OVERVIEW OF TWO WHEELER SECTOR Two Wheeler Industry The Indian two wheeler contributes the largest volumes

amongst all the segments in automobile industry. Though the segment can be broadly categorized into 3 sub-segments viz.; scooters, motorcycles and mopeds; some categories introduced in the market are a combination of two or more segments e.g. scooterettes and step-thru's . In the last four to five years, the two-wheeler market has witnessed a marked shift towards motorcycles at the expense of scooters. In the rural areas, consumers have come to prefer sturdier bikes to withstand the bad road conditions. In the process the share of motorcycle segment has grown from 48% to 58%, the share of scooters declined drastically from 33% to 25% , while that of mopeds declined by 2% from 19% to 17% during the year 2000-01. The Euro emission norms effective from April 2000 led to the existing players in the two- stroke segment to install catalytic converters. All the new models are now being replaced by 4-stroke motorcycles. Excise duty on motorcycles has been reduced from 32% to 24%, resulting in price reduction, which has aided in propelling the demand for motorcycles. Within the two-wheeler industry, motorcycle segment grew at a phenomenally high rate of 35% as against a deceleration of 3% for scooters and 27% for mopeds. In fact, motorcycle has been taking away the share of scooters and mopeds in a 4.3 million two-wheeler market and surging ahead with its market share of 68%. The increasing demand from semi-urban and rural segments may have caused this positive shift towards motorcycles. Also, easy credit coupled with low interest rate regime, constrained personal transport, increasing income levels in middle class and higher aspirations of young people all seem to be the factors responsible for such high growth in two-wheelers. The growth in two-wheelers has been robust enough to counter the slow down and other factors constraining the overall business activity in the country. Also, rationalization of excise duty in the Union Budget 2002-03 had a positive impact on the demand for motorcycles. We also expect the motorcycles to continue to lead the two-wheeler segment like in all other Asian countries. Available forecasts suggest that this trend would continue for another couple of years and the industry would record nearly double-digit average annual growth up to 2006.

During the year, there have been important developments in two-wheeler industry. The competition has strengthened though there are hardly any new entrants into the industry.

There is an increasing emphasis on price and this has led to cost cutting efforts all across the industry, thereby, making the customer an ultimate beneficiary. The trend also saw introduction of new motorcycles with capacity ranging from 100 to 180cc bikes. We anticipate that many more new models will be launched during the year and provide customers plenty of choice at competitive prices. Businesses cannot consistently grow at 25-30 per cent. Each business has a tendency to taper and plateau after attaining a particular size. An annual growth rate of 10-12 per cent over a period of time is extremely healthy. The TCS study rankings are conducted at the motorcycle segment-level to provide comparisons among similar groups of motorcycles. Motorcycles ranking highest in their respective segments for TCS are: Hero Honda CD100 SS (best standard motorcycle segment); Hero Honda Splendor (best executive motorcycle segment); Bajaj Pulsar (best premium motorcycle segment); and Royal Enfield Bullet Electra (best cruiser motorcycle segment). "The relatively low score for the premium segment indicates that most manufacturers have fallen short of meeting the high expectations of these buyers," states Mr. Lochan. "Bajaj Pulsar is one exception with segment-leading ratings across all aspects of ownership experience, particularly on areas related to vehicle styling." The feeling of freedom and being one with the Nature comes only from riding a two wheeler. Indians prefer the two wheelers because of their small manageable size, low maintenance, and pricing and easy loan repayments. Indian streets are full of people of all age groups riding a two wheeler. Motorized two wheelers are seen as a symbol of status by the populace. Two wheelers in India are the second largest producer and manufacturer of two-wheelers in the world. It stands next only to Japan and China in terms of the number of two-wheelers produced and domestic sales respectively. Indian two-wheeler industry has got spectacular growth in the last few years. Indian two-wheeler industry had a small beginning in the early 50's. The Automobile Products of India (API) started manufacturing scooters in the country. Bikes are a major segment of Indian two wheeler industry, the other two being scooters and mopeds. Indian companies are among the largest two-wheeler manufacturers in the world. In the initial stages, the scooter segment was dominated by API; it was later overtaken by Bajaj Auto. Although various government and private enterprises entered the fray for scooters, the only new player that has lasted till today is LML. The motorcycle segment was initially dominated by Enfield 350cc bikes and Escorts 175cc bike. The two-wheeler market was opened to foreign competition in the mid-80s. And the

