The Munjal family-promoted Hero group is likely to purchase the entire stake of Honda Motor Co in their joint venture Hero Honda Motors Ltd through a special purpose vehicle incorporated in Singapore.
The group is also in talks with three international funds to offload a part of its stake in the special purpose vehicle, a source said.
According to the plan, the Munjals will buy the complete 26% stake owned by Tokyo-based Honda Motor for $1.2 billion, a discount to the current market value of $2 billion, and park it in the family-owned Singapore SPV.
“In order to raise money for the deal, they would offload
49% stake in the SPV to the three global funds,” the source said.
The three funds would be offered the 49% stake for around $600 million, which would constitute half the value of the Honda stake. The rest would be infused by the Munjals by way of debt or other routes.
The source said Hero Honda might make an announcement about the deal as early as end of September.
An analyst with a leading international brokerage firm said at $1.2 billion, a 26% stake is at much discount and brings the valuation of Hero Honda at around Rs22,000 crore, down from Rs35,000 crore.
“A discount to the Honda stake is reasonable as once Honda walks away, the Hero group will have no technology. Also, because the company doesn’t do its own R&D, the value of the company automatically comes down,” he said.
There is no clarity so far as to where the company will source technology from beyond 2014, when its technology sharing contract with Honda expires.
But this won’t quite leave Hero Honda impaired, the analyst said. “India is not a technology-driven market, instead it is a price-driven market and with an entire gamut of products that Hero Honda has currently and a strong domestic demand, it is not going to be a tough road ahead for the company.”
Also, Hero Honda can use time till 2014 to develop its own R&D or purchase it from other companies, the analyst said.
In a recently released report on the domestic two-wheeler industry, CARE Research estimates domestic two-wheeler demand to maintain the strong growth momentum this fiscal, registering a growth of 19.4%. The industry has witnessed 27% year-on-year growth in domestic sales during April-August 2010 period.
The growth will be spearheaded mainly by Hero Honda, which has witnessed a healthy growth of 24% so far this year, analysts said.
NEW BIKES ON THE WAY FROM MAHINDRA 2 WHEELERS
Company planning an aggressive marketing campaign to go with its new offerings
Mahindra 2 wheelers has had our attention on a number of occasions in the recent past - first after it acquired Kinetic Engineering and then bought out Italian design firm Engines Engineering. After warming the market up with its scooters though, the company is on the verge of tapping into the pulse of commuters and enthusiasts alike with its new offerings, which should be on their way by the end of September.
Two new motorcycles are on the anvil for the bike maker - one of them is expected to be a commuter motorcycle in the 100-125cc band for volume sales. The other is expected to be a more exuberant and performance oriented bike which could lie in the 250-300cc band.
The new firm is not stopping at the launches. It has also announced a new endeavor to reach out to the biking community across the country by launching its ‘India’s Best Job’ campaign, in which 20 motorcyclists will be selected from around the country to ride for six weeks into different parts of the country on an all-expense paid ride. Apart from getting a stipend for the duration of their journey, riders will also get to take home their Mahindra steeds when the ride ends.
This marks one of the most aggressive marketing campaigns in recent times for the Indian motorcycle industry. It sure looks like Mahindra wishes to leave no stone unturned when it comes to its first bikes in the market. Stay logged on to www.zigwheels.com to get news on the bikes as it breaks!
Mahindra 2 wheelers has had our attention on a number of occasions in the recent past - first after it acquired Kinetic Engineering and then bought out Italian design firm Engines Engineering. After warming the market up with its scooters though, the company is on the verge of tapping into the pulse of commuters and enthusiasts alike with its new offerings, which should be on their way by the end of September.
Two new motorcycles are on the anvil for the bike maker - one of them is expected to be a commuter motorcycle in the 100-125cc band for volume sales. The other is expected to be a more exuberant and performance oriented bike which could lie in the 250-300cc band.
The new firm is not stopping at the launches. It has also announced a new endeavor to reach out to the biking community across the country by launching its ‘India’s Best Job’ campaign, in which 20 motorcyclists will be selected from around the country to ride for six weeks into different parts of the country on an all-expense paid ride. Apart from getting a stipend for the duration of their journey, riders will also get to take home their Mahindra steeds when the ride ends.
This marks one of the most aggressive marketing campaigns in recent times for the Indian motorcycle industry. It sure looks like Mahindra wishes to leave no stone unturned when it comes to its first bikes in the market. Stay logged on to www.zigwheels.com to get news on the bikes as it breaks!
Home, auto loans to pinch
Come October, consumers will pay more on home and auto loans as bankers are expected to up lending by anywhere between 25 and 50 basis points. One basis point is equal to one hundredth of a percentage. This follows the Reserve Bank of India’s (RBI) move on Tuesday to hike its key policy rates — repo rate (the rate at which it lends to commercial banks) by 25 basis points (bps) to 6% and reverse repo rate (the rate at which banks park excess cash with RBI) by 50 bps to 5%. Banks are also expected to increase deposit rates since the growth rate of deposits has been rather sluggish at just about 14%.
“RBI move clearly signals an upward bias on interest rates. We will decide on a possible revision in rates in our asset and liability committee (ALCO) meeting,'' said SS Ranjan, chief financial officer, State Bank of India, adding, “The quantum of the rate hike will depend on how the cost of funds and demand for credit pans out.''
MV Nair, chairman and managing director, Union Bank of India, said, “We expect credit demand to pick up in October as the busy season kicks in and there will be pressure on liquidity which will lead to rise in interest rates. We will review our base rate and benchmark prime lending rate in October.''
Dipak Gupta, executive director, Kotak Mahindra Bank, added, “Interest rates will move up and we may increase our interest rates both deposits and lending to 25 basis points.''
Ashish Parthasarthy, head (treasury), HDFC Bank, said, “There is every possibility that base rate will be revised to the extent of 25-50 basis points.'' There would be another round of deposit rate hikes of 25 basis points across the board but not immediately.”
However, Keki Mistry, vice-chairman & CEO, HDFC, does not see any significant impact on long term rates following the 25 bps increase in rates. “Immediately there will be no increase in rates as the market had factored in a 25 basis point hike in repo rate. I expect RBI to now take a pause as inflation is easing,'' said Mistry.
