. However, with the second-hand car
market 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 preference
towards 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 the past few years, the preference has shifted
towards motorcycles. Besides a change in demographic profile,
technology and reduction in the price difference between
motorcycles and scooters, another factor that has weighed
in favour of motorcycles is the high re-sale value they
offer. Thus, the customer is willing to pay an up-front
premium while purchasing a motorcycle in exchange for lower
maintenance and a relatively higher resale value.
Supply
Manufacturers
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) and
TVS Motor Company Ltd (TVS) - accounting for over 80% of
the industry sales as in 9MFY2005. The other key players
in the two-wheeler industry are Kinetic Motor Company Ltd
(KMCL), Kinetic Engineering Ltd (KEL), LML Ltd (LML), Yamaha
Motors 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 the
undisputed market leader till FY2000, accounting for 32%
of the two-wheeler industry volumes in the country that
year. Bajaj Auto dominance arose from its complete hold
over the scooter market. However, as the demand started
shifting towards motorcycles, the company witnessed a gradual
erosion of its market share. HHML, which had concentrated
on the motorcycle segment, was the main beneficiary, and
almost doubled its market share from 20% in FY2000 to 40%
in 9MFY2005 to emerge as the market leader. TVS, on the
other hand, witnessed an overall decline in market share
from 22% in FY2000 to 18% in 9MFY2005. The share of TVS
in industry sales fluctuated on a year on 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 mainly through: licensing and technical
collaboration (as in the case of Bajaj Auto and LML); and
joint ventures (HHML).
A third form - that is, the 100% owned subsidiary route
- found favour in the early 2000s. A case in point is HMSI,
a 100% subsidiary of Honda, Japan. Table 2 details the alliances
of some major two-wheeler manufacturers in India.
Besides the below mentioned technology alliances, Suzuki
Motor Corporation has also followed the strategy of joint
ventures (SMC reportedly acquired equity stake in Integra
Overseas Limited for manufacturing and marketing Suzuki
motorcycles in India).
| Table
2 |
| Technological
tie-ups of Select Players |
| |
Nature
of Alliance |
Company |
Product |
| Bajaj
Auto |
Technological
tie-up |
Kawasaki
Heavy Industries Ltd, Japan |
Motorcycles |
| Technological
tie-up |
Tokya
R&D Co Ltd, Japan |
Two-wheelers |
| Technological
tie-up |
Kubota
Corp, Japan |
Diesel
Engines |
| HHML |
Joint
Venture |
Honda
Motor Co, Japan |
Motorcycles |
| KEL |
Technological
tie-up |
Hyosung
Motors & Machinery Inc |
Motorcycles |
| KEL |
Tie
up for manufacturing
and distribution |
Italjet,
Italy |
Scooters |
| LML |
Technological
tie-up |
Daelim
Motor Co Ltd |
Motorcycles |
| Hero
Motors |
Technological
tie-up |
Aprilia
of Italy |
Scooters |
With the two-wheeler market, especially the motorcycle market,
becoming extremely competitive and the life cycle of products
getting shorter, the ability to offer new models to meet
fast changing customer preferences has become imperative.
In this context, the ability to deliver newer products calls
for sound technological backing and this has become one
of the critical differentiating factor among companies in
the domestic market. Thus, the players have increased their
focus on research and development with some having indigenously
developed new models as well as improved technologies to
cater to the domestic market. Further, with exports being
one of the thrust areas for some Indian two-wheeler companies,
the Indian original equipment manufacturers (OEMs) have
realised the need to upgrade their technical capabilities.
These relate to three main areas: fuel economy, environmental
compliance, and performance. In India, because of the cost-sensitive
nature of the market, fuel efficiency had been an interest
area for manufacturers.
It is not only that the OEMs are increasing their focus
on in-house R&D, they also provide support to the vendors
to upgrade the technology and also assist them striking
technological alliances.
TRENDS IN THE TWO-WHEELER INDUSTRY
Companies raising capacity to meet the growing demand
All the major two-wheeler manufacturers, viz. Bajaj Auto,
HHML, TYS, HMSI and others, have increased their manufacturing
capacities in the recent past. The total capacity of these
players stood at 7.8 million units per annum (FY2003) as
against total market sales 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
for manufacturing motorcycles. The move has been prompted
by the rapid growth reported by the motorcycles segment
since FY1995.
HHML increased the capacity of its plants from 1.8 million
units in FY2003 to 2.25 million in FY2004 and has been able
to achieve 92% capacity utilisation. In light of the increase
in demand for motorcycles, the company plans to set up a
new plant. Since its entry 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 consumers towards products with superior
features and styling. Better awareness about international
models has raised expectations of consumers on some key
attributes, especially quality, styling, and performance.
High competitive intensity has prompted players to launch
vehicles with improved attributes at a price less than the
competitive models.