then market leaders - Escorts and Enfield - were caught unaware by the onslaught of the 100cc bikes of the four Indo-Japanese joint ventures. With the availability of fuel efficient low power bikes, demand swelled, resulting in Hero Honda - then the only producer of four stroke bikes (100cc category), gaining a top slot. The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively. These two players initially started with assembly of CKD kits, and later on progressed to indigenous manufacturing. In the 90s the major growth for motorcycle segment was brought in by Japanese motorcycles, which grew at a rate of nearly 25% CAGR in the last five years. The industry had a smooth ride in the 50s, 60s and 70s when the Government prohibited new entries and strictly controlled capacity expansion. The industry saw a sudden growth in the 80s. The industry witnessed a steady growth of 14% leading to a peak volume of 1.9mn vehicles in 1990. In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles. Barring Hero Honda, all the major producers suffered from recession in FY93 and FY94. Hero Honda showed a marginal decline in 1992. The reasons for recession in the sector were the incessant rise in fuel prices, high input costs and reduced purchasing power due to significant rise in general price level and credit crunch in consumer financing. Factors like increased production in 1992, due to new entrants coupled with the recession in the industry resulted in company either reporting losses or a fall in profits.

Evolution of Two-wheeler Industry in India: Two-wheeler segment is one of the most important components of the automobile sector that has undergone significant changes due to shift in policy environment. The two-wheeler industry has been in existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and mopeds. In India there are some MNCs and Indian company dealing in automobile sector. The main key players who are dealing in this sector are Hero Honda, Bajaj, Yamaha, Honda, and TVS. Hero Honda is the biggest player in this sector in

India as well as in the world and playing a very important role in two wheeler automobile sector. Hero Honda, Bajaj and TVS are the Indian companies and Yamaha & Honda are international automobile brand.

Bajaj is the first Indian two wheeler automobile company in the market since 1945 with the name M/s Bacharj trading corporation private limited. In 1959 M/s Bacharj trading corporation private limited change its name as Bajaj Auto Ltd. Bajaj Auto obtains license from the Government of India to manufacture two- and three-wheelers vehicles in 1959.

Hero Honda Motors Limited was established in 1984, as a joint venture between India's Hero Group (world's largest bicycle manufacturers) and Japan's Honda Motor Company. And created the world's single largest two wheeler company and also one of the most successful joint ventures worldwide. During the 80s, Hero Honda became the first company in India. Over 19 million Hero Honda two wheelers running on Indian roads today.

TVS Motors is the third largest company in the two-wheeler industry with a market share of 16%. Infect, it is the only Indian company without a foreign collaboration in the two-wheeler industry. When the company opted out of the collaboration with Suzuki in 2002, many believed that TVS was headed towards extinction. But the company proved the doomsayers wrong and came out with a very successful `TVS Victor'. TVS Motors Ltd. originally incorporated in 1982 to manufacture two-wheelers in collaboration with Suzuki Motors of Japan, TVS was one of the leaders in two-wheeler industry.

Yamaha Motor Corporation is the auto mobile company of Japan (1953) which works in India since 1955 and providing latest technology in India from last two decades. Yamaha Motor India was incorporated in august 2001 as a 100% subsidiary of Yamaha motor corporation, Japan

Honda motors of Japan is not a new name in the two wheeler scenario in the country, they were in a tie up with the Firodias owned Kinetic group. However in the late 90s they parted ways after problems arose over issues like introduction of new models, advertising expenditure, marketing strategies and other related issues. In the mid 80 Honda motors of Japan joined hands with the largest bicycle maker of India the Hero cycles to create Hero Honda which in a couple of decades or so have gone on to become the single largest motorcycle company in the world. Though Honda has come on its own on the Indian market yet it will be providing technological support to Hero Honda for the next ten years. Thus presenting a unique situation in which the company will be in direct competition with the company which it has been associated for nearly two decades. Honda Motorcycles and Scooters India limited, a 100% subsidiary of Honda motor company Japan eventually entered the Indian market with Honda Unicorn in 2004.