The housing finance company — which has been facing stiff competition from public sector banks like State Bank of India —has introduced a dual rate home loan product. The scheme bears a fixed interest rate of 8.50% per annum up to March
“RBI move clearly signals an upward bias on interest rates. We will decide on a possible revision in rates in our asset and liability committee (ALCO) meeting,'' said SS Ranjan, chief financial officer, State Bank of India, adding, “The quantum of the rate hike will depend on how the cost of funds and demand for credit pans out.''
MV Nair, chairman and managing director, Union Bank of India, said, “We expect credit demand to pick up in October as the busy season kicks in and there will be pressure on liquidity which will lead to rise in interest rates. We will review our base rate and benchmark prime lending rate in October.''
Dipak Gupta, executive director, Kotak Mahindra Bank, added, “Interest rates will move up and we may increase our interest rates both deposits and lending to 25 basis points.''
Ashish Parthasarthy, head (treasury), HDFC Bank, said, “There is every possibility that base rate will be revised to the extent of 25-50 basis points.'' There would be another round of deposit rate hikes of 25 basis points across the board but not immediately.”
However, Keki Mistry, vice-chairman & CEO, HDFC, does not see any significant impact on long term rates following the 25 bps increase in rates. “Immediately there will be no increase in rates as the market had factored in a 25 basis point hike in repo rate. I expect RBI to now take a pause as inflation is easing,'' said Mistry.
The housing finance company — which has been facing stiff competition from public sector banks like State Bank of India —has introduced a dual rate home loan product. The scheme bears a fixed interest rate of 8.50% per annum up to March
Fresh demand to spur two-wheeler growth
NEW DELHI: Automakers are scaling up production capacity to meet the demand spurt during the upcoming festival season with some companies being forced to assemble parts manually having failed to set up a conventional automatic production line in time.
Although vehicle makers face demand spurt during the October-November period that coincides with various religious festivals across the country every year, this season is specially challenging as automakers have already been struggling to meet consumer demand that has bucked industry projections.
The country’s largest carmaker Maruti Suzuki has put together a temporary production line, its first to be operated manually. “After exhausting all means to increase production, we have put up this temporary line at Gurgaon plant where cars are not being assembled on the conveyer belt, rather we use push-carts to move the assembly of cars to meet the festive demand,” said RC Bhargava, chairman, Maruti Suzuki.
The festive season demand sets in with the beginning of Navratras in October and stretches up to mid-November for Diwali. Sales increases as most customers consider buying metal products auspicious during this period.
Other vehicle makers are also ramping up their manufacturing capabilities. Toyota Kirloskar Motor has advanced expansion at its first plant that produces the Innova, Corolla and Fortuner vehicles. Earlier, the expansion was expected to begin in January 2011. “The expansion of the plant in October-November would gear up to take the production to 80,000 units per year that would help us tide over the current shortages and also meet the extra festive demand,” said Sundeep Singh deputy MD (marketing), Toyota Kirloskar Motor.
Auto companies usually start building inventories 2-3 months prior to the festive season, but consistent high demand in the past few months has wiped out planned inventories.
Domestic automobile sales have been on a record breaking spree this fiscal with the industry clocking 12.63 lakh units in August, the highest ever achieved in a month and a tad higher than the previous best of 12.37 lakh units clocked in July.
South Korean car maker Hyundai Motor India has shifted bulk of its production to domestic market from exports, while Volkswagen India has started a second shift at its Chakan plant a few days back.
Two-wheeler makers are also gearing up to meet the demand. Hero Honda, which is scouting for a location for its fourth plant, is planning to increase production from its Haridwar plant. “While we have maximised production at all our plant, the Haridwar plant would be tweaked to manufacture more during the festive season as we aim to clock 5-lakh retail sales next month,” a Hero Honda spokesman said.
It’s not just automakers who are burning the midnight oil to build up inventories. The component makers also trying to meet the demand pressures from automakers. “We would be working on all seven days a week. We have built up capacities, but the challenge is to ensure raw material supplies to meet a robust festive demand,” said Surinder Kapur, chairman of Delhi-based Sona Group.
Some component makers are outsourcing production to tier II and tier III suppliers to cope with the increasing demand. The Automotive Component Manufacturers Association of India (ACMA) said, that some of the capacity expansion in progress would come as a breather for manufacturers during the peak festive season. “As sales has been consistently high for past few months, we are not expecting much spike in festive demand. But the new capacities would help us tide over the temporary hike in demand,” said Srivats Ram, president of ACMA.
Although vehicle makers face demand spurt during the October-November period that coincides with various religious festivals across the country every year, this season is specially challenging as automakers have already been struggling to meet consumer demand that has bucked industry projections.
The country’s largest carmaker Maruti Suzuki has put together a temporary production line, its first to be operated manually. “After exhausting all means to increase production, we have put up this temporary line at Gurgaon plant where cars are not being assembled on the conveyer belt, rather we use push-carts to move the assembly of cars to meet the festive demand,” said RC Bhargava, chairman, Maruti Suzuki.
The festive season demand sets in with the beginning of Navratras in October and stretches up to mid-November for Diwali. Sales increases as most customers consider buying metal products auspicious during this period.
Other vehicle makers are also ramping up their manufacturing capabilities. Toyota Kirloskar Motor has advanced expansion at its first plant that produces the Innova, Corolla and Fortuner vehicles. Earlier, the expansion was expected to begin in January 2011. “The expansion of the plant in October-November would gear up to take the production to 80,000 units per year that would help us tide over the current shortages and also meet the extra festive demand,” said Sundeep Singh deputy MD (marketing), Toyota Kirloskar Motor.
Auto companies usually start building inventories 2-3 months prior to the festive season, but consistent high demand in the past few months has wiped out planned inventories.
Domestic automobile sales have been on a record breaking spree this fiscal with the industry clocking 12.63 lakh units in August, the highest ever achieved in a month and a tad higher than the previous best of 12.37 lakh units clocked in July.
South Korean car maker Hyundai Motor India has shifted bulk of its production to domestic market from exports, while Volkswagen India has started a second shift at its Chakan plant a few days back.
Two-wheeler makers are also gearing up to meet the demand. Hero Honda, which is scouting for a location for its fourth plant, is planning to increase production from its Haridwar plant. “While we have maximised production at all our plant, the Haridwar plant would be tweaked to manufacture more during the festive season as we aim to clock 5-lakh retail sales next month,” a Hero Honda spokesman said.