In an effort to satisfy the distinct needs of consumers,
producers are identifying emerging consumer preferences
and developing new models. For instance, in the motorcycles
segment, motorcycles with engine capacity over 150cc, is
a segment that has witnessed significant new product launches
and hence, become more competitive. The indigenously launched
Pulsar 150 had met with success on its launch and thereafter,
a host of models have been launched in this segment by various
players. While Bajaj Auto launched the Pulsars (150 and
180 cc) with digital twin spark technology (DTSi) that offers
a powerful engine and fuel efficiency of 125 cc models,
model launches by other players include LML's Graptor/Beamer,
HMSI's Unicorn besides the HHML's 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 Bajaj Auto Eliminator and Royal Enfield's Thunderbird
followed by HHML's Karisma. Besides these, KEL has launched
premium segment motorcycles GF 170 and GF Laser besides
launching products from the portfolio of its technology
partner (Hyosung's Aquila and Comet 250). The products in
this segment cater for style conscious consumers. Quite
a few players are developing models combining features such
as higher engine capacity" optimum mix of power and performance,
and superior styling. However, the extent of shift to these
products would depend on the positioning of such products
in terms of price.
In the scooters segment, the market for plastic-bodied variomatic
scooters continues to witness growth in the scenario of
overall decline in scooter volumes. Higher volumes and growth
are especially true for certain scooter models, such as
Honda Activa, that brought in new technology (besides variomatic
transmission) to further differentiate themselves. Thus,
the need to differentiate and create a niche has led to
companies strengthening their research and development (R&D)
capabilities and reducing the development time for new models.
Increasing focus on exports
For the first nine months of FY2005, two-wheeler exports
increased by 37% over the corresponding previous, led mainly
by motorcycles even as exports of other two-wheelers were
healthy. While motorcycle exports increased by 40%, scooter
and moped exports increased by 29% and 27% respectively.
Motorcycle exports by Bajaj Auto, HHML and TVS have reported
a tobust growth in FY2005 and are expected to increase further
in the medium term.
| Table
3 |
| Two-Wheeler
Exports from India (in numbers) |
| |
FY2000 |
FY2001 |
FY2002 |
FY2003 |
FY2004 |
CAGR
(FY2000-04) |
9MFY2005 |
| Scooters |
20,188 |
25,625 |
28332 |
30116 |
53148 |
27.4 |
44832 |
| Motorcycles |
35,295 |
41,339 |
56,880 |
126122 |
187287 |
51.4 |
188807 |
| Mopeds |
27,754 |
44,174 |
18,971 |
23330 |
24234 |
-3.3 |
22739 |
| Total |
83,237 |
111,138 |
104183 |
179568 |
264669 |
33.5 |
256378 |
Although the Indian two-wheeler manufacturers have forayed
on their own in their target export markets, there have
been instances of tie-ups with the technology partners.
Bajaj Auto's tie-up with Kawasaki to jointly market Bajaj
products in Philippines is a case in point. Under the tie-up,
M/s Kawasaki Motors Philippines Corporation has been appointed
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 completely built unit
(CBU) form. Other strategy of expanding international presence
considered by few players is that of setting up assembly
lines in select South East Asian countries either on their
own or in partnership with local players. Besides, plans
of select overseas technology partners to source from their
Indian partners and plans of global majors to develop their
Indian manufacturing unit as a sourcing hub may also lead
to increase in two-wheeler exports from India.
Companywise two-wheeler exports since FY2000 are presented
in the following Table 4.
| Table
4 |
| Company-wise
two-wheeler exports (FY2000-9MFY2005) |
| |
FY2000 |
FY2001 |
FY2002 |
FY2003 |
FY2004 |
CAGR
(FY2000-04) |
9MFY2005 |
| Bajaj
Auto |
14924 |
16112 |
28527 |
53366 |
90210 |
56.8 |
87225 |
| HHML |
10061 |
10324 |
13023 |
21165 |
39254 |
40.5 |
43441 |
| HMSI |
0 |
0 |
1293 |
10916 |
31414 |
n.a |
27734 |
| TVS |
7265 |
6621 |
7765 |
9636 |
28093 |
40.2 |
36666 |
| Yamaha |
15197 |
20446 |
20321 |
45546 |
32906 |
21.3 |
27539 |
| Others |
35790 |
57635 |
32752 |
39053 |
42792 |
4.6 |
33773 |
| Total |
83237 |
111138 |
103681 |
179682 |
264669 |
33.5 |
256378 |
Vehicle Emission Norms
Emission norms for all categories of petrol and diesel vehicles
at the manufacturing stage were introduced for the first
time in India in 1990 and were made stricter in 1996. When
the 1996 norms were introduced, it resulted in certain models
being withdrawn from the market. With Stage I India 2000
emission norms coming into place, the cost of developing
suitable technology has remained high.