Market share of two wheeler automobile sector

35.60%

27.50%

Bajaj Motors TVS Motors Yamaha Motors Honda Motors Others

9.50% 4%
SEGMENTATION OF

16% 7%

TWO WHEELER A Two Wheeler Sector Sub-Segmenting in the three Segments. 1. Motorcycle

2. Scooter 3. Mopeds

Segment-wise Analysis of Indian Two Wheeler Market Segment A1 A2 A3 B1 B2 B3 C1 Description Scooter with engine capacity less than 75 cc Scooter with engine capacity between 75-125 cc (Scooterette) Scooter with engine capacity between 125-250 cc Motorcycle with engine capacity between 75-125 cc Motorcycle with engine capacity between 75-125 cc Motorcycle with engine capacity between 75-125 cc Mopeds share in 2001-02 5% 5% 12% 62% 5% 1% 10% Share in 2006-07 0% 10% 1% 66% 17% 1% 5% CAG R 33.99% 32.9% -27.7% 14.9% 44.8% 5.7% -2.7%

Destination India India is on every major global automobile players roadmap, and it isnt hard to see why:
India is the second largest two-wheeler market in the world

The auto component industry has come of age and now forms an important component of the Indian economy. In recent years, it has grown more impressively, fetch double digit growth. More interestingly, it has captured attention as well as business from leading auto makers of the world. The industry plays a crucial role in the automobile sector. Manufacturing vehicles typically involve assembling a large number of components out-sourced from number of ancillaries or component manufacturers. Competitiveness with quality as a theme has been the watchword for the Indian industry and especially the auto component industry ever since the Indian economy was opened up to the world in the early 1990s. While economic revival,

lower interest rates and better road infrastructure are driving domestic demand for automobiles and, therefore, components, increasing outsourcing by global automobile majors is creating a huge export opportunity for Indian component manufacturers.

Growth Prospects and Key Drivers of the Indian Two Wheelers Industry The growth witnessed by the Indian two wheeler industry indicates the growing demand for low cost personal transportation solutions amongst the 300 million Indian middle class consumers. Despite this spectacular growth rate, the two wheeler penetration (number of two wheelers per 1000 inhabitants) in India remains lower than other Asian countries. This fact provides an opportunity for continued growth in the market. India has the lowest Penetration of two wheelers as compared to countries like Taiwan, Thailand, Malaysia, Vietnam, Indonesia and China. In the present scenario, growth in the two wheeler Industry will be driven by several factors: Rise in Indias Young Working Population With the rising levels of per capita income of people, the Indian two wheeler market offers a huge potential for Growth. This growth is relevant in the light of the fact that 70 per cent of Indias population is below the age of 35 Years and 150 million people will be added to the working Population in the next five years. The number of women in the urban work force is also increasing; this will lead to the Growth of gearless scooters. Rise of Indias Rural Economy and Growth in Middle Income Households The growth prospects of the Indian rural economy offer a significant opportunity for the motorcycle industry in India. The penetration of motorcycles amongst rural households with income levels greater than US$ 2,200 per annum has already increased to over 50 per cent. The current target Segment for two wheelers, i.e., households belonging to the Income category of US$ 2,20012,000 is expected to grow at a CAGR of 10 per cent.

Greater Affordability of Vehicles The growth in two-wheeler sales in India has been driven by an increase in affordability of these vehicles. An analysis of the price trends indicates that prices have more or less stagnated in the past. This has been part of the marketing strategy adopted by the

manufacturers to gain volume, as well as conscious efforts adopted to bring down costs. The operating expenses of leading manufacturers have declined by around 15 per cent in the last five years. With greater avenues of financing, the customers capacity to own a two wheeler has improved. Rapid Product Introduction and Shorter Product Life Cycle The last five years have witnessed a sharp increase in new product launches in the twowheeler industry. It is estimated that close to 50 new products have been launched by manufacturers during this period, filling up all price points and targeted at various consumer segments. Inadequate Public Transport Systems in most Urban Areas The economic boom witnessed in the country and the increased migration to urban areas have increased the traffic congestion in Indian cities and worsened the existing infrastructure bottlenecks. Inadequate urban planning has meant that transport systems have not kept pace with the economic boom and the growing urban population. This has increased the dependence on personal modes of transport and the two wheelers market has benefited from this infrastructure gap.

Challenges faced by the industry Despite the high growth achieved in the past and the high potential in the future, the twowheelers market faces some challenges.

Rising Customer Expectations The growth witnessed by the Indian two wheeler industry has attracted a number of new entrants to the market and it is expected that the Indian industry will become more competitive in the future. The plethora of products introduced in the past has also raised customer expectations with respect to reliability, styling, performance and economy. Environmental and Safety Concerns The increasing demand for two wheelers will need to be managed to address issues relating to overcrowding of roads. Another problem is the insufficient infrastructure for inspection to

ensure adherence to emission norms. As the industry grows, it is important to regulate the sale of used two wheelers in a more organised manner for which a mechanism needs to be evolved. Unregulated sale of two wheelers, especially in the rural areas, are likely to create issues related to emissions and safety of vehicles.