It’s not just automakers who are burning the midnight oil to build up inventories. The component makers also trying to meet the demand pressures from automakers. “We would be working on all seven days a week. We have built up capacities, but the challenge is to ensure raw material supplies to meet a robust festive demand,” said Surinder Kapur, chairman of Delhi-based Sona Group.
Some component makers are outsourcing production to tier II and tier III suppliers to cope with the increasing demand. The Automotive Component Manufacturers Association of India (ACMA) said, that some of the capacity expansion in progress would come as a breather for manufacturers during the peak festive season. “As sales has been consistently high for past few months, we are not expecting much spike in festive demand. But the new capacities would help us tide over the temporary hike in demand,” said Srivats Ram, president of ACMA.
Honda to keep Tech support for Hero even after JV exit
The Hero Group and Honda Motor of Japan have reached an understanding on how their separation would be scripted. As per the plan, Honda would divest its 26% stake in the joint venture firm Hero Honda and dissociate itself from brand Hero. Honda would, however, continue to provide technology support to the Indian firm even after 2014, when their extant pact comes up for review.
Honda Motors would exit the JV by divesting its stake either in favour of Hero Group or private equity players, sources in the know said.
This would mean that once the divorce is formalised, the Hero Group could still source technology from Honda but its motorcycles like Splendour and Passion among others would no longer sport the Honda brand. The Hero Group would continue to pay a royalty to Honda for the technology tie-up.
FE was the first to report in its edition dated August 3 that the two firms had run into differences ahead of the renewal of the technology agreement, which comes up in 2014.
Honda Motors would exit the JV by divesting its stake either in favour of Hero Group or private equity players, sources in the know said.
This would mean that once the divorce is formalised, the Hero Group could still source technology from Honda but its motorcycles like Splendour and Passion among others would no longer sport the Honda brand. The Hero Group would continue to pay a royalty to Honda for the technology tie-up.
FE was the first to report in its edition dated August 3 that the two firms had run into differences ahead of the renewal of the technology agreement, which comes up in 2014.
Yamaha flags off the SZ Tour
India Yamaha Motor reveals that the ‘Yamaha SZ Tour – Stay Ahead’ has already commenced and is slated to last for a duration of one month. The riders geared up to rule the road with Yamaha’s all new SZ as they set out to conquer 67 cities in 17 states strewn across the country.
The rally will extend across various states such as Uttar Pradesh, Delhi, Gujarat, Rajasthan, Maharashtra, Madhya Pradesh, Orissa, Goa, West Bengal, Chattisgarh, Tamil Nadu, Jharkhand, Andhra Pradesh and Karnataka. The bikers will traverse though these plains over a span of 30 days. There are two teams taking part in the rally, each comprising of ten members that flagged off from the nation’s capital Delhi.
The rally will extend across various states such as Uttar Pradesh, Delhi, Gujarat, Rajasthan, Maharashtra, Madhya Pradesh, Orissa, Goa, West Bengal, Chattisgarh, Tamil Nadu, Jharkhand, Andhra Pradesh and Karnataka. The bikers will traverse though these plains over a span of 30 days. There are two teams taking part in the rally, each comprising of ten members that flagged off from the nation’s capital Delhi.
India Yamaha Motor to revamp product portfolio
India Yamaha Motor (IYM) plans to revamp its product portfolio by 2013,said a senior company official.
"We would be introducing new bikes and also foray into the scooter segment, said IYM CEO and MD Yukimine Tsuji.We are aiming a 10% market share in domestic two-wheeler market,which we aim to achieve by an allnew combined portfolio of bikes and scooters in the coming years."The Indian subsidiary of the worlds second-largest twowheeler company has been looking for a turnaround after Japanese Mitsui & Co picked up a 30% stake for Rs 800 crore in 2008.Yamaha India has an installed capacity of 6-lakh units per year,and is looking at producing 3.8 lakh bikes this fiscal,with around 1.5 lakh targeted for exports.Yamaha is also customising scooters from its international portfolio for the Indian market."We are working on different segment of scooters for India,"Mr Tsuji said.
"We would be introducing new bikes and also foray into the scooter segment, said IYM CEO and MD Yukimine Tsuji.We are aiming a 10% market share in domestic two-wheeler market,which we aim to achieve by an allnew combined portfolio of bikes and scooters in the coming years."The Indian subsidiary of the worlds second-largest twowheeler company has been looking for a turnaround after Japanese Mitsui & Co picked up a 30% stake for Rs 800 crore in 2008.Yamaha India has an installed capacity of 6-lakh units per year,and is looking at producing 3.8 lakh bikes this fiscal,with around 1.5 lakh targeted for exports.Yamaha is also customising scooters from its international portfolio for the Indian market."We are working on different segment of scooters for India,"Mr Tsuji said.
Two Wheeler Industry to grow at 19.4% in FY11: CARE
A study conducted by Credit Analysis and Research Ltd’s (CARE) research division CARE Research reveals that two wheeler industry continue to cruse on a fast growth track on the back of stronger replacement demand. The industry is expected to grow at 19.4% in FY10-11. The longer term outlook is also expected to be healthy, with the domestic sales projected to grow in double-digits over the next five years.
CARE Research also expects Rs9bn to Rs10bn investment in the sector over next 2-3 years for capacity expansion as well as product development to meet rising demand. CARE Ratings, Managing Director and CEO D R Dogra believes “Around 1.6 Crore two-wheelers are aged above 10 years, as against the domestic sales of 93 lac in FY10. Thus, the demand for replacing old two-wheelers is a huge growth potential for the industry in coming years.”
CARE Research also expects Rs9bn to Rs10bn investment in the sector over next 2-3 years for capacity expansion as well as product development to meet rising demand. CARE Ratings, Managing Director and CEO D R Dogra believes “Around 1.6 Crore two-wheelers are aged above 10 years, as against the domestic sales of 93 lac in FY10. Thus, the demand for replacing old two-wheelers is a huge growth potential for the industry in coming years.”
No freebies for two-wheelers this festive season
With demand outstripping supply for most of the products, especially automatic scooters, most of the players have decided to avoid freebies this festive season. This comes on the back of buoyant two-wheeler sales in the first five months of the current fiscal. The festive season months, October and November, are the highest-selling months for automakers.