The emission norms that are currently in force for two-wheelers
and three-wheelers are more stringent than the Euro II norms.
The roadmap suggested for emission norms for two/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 the entire country:
For new vehicles:
Bharat Stage II norms throughout the country from
April 1, 2005
Bharat Stage III norms to be applicable preferably
from April 1, 2008 but not later than April 1, 2010.
For reducing pollution from in-use vehicles
| ▪ |
New
pollution under control (PUC) checking system
for all categories of vehicles to be put in
place by April 1, 2005 |
|
| ▪ |
Inspection
& maintenance (I&M) system for all categories
of vehicles to be put place by April 1, 2010 |
|
| ▪ |
Performance
checking system of catalytic converters and
conversion kits installed in 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, the India 2000 emission norms,
and the norms that have been implemented for April 2005
(Stage II) and proposed for 2008 (Stage III).
Table
5 |
Exhaust
Emission Norms |
Vehicle |
Pollutants |
Old
Norms |
1996 |
2000 |
2005* |
2008/10** |
Tow-wheelers
(gm/Km) |
CO |
12-30 |
4.5 |
2.0 |
1.5 |
1 |
HC+Nox |
8-12 |
3.6 |
2.0 |
1.5 |
1 |
Three-wheelers
(petrol) |
CO |
12-30 |
6.8 |
4.0 |
2.25 |
1.25 |
HC+Nox |
8-12 |
5.4 |
1.5 |
2 |
1.25 |
Three-wheelers
(Diesel) |
CO |
|
|
|
1 |
1.1 |
HC+Nox |
|
|
|
0.85 |
1 |
PM |
|
|
|
0.10 |
0.05 |
CO:
Carbon Monoxide; HC: Hydrocarbon; Nox: Nitrogen
Oxide, PM: Particulate Matter, * Maximum Sulphur
parts per million (ppm) permissible of 150 and **
Maximum Sulphur ppm permissible of 50 Compiled by
INGRES |
To be able to meet the exhaust norms, the Auto Fuel Policy
has suggested following technologies:
Table
6 |
Technologies
for meeting the emission norms for Spark Ignited
Vehicles |
| |
2/3
- wheelers |
|
| Level
of Emission Norms |
2-Stroke
Technology |
4-Stroke
Technology |
| Euro
I/India 2000 |
Intake,
exhaust, combustion
optimisation Catalytic converter |
4-Stroke
engine
technology |
| Euro
II/Bharat Stage II |
Secondary
air injection Caatalytic
Converter |
Hot
tube Secondary
air injection |
| Euro
III/Bharat Stage III |
Fuel
injection Catalytic converter |
Fuel
injection
Carburetor + catalytic converter |
| Euro
IV/Bharat Stage IV |
To
be developed |
Learn
burn Fuel injection
+ catalytic converter |
| Source:
National Auto Fuel Policy |
The adoption of new technologies for compliance with stricter
emission norms may affect the prices of vehicles. Some two-wheeler
manufacturers are testing electronic fuel injection systems
for motorcycles. To begin with, electronic systems are likely
to be introduced in premium segment motorcycles.
Fiscal Policy
The Union Budget for 2001-02 had lowered the excise duty
on two-wheelers (with engine capacity in excess of 75 cc)
from 24% to 16%. The manufacturers responded to this by
passing on a relatively large part of the excise cut to
customers. The Union Budget thereafter have left the excise
duty on two-wheelers unchanged. But the Union Budget 2004-05
provides for a weighted deduction of 150% for investments
in R&D. This may facilitate increasing R&D allocations and
allow for improvement in the technical as well as product
development skills of the Indian companies.
Indian Auto Policy 2002
The Government of India approved a comprehensive automotive
policy in March 2002, the main proposals of which are as
under:
Foreign direct investment : Automatic approval
is proposed to be granted to foreign equity investment up
to 100% for manufacture of automobiles and components.
Import tariff : Import tariffs are proposed
to be fixed at a level such that they facilitate the development
of manufacturing capabilities as opposed to mere assembly.
Incentives for R&D : The weighted average
tax deduction under the Income Tax Act, 1961 for automotive
companies is proposed to be increased from current level
of 125% (The weighted average deduction for R&D was increased
to 150% in the Union Budget 2004-05). Further, the policy
proposes to include vehicle manufacturers for a rebate on
the applicable excise duty for every 1% of the gross turnover
of the company expended during the year on R&D.
Environmental aspects : Adequate fiscal
incentives are proposed to promote the use of low-emission
auto fuel technology (in line with the Auto Fuel Policy).
The auto policy states the Government's intent to align
domestic policy with the international practice of imposing
higher road tax on old vehicles so as to discourage their
use.
|
| |
|
