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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (3678)	2/7/1999 10:52:00 PM
From: Mohan Marette	Respond to of 12475

<Market Segment Watch> Two Wheeler industry.Hero Honda,TVS Suzuki,Bajaj etc. Gearing up for action The two-wheeler industry is expected to grow by 15-18 per cent next year. Sameer Chavan takes a look at the potential winners The two-wheeler industry is one the most consolidated industries in the country. The industry largely revolves around five players. With almost all the major international players present, the industry is also quite settled. For four years until 1997-98, the industry had registered an appreciable growth rate with growth tapering down to just 2.71 per cent in 1997-98. But in the nine months ended December 1998, the industry has picked up again and grown at around 10 per cent. Looking forward, the industry is expected to grow at around 15-18 per cent in 1999-2000. The motorcycle segment is expected to grow the fastest at around 25 per cent followed by scooters at 6-8 per cent and mopeds will grow 5-7 per cent. The growth in the past has meant that most players have also been performing well over the past few years. As such, the projected growth rates suggest that the good performance should continue in the future. Various factors are expected to have worked out for the industry which will continue to provide growth. To begin with higher disposable income due to tax cuts and pay commission recommendations buoyed demand in the past and will continue to help the industry. Similarly, a higher agricultural output will boost rural demand. The availability of cheap financing is also expected to help sales. But the benefits may not be spread across all the players. The internal dynamics of the industry have shifted in the recent past which may see some players gain and the others lose. Some of the factors that could have a bearing on the performance is the increasing shift from scooters to motorcycles and the year 2000 emission norms. Almost all players have increased capacities and launched a host of new products. As such a lot will also depend on the success of the new products. A look at what has been going on at the players and how they stack up for the future...... Pick of the Litter. Hero Honda The prime pick in the industry is Hero Honda. The company has an exceptional growth record over the years which has continued in the third quarter of the current year. The company is expected to have the highest earnings growth rate in the industry in future. In the third quarter ended December 1998, it has notched up an 83 per cent growth in net profit to Rs 33.76 crore (Rs 10 crore = Rs 100 million) compared to Rs 18.61 crore during the same period last year. Its sales also rose 36 per cent to Rs 404.68 crore compared to Rs 299.05 crore. In the nine month period ended December 1998, the company sold 385,292 motorcycles as against 293,809 units it sold last year — rise of 31 per cent. In December 1998, Hero Honda recorded sales of 50,415 units which is the highest monthly sales achieved by any single Honda venture in the world. Hero Honda has largely benefited due to the capacities it has been adding which have helped it cash in on strong growth in the two-wheeler industry. The company increased its capacity from 300,000 units per annum in 1996-97 to 475,000 per annum in 1997-98 due to its new plant at Gurgaon. The new plant has also resulted in internal cost efficiencies and as a result an improvement in margins. The worker productivity at this plant is twice that its old plant. The company now plans to launch a new 150 cc model targeted at the upper end of the market early this year and at least two new models every year from 2000. However, one cause for concern is that Hero Honda largely operates in one segment of the two-wheeler industry — motorcycles. In the long term, all two-wheeler companies will need to have a presence in every segment to be competitive. But for the moment, Hero Honda with its strong brand image is expected to cash in on the growing demand for two-wheelers. Especially on the back of its strong rural base. Taher Badshah, senior analyst, Inquire, says, "Hero Honda should grow 23 per cent in volumes terms during FY 2000 against an industry growth of 17-18 per cent. The earnings growth in future would come on account of significant expansion in OPM due to the new plant which would operate well beyond break-even." The scrip is currently traded at Rs 616. Certainly a vehicle to ride the two-wheeler boom. ..... business-standard.com