"There is no scope for discounting or price changes. The market has been buoyant and we have been struggling to meet the demand, leaving no scope for discount. Customers are willing to offer premium for prompt deliveries," said Atul Gupta, India vice-president (marketing & sales), Suzuki Motorcycle.
Hero Honda, which sells every second two-wheeler in the market, has stopped freebies, and will not undertake any promotional activity during Diwali, except for launching new products.
"We have not been giving any price-off and discounts for the past three years. We have decided to strategically invest in brand building, and have already kicked-off our festival initiatives with the launch of Super Splendor in August,” said Anil Dua, senior vice-president (marketing & sales), Hero Honda. “There will be a couple of more exciting launches in the run-up to the festivals. We have already started a slew of on-ground initiatives involving customers, dealers, schools and even rural areas and launch campaign around the Commonwealth Games to add fun and excitement to the festive season."
The second largest two-wheeler maker, Bajaj Auto, has also done away with discounting regime. It has even stopped rebates on financing options such as zero percent finance, which was its hallmark till few years back. "We are investing in brands. So there is no scope of discounting. We believe that our products are aptly priced and the customers are happy without any such discounting," said Milind Bade, head marketing, Bajaj Auto.
The two-wheeler market has been growing without any promotions. Till few years back, the companies had been offering free mobiles with talktime, iPods, gold coins, interest rebate on finances and extended warranties on products. Besides, major companies like Bajaj Auto and TVS Motors has been offering cash discounts of up to Rs 3,000 on bikes to lure customers to their showrooms. This had propelled sales during the festive seasons and Hero Honda had crossed its highest-ever retail sales of three lakh two-wheelers during the Diwali month of October in 2008.
"There is no scope for discounting or price changes. The market has been buoyant and we have been struggling to meet the demand, leaving no scope for discount. Customers are willing to offer premium for prompt deliveries," said Atul Gupta, India vice-president (marketing & sales), Suzuki Motorcycle.
Hero Honda, which sells every second two-wheeler in the market, has stopped freebies, and will not undertake any promotional activity during Diwali, except for launching new products.
"We have not been giving any price-off and discounts for the past three years. We have decided to strategically invest in brand building, and have already kicked-off our festival initiatives with the launch of Super Splendor in August,” said Anil Dua, senior vice-president (marketing & sales), Hero Honda. “There will be a couple of more exciting launches in the run-up to the festivals. We have already started a slew of on-ground initiatives involving customers, dealers, schools and even rural areas and launch campaign around the Commonwealth Games to add fun and excitement to the festive season."
The second largest two-wheeler maker, Bajaj Auto, has also done away with discounting regime. It has even stopped rebates on financing options such as zero percent finance, which was its hallmark till few years back. "We are investing in brands. So there is no scope of discounting. We believe that our products are aptly priced and the customers are happy without any such discounting," said Milind Bade, head marketing, Bajaj Auto.
The two-wheeler market has been growing without any promotions. Till few years back, the companies had been offering free mobiles with talktime, iPods, gold coins, interest rebate on finances and extended warranties on products. Besides, major companies like Bajaj Auto and TVS Motors has been offering cash discounts of up to Rs 3,000 on bikes to lure customers to their showrooms. This had propelled sales during the festive seasons and Hero Honda had crossed its highest-ever retail sales of three lakh two-wheelers during the Diwali month of October in 2008.
KKR, TPG, Carlyle, Bain in race to buy Honda's stake in India JV
KKR & Co, TPG Capital, Carlyle Group and Bain Capital are competing to acquire a part of Honda Motor's stake in Indian motorcycle venture Hero Honda Motors, according to five people with direct knowledge of the situation.
Two of the funds may jointly buy about 15%, valued at $1.1 billion, in Hero Honda, three of the people said, declining to be named before an official announcement. Another 5% may be sold to the Hero Group's Munjal family, which holds a 26.2% stake in the New Delhi-based company, two of the people said.
Japan's second-biggest carmaker and the Hero Group have been in talks on Tokyo-based Honda Motor's plans to reduce its 26% stake in the venture, maker of half the motorcycles sold in India, for over a year, said three of the people. The two partners are also in talks for an agreement providing technology from Honda for the motorcycle maker that extends beyond 2014, when the current accord expires, two of the people said. A new agreement would make it more likely for the buyout firms to purchase the stake, one of the people said.
Two of the funds may jointly buy about 15%, valued at $1.1 billion, in Hero Honda, three of the people said, declining to be named before an official announcement. Another 5% may be sold to the Hero Group's Munjal family, which holds a 26.2% stake in the New Delhi-based company, two of the people said.
Japan's second-biggest carmaker and the Hero Group have been in talks on Tokyo-based Honda Motor's plans to reduce its 26% stake in the venture, maker of half the motorcycles sold in India, for over a year, said three of the people. The two partners are also in talks for an agreement providing technology from Honda for the motorcycle maker that extends beyond 2014, when the current accord expires, two of the people said. A new agreement would make it more likely for the buyout firms to purchase the stake, one of the people said.
Honda to keep tech support for Hero even after JV exit
The Hero Group and Honda Motor of Japan have reached an understanding on how their separation would be scripted. As per the plan, Honda would divest its 26% stake in the joint venture firm Hero Honda and dissociate itself from brand Hero. Honda would, however, continue to provide technology support to the Indian firm even after 2014, when their extant pact comes up for review.
Honda Motors would exit the JV by divesting its stake either in favour of Hero Group or private equity players, sources in the know said.
This would mean that once the divorce is formalised, the Hero Group could still source technology from Honda but its motorcycles like Splendour and Passion among others would no longer sport the Honda brand. The Hero Group would continue to pay a royalty to Honda for the technology tie-up.
According to an industry source, “The understanding reached between the two companies is that the technological agreement, which is the bedrock of their relations, would continue beyond 2014, however Honda would dissociate itself from brand Hero”.
“Honda wants to concentrate on its own brand building. The extension of the technology agreement is prompted by the guarantee of healthy royalty payout by the Hero Group,” the source added.
When contacted, a Hero Group spokesperson declined to comment.
FE was the first to report in its edition dated August 3 that the two firms had run into differences ahead of the renewal of the technology agreement, which comes up in 2014.
Honda Motor had reportedly laid a condition that for renewing the contract, Hero Honda would have to step up sourcing from Honda Motor India, a wholly owned subsidiary of the Japanese automaker. This was not acceptable to the Munjals, the promoters of the Hero Group. However, the latter were agreeable to increased engine sharing and platform sharing (as part of other synergies) with Honda Motorcycles and Scooters India (HMSI), a wholly-owned subsidiary of Honda.
“It would be very challenging for the Hero Group to establish a strong brand without Honda. In a competitive market it could take time to restore consumer confidence in the brand,” an auto analyst said.
The survival of the Hero Honda JV has been a subject of speculation since 2001 when Honda set up its 100% subsidiary, HMSI in India to produce scooters. Later in 2004 the company entered the motorcycle segment. Subsequently HMSI offered many products like the Honda Unicorn bike which competed against Hero Honda models. The technology agreement, which is reviewed every 10 years, however got renewed in 2004.
Though still largely a small player in the market, HMSI has been steadily growing year-on-year over the last nine years. Hero Honda on its part has 59% of the motorcycle market. In August the company sold more than 4 lakh units.
Honda Motors would exit the JV by divesting its stake either in favour of Hero Group or private equity players, sources in the know said.
This would mean that once the divorce is formalised, the Hero Group could still source technology from Honda but its motorcycles like Splendour and Passion among others would no longer sport the Honda brand. The Hero Group would continue to pay a royalty to Honda for the technology tie-up.
According to an industry source, “The understanding reached between the two companies is that the technological agreement, which is the bedrock of their relations, would continue beyond 2014, however Honda would dissociate itself from brand Hero”.
“Honda wants to concentrate on its own brand building. The extension of the technology agreement is prompted by the guarantee of healthy royalty payout by the Hero Group,” the source added.
When contacted, a Hero Group spokesperson declined to comment.
FE was the first to report in its edition dated August 3 that the two firms had run into differences ahead of the renewal of the technology agreement, which comes up in 2014.
Honda Motor had reportedly laid a condition that for renewing the contract, Hero Honda would have to step up sourcing from Honda Motor India, a wholly owned subsidiary of the Japanese automaker. This was not acceptable to the Munjals, the promoters of the Hero Group. However, the latter were agreeable to increased engine sharing and platform sharing (as part of other synergies) with Honda Motorcycles and Scooters India (HMSI), a wholly-owned subsidiary of Honda.
“It would be very challenging for the Hero Group to establish a strong brand without Honda. In a competitive market it could take time to restore consumer confidence in the brand,” an auto analyst said.
The survival of the Hero Honda JV has been a subject of speculation since 2001 when Honda set up its 100% subsidiary, HMSI in India to produce scooters. Later in 2004 the company entered the motorcycle segment. Subsequently HMSI offered many products like the Honda Unicorn bike which competed against Hero Honda models. The technology agreement, which is reviewed every 10 years, however got renewed in 2004.
Though still largely a small player in the market, HMSI has been steadily growing year-on-year over the last nine years. Hero Honda on its part has 59% of the motorcycle market. In August the company sold more than 4 lakh units.
Bajaj Finserv hikes stake in Bajaj Auto to 54.79%
As per the bulk deal data available with the National Stock Exchange, Bajaj Finserv yesterday bought 16,01,900 shares, representing 4.37 per cent stake, of Bajaj Auto Finance at a price of Rs 695 per piece.
After the latest deal, Bajaj Finserv now holds 54.79 per cent stake in Bajaj Auto Finance. Bajaj Finserv is engaged in life and general insurance and consumer finance businesses.
Bajaj Auto Finance has recently got shareholders approval for change in name of the company from Bajaj Auto Finance Ltd to Bajaj Finance Ltd.
Bajaj Auto Finance, a non-banking finance company, offers various consumer finance products to the customers such as auto loans, personal loans, loans for consumer durables and computers and SME finance.
Shares of Bajaj Auto Finance were quoting at Rs 741.40, up 0.30 per cent, on the NSE at noon, while Bajaj Finserv was trading at Rs 515, higher by 0.63 per cent.
After the latest deal, Bajaj Finserv now holds 54.79 per cent stake in Bajaj Auto Finance. Bajaj Finserv is engaged in life and general insurance and consumer finance businesses.
Bajaj Auto Finance has recently got shareholders approval for change in name of the company from Bajaj Auto Finance Ltd to Bajaj Finance Ltd.
Bajaj Auto Finance, a non-banking finance company, offers various consumer finance products to the customers such as auto loans, personal loans, loans for consumer durables and computers and SME finance.
Shares of Bajaj Auto Finance were quoting at Rs 741.40, up 0.30 per cent, on the NSE at noon, while Bajaj Finserv was trading at Rs 515, higher by 0.63 per cent.
Auto sales won’t brake even if rates rise
Automobile sales may hit a minor speed-breaker at the most if Reserve Bank of India ups policy rates later this month to rein in inflation, most industry officials said. A policy rate hike of 25 basis points--widely expected to be the centrepiece of RBI’s mid-quarter policy review on September 16 — would prompt some banks to hike car loan rates.
Most automobile makers are not worried if rates increase a bit. A small hike in rates may be absorbed by buyers, said C Ramakrishnan, chief financial officer of Tata Motors, India’s largest commercial vehicle maker by sales. His optimism is shared by others. “Even if banks increase their interest rates in the months ahead, sales growth is unlikely to be affected,” according to HS Goindi, president marketing, TVS Motor.
This financial year, automobile sales in India have been surging, as robust economic growth has helped maintain demand. Previous year’s low sales have also helped the growth look high. In July, 1.24 million vehicles were sold, 32% higher from a year ago. “Right now, the economy has started to pick up and demand is buoyant for the automobile sector,” said Vaishali Jajoo, analyst, Angel Broking. She too doesn’t see demand falling sharply after a rate hike this month. “It seems there won’t be any big impact if there is a rate hike of around 25 basis points,” she said. In April-June, the first quarter of this fiscal year, Indian economy grew 8.8% compared with 6.02% a year earlier. The higher growth was driven by robust manufacturing and services output.
Most automobile makers are not worried if rates increase a bit. A small hike in rates may be absorbed by buyers, said C Ramakrishnan, chief financial officer of Tata Motors, India’s largest commercial vehicle maker by sales. His optimism is shared by others. “Even if banks increase their interest rates in the months ahead, sales growth is unlikely to be affected,” according to HS Goindi, president marketing, TVS Motor.
This financial year, automobile sales in India have been surging, as robust economic growth has helped maintain demand. Previous year’s low sales have also helped the growth look high. In July, 1.24 million vehicles were sold, 32% higher from a year ago. “Right now, the economy has started to pick up and demand is buoyant for the automobile sector,” said Vaishali Jajoo, analyst, Angel Broking. She too doesn’t see demand falling sharply after a rate hike this month. “It seems there won’t be any big impact if there is a rate hike of around 25 basis points,” she said. In April-June, the first quarter of this fiscal year, Indian economy grew 8.8% compared with 6.02% a year earlier. The higher growth was driven by robust manufacturing and services output.
Localization will play a bigger role in the future of the auto Industry
Dieter Becker, member of the executive committee and advisory managing partner at KPMG AG, Zurich, speaks in an interview about the challenges and opportunities thrown up by the restructuring of the auto industry. Becker was in New Delhi last month for the 50th annual convention of the Society of Indian Automobile Manufacturers (Siam). Edited excerpts:
What are the potential challenges for global auto makers setting up operations in India and Indian auto makers going global?
For auto makers coming into India...it’s really about: do you need a partnership or you don’t, is it a long-term investment or a short-term investment, and the issues relating to the technology transfer. Do you want the local unit to absorb technology or are you merely looking at India as a low-cost base?
For the Indian players, they need to see what kind of role do they see (themselves) playing in the western European markets in comparison to the Chinese market.
The biggest challenge is, communicate to the people that you are really interested in long-term relationships so that you are able to build in productivity into your workforce. You just don’t replace the workers but you really have workers working on the technology for a long time.
Another challenge is to ensure that investment in the local market and investment in creating infrastructure by the government really takes place. Another challenge which is applicable for everyone in the automotive sector in India is the question: Which part of the value chain you are going to take over?
What are the lessons that the global auto industry can learn from Toyota Motor Corp., which faced several quality issues in the recent past?
Some day or the other, you will be in a situation when you have to increase labour costs. In that case you have two opportunities: Just retrench the workforce, which is the Chinese model, or what I would go for, at the same time do a lot of productivity improvement and keep the workforce trained. The latter seems to be a more sustainable investment. That’s the lesson to be learnt from the Western hemisphere, where even as labour costs have risen dramatically over the years, productivity has never been compromised...
Do you think the increasing number of product recalls is a fallout of globalization in the automotive industry?
Definitely, that’s especially true of sourcing components. In the past, people believed it’s best to source globally. I do believe localization and sourcing locally will play a bigger role in the future because people are now looking at labour costs. The logistical costs are going to be the second biggest influencing factor.
Hence it will be more in the direction of building a local supplier base. Global sourcing doesn’t mean there is no localization.
The supplier also has its network and globalization also happens for him.
Which are the key auto markets set to witness maximum consolidation in the next five years?
Consolidation is under way in China. In the next four years, you will see the number of OEMs (original equipment manufacturers) and suppliers reduce operations in that country as there are too many players.
As long as we have such growing markets, you will see increasing number of players in emerging countries. India has gone through liberalization, and I don’t see the consolidation trend here. However, with foreign companies getting into alliances with Indian companies—Nissan and Ashok Leyland, for instance—consolidation will happen automatically. It will depend on which part of the group companies are buying into. There will be more consolidation in Western markets, as there is over-capacity
What are the potential challenges for global auto makers setting up operations in India and Indian auto makers going global?
For auto makers coming into India...it’s really about: do you need a partnership or you don’t, is it a long-term investment or a short-term investment, and the issues relating to the technology transfer. Do you want the local unit to absorb technology or are you merely looking at India as a low-cost base?
For the Indian players, they need to see what kind of role do they see (themselves) playing in the western European markets in comparison to the Chinese market.
The biggest challenge is, communicate to the people that you are really interested in long-term relationships so that you are able to build in productivity into your workforce. You just don’t replace the workers but you really have workers working on the technology for a long time.
Another challenge is to ensure that investment in the local market and investment in creating infrastructure by the government really takes place. Another challenge which is applicable for everyone in the automotive sector in India is the question: Which part of the value chain you are going to take over?
What are the lessons that the global auto industry can learn from Toyota Motor Corp., which faced several quality issues in the recent past?
Some day or the other, you will be in a situation when you have to increase labour costs. In that case you have two opportunities: Just retrench the workforce, which is the Chinese model, or what I would go for, at the same time do a lot of productivity improvement and keep the workforce trained. The latter seems to be a more sustainable investment. That’s the lesson to be learnt from the Western hemisphere, where even as labour costs have risen dramatically over the years, productivity has never been compromised...
Do you think the increasing number of product recalls is a fallout of globalization in the automotive industry?
Definitely, that’s especially true of sourcing components. In the past, people believed it’s best to source globally. I do believe localization and sourcing locally will play a bigger role in the future because people are now looking at labour costs. The logistical costs are going to be the second biggest influencing factor.
Hence it will be more in the direction of building a local supplier base. Global sourcing doesn’t mean there is no localization.
The supplier also has its network and globalization also happens for him.
Which are the key auto markets set to witness maximum consolidation in the next five years?
Consolidation is under way in China. In the next four years, you will see the number of OEMs (original equipment manufacturers) and suppliers reduce operations in that country as there are too many players.
As long as we have such growing markets, you will see increasing number of players in emerging countries. India has gone through liberalization, and I don’t see the consolidation trend here. However, with foreign companies getting into alliances with Indian companies—Nissan and Ashok Leyland, for instance—consolidation will happen automatically. It will depend on which part of the group companies are buying into. There will be more consolidation in Western markets, as there is over-capacity
Localization will play a bigger role in the future of the auto Industry
Dieter Becker, member of the executive committee and advisory managing partner at KPMG AG, Zurich, speaks in an interview about the challenges and opportunities thrown up by the restructuring of the auto industry. Becker was in New Delhi last month for the 50th annual convention of the Society of Indian Automobile Manufacturers (Siam). Edited excerpts:
What are the potential challenges for global auto makers setting up operations in India and Indian auto makers going global?
For auto makers coming into India...it’s really about: do you need a partnership or you don’t, is it a long-term investment or a short-term investment, and the issues relating to the technology transfer. Do you want the local unit to absorb technology or are you merely looking at India as a low-cost base?
For the Indian players, they need to see what kind of role do they see (themselves) playing in the western European markets in comparison to the Chinese market.
The biggest challenge is, communicate to the people that you are really interested in long-term relationships so that you are able to build in productivity into your workforce. You just don’t replace the workers but you really have workers working on the technology for a long time.
Another challenge is to ensure that investment in the local market and investment in creating infrastructure by the government really takes place. Another challenge which is applicable for everyone in the automotive sector in India is the question: Which part of the value chain you are going to take over?
What are the lessons that the global auto industry can learn from Toyota Motor Corp., which faced several quality issues in the recent past?
Some day or the other, you will be in a situation when you have to increase labour costs. In that case you have two opportunities: Just retrench the workforce, which is the Chinese model, or what I would go for, at the same time do a lot of productivity improvement and keep the workforce trained. The latter seems to be a more sustainable investment. That’s the lesson to be learnt from the Western hemisphere, where even as labour costs have risen dramatically over the years, productivity has never been compromised...
Do you think the increasing number of product recalls is a fallout of globalization in the automotive industry?
Definitely, that’s especially true of sourcing components. In the past, people believed it’s best to source globally. I do believe localization and sourcing locally will play a bigger role in the future because people are now looking at labour costs. The logistical costs are going to be the second biggest influencing factor.
Hence it will be more in the direction of building a local supplier base. Global sourcing doesn’t mean there is no localization.
The supplier also has its network and globalization also happens for him.
Which are the key auto markets set to witness maximum consolidation in the next five years?
Consolidation is under way in China. In the next four years, you will see the number of OEMs (original equipment manufacturers) and suppliers reduce operations in that country as there are too many players.
As long as we have such growing markets, you will see increasing number of players in emerging countries. India has gone through liberalization, and I don’t see the consolidation trend here. However, with foreign companies getting into alliances with Indian companies—Nissan and Ashok Leyland, for instance—consolidation will happen automatically. It will depend on which part of the group companies are buying into. There will be more consolidation in Western markets, as there is over-capacity
What are the potential challenges for global auto makers setting up operations in India and Indian auto makers going global?
For auto makers coming into India...it’s really about: do you need a partnership or you don’t, is it a long-term investment or a short-term investment, and the issues relating to the technology transfer. Do you want the local unit to absorb technology or are you merely looking at India as a low-cost base?
For the Indian players, they need to see what kind of role do they see (themselves) playing in the western European markets in comparison to the Chinese market.
The biggest challenge is, communicate to the people that you are really interested in long-term relationships so that you are able to build in productivity into your workforce. You just don’t replace the workers but you really have workers working on the technology for a long time.
Another challenge is to ensure that investment in the local market and investment in creating infrastructure by the government really takes place. Another challenge which is applicable for everyone in the automotive sector in India is the question: Which part of the value chain you are going to take over?
What are the lessons that the global auto industry can learn from Toyota Motor Corp., which faced several quality issues in the recent past?
Some day or the other, you will be in a situation when you have to increase labour costs. In that case you have two opportunities: Just retrench the workforce, which is the Chinese model, or what I would go for, at the same time do a lot of productivity improvement and keep the workforce trained. The latter seems to be a more sustainable investment. That’s the lesson to be learnt from the Western hemisphere, where even as labour costs have risen dramatically over the years, productivity has never been compromised...
Do you think the increasing number of product recalls is a fallout of globalization in the automotive industry?
Definitely, that’s especially true of sourcing components. In the past, people believed it’s best to source globally. I do believe localization and sourcing locally will play a bigger role in the future because people are now looking at labour costs. The logistical costs are going to be the second biggest influencing factor.
Hence it will be more in the direction of building a local supplier base. Global sourcing doesn’t mean there is no localization.
The supplier also has its network and globalization also happens for him.
Which are the key auto markets set to witness maximum consolidation in the next five years?
Consolidation is under way in China. In the next four years, you will see the number of OEMs (original equipment manufacturers) and suppliers reduce operations in that country as there are too many players.
As long as we have such growing markets, you will see increasing number of players in emerging countries. India has gone through liberalization, and I don’t see the consolidation trend here. However, with foreign companies getting into alliances with Indian companies—Nissan and Ashok Leyland, for instance—consolidation will happen automatically. It will depend on which part of the group companies are buying into. There will be more consolidation in Western markets, as there is over-capacity
Pune shifts to top gear as automobile hub
The metamorphosis of Pune city over recent decades from a verdant, easy-paced abode of choice for retirees to a bustling metropolis has been complete and today, although it is a major information technology hub, the automotive sector occupies pride of place as the prime mover behind the rapid development of Pune and surrounding areas.
Detroit of India
The proliferation of automobile manufacturing units and component suppliers that populate the landscape of outer Pune, particularly Pimpri-Chinchwad, Chakan and Talegaon areas have increasingly earned it the sobriquet of being the ‘Detroit of India' and it continues to elicit interest and attract investments despite challenges from the newer auto hubs dotting outer Chennai and Gurgaon near Delhi.
The entry of the heavyweights of Indian automobile industry — Tata Motors and Bajaj Auto — in the 1960s resulted in and subsequently escalated the mushrooming of allied industries that catered to the outsourcing requirements of these principals. While the first original equipment manufacturer (OEM) was Mercedes-Benz in the 1990s through a joint venture with the Tatas and later on its own, others followed suit but only in trickles.
However, in this millennium, global heavyweights like General Motors, Fiat, Volkswagen and more recently India's largest utility vehicle maker Mahindra & Mahindra (M&M) have committed large investments in this region and their entry seems to have opened the floodgates for auto investments here.
The global financial meltdown only underscored the importance of cost control and cost-effectiveness for auto manufacturers and further re-affirmed their decision to move to cheaper manufacturing locations available in India, particularly as quality was not going to be compromised.
Today, the Pune automobile landscape includes the ‘who's who' of Indian and increasingly international automobile majors.
Tata Motors is the largest followed by Bajaj Auto, Force Motors, Mahindra Two-Wheelers, Mercedes-Benz, GM, JCB construction equipment, Volkswagen, M&M, Premier Motors and Fiat.
Inflow of investment
Speaking to The Hindu, Anant Sardeshmukh, Executive Director General, Mahratta Chamber of Commerce, Industry & Agriculture (MCCIA), a nodal body for investment in the region, said there was a surge in the period between 2006 and 2008 when around Rs.12,000 crore was spent on projects in the region.
“However,” he said, “the period between 2008 and 2013 will see the inflow of around Rs.40,000 crore in terms of investment in this sector.
“Simultaneously, there is substantial investment proposed from auto ancillary and component manufacturers and over the same period an investment of around Rs.10,000 crore is proposed by them,” Mr. Sardeshmukh said.
The new projects include the Fiat-Tata joint venture at Ranjangaon with a proposed investment of Rs.4,000 crore, GM's Rs.1,400-crore investment with a further Rs.900-crore expansion, Volkswagen's project of Rs.3,800 crore, Mercedes' Rs.250 crore investment and Mahindra & Mahindra planning a huge Rs.5,0000-crore investment by 2012. Bajaj Auto proposes Rs.300-crore investment in two-three wheelers and a further Rs.1,000-crore investment in the car plant.
Among large auto suppliers are Cummins Engines which set up shop in the 1960s with Kirloskar and later alone, Kirloskar Oil Engines and Bridgestone's new Chakan plant for tyres with an investment of Rs.2,600 crore.
Commitment by MNCs
In the last 18 months, large multinational auto component suppliers like ZF Group of Germany have committed around Rs.50 crore, Prembo of Italy is setting up a Rs.100-crore disc brakes facility and Norma of Germany plans to invest euro 3 million (about Rs.18 crore).
Pune's USP
In addition to the auto OEMs (original equipment manufacturers), Pune has a range of Tier-1, Tier-2 and infrastructure suppliers, including Bharat Forge, among the top forging companies in the world and Sandvik's large cutting tools facility.
Arun Firodia, Chairman, Kinetic Group, said the easy availability of skilled manpower is the prime reason for the rapid development of the auto sector in Pune.
Skilled manpower
“At present, one lakh engineers are working in and around Pune, a figure probably unmatched anywhere in the world. Maharashtra Industrial Development Corporation (MIDC) has created mega industrial estates at Pimpri-Chinchwad, Chakan and Talegaon on a scale that too is unmatched. These have fostered the growth of automobile companies. As automobile companies grow, it is but natural that auto component industry flourishes in Pune.” Concurring with this view, Mr. Sardeshmukh said, “This region has a steady supply of trained technical manpower with more than 1,000 technical and engineering institutions dotting the landscape. There is a steady availability of a 3-lakh-strong qualified manpower here.”
Mr. Sardeshmukh said the development of Pune's unique selling proposition (USP) is not far to seek if one looks at the history of this region's industry.
“The seeds were sown in the 1960s when Bajaj and the Tatas invested heavily in their facilities in the region and this fostered the mushrooming of first generation technocrat promoted units to cater to the needs of these facilities. These have developed to such an extent that the small and medium enterprises (SME) segment today can fulfil any component requirement of the auto sector now, irrespective of the scale.”
What was lacking though is a focussed vendor development programme and access to quality technical training. That need is now being directly addressed by interested parties including an aggressive approach by the state government.
The first automobile cluster is Pune although it is not really a cluster because all the players are not located in a particular demarcated area.
State support
“In fact, Pune was the first to have manufacturing clusters with one being auto and the other being white goods. There has been funding from the State government and units have been encouraged to increase capacity and upgrade technology.
“Recently, a joint programme for supplier development was tied up with UNIDO and the Italian Government.”
There is a general lament about the quality of power in Pune city, although there is no doubt that infrastructure in the region is still good compared to other parts of the country.
“The city was the first in the State to give a ‘Pune model' of buying power from the open market about three years ago and it has been implemented successfully. The Maharashtra Government is in the process of formulating the new industrial policy the first draft of which is expected to be announced in the next two months.
“Industry is confident that issues like quality of power and other infrastructure bottlenecks will be adequately addressed in the policy,” said Mr. Sardeshmukh.
Mr. Firodia felt that although Chennai and Gurgaon are catching up as alternatives as auto hubs, the USP of Pune would continue to “attract the best talent from all parts of India and all parts of the world, thanks to its salubrious climate, fabulous education facilities and superb cosmopolitan cultural scene.
Detroit of India
The proliferation of automobile manufacturing units and component suppliers that populate the landscape of outer Pune, particularly Pimpri-Chinchwad, Chakan and Talegaon areas have increasingly earned it the sobriquet of being the ‘Detroit of India' and it continues to elicit interest and attract investments despite challenges from the newer auto hubs dotting outer Chennai and Gurgaon near Delhi.
The entry of the heavyweights of Indian automobile industry — Tata Motors and Bajaj Auto — in the 1960s resulted in and subsequently escalated the mushrooming of allied industries that catered to the outsourcing requirements of these principals. While the first original equipment manufacturer (OEM) was Mercedes-Benz in the 1990s through a joint venture with the Tatas and later on its own, others followed suit but only in trickles.
However, in this millennium, global heavyweights like General Motors, Fiat, Volkswagen and more recently India's largest utility vehicle maker Mahindra & Mahindra (M&M) have committed large investments in this region and their entry seems to have opened the floodgates for auto investments here.
The global financial meltdown only underscored the importance of cost control and cost-effectiveness for auto manufacturers and further re-affirmed their decision to move to cheaper manufacturing locations available in India, particularly as quality was not going to be compromised.
Today, the Pune automobile landscape includes the ‘who's who' of Indian and increasingly international automobile majors.
Tata Motors is the largest followed by Bajaj Auto, Force Motors, Mahindra Two-Wheelers, Mercedes-Benz, GM, JCB construction equipment, Volkswagen, M&M, Premier Motors and Fiat.
Inflow of investment
Speaking to The Hindu, Anant Sardeshmukh, Executive Director General, Mahratta Chamber of Commerce, Industry & Agriculture (MCCIA), a nodal body for investment in the region, said there was a surge in the period between 2006 and 2008 when around Rs.12,000 crore was spent on projects in the region.
“However,” he said, “the period between 2008 and 2013 will see the inflow of around Rs.40,000 crore in terms of investment in this sector.
“Simultaneously, there is substantial investment proposed from auto ancillary and component manufacturers and over the same period an investment of around Rs.10,000 crore is proposed by them,” Mr. Sardeshmukh said.
The new projects include the Fiat-Tata joint venture at Ranjangaon with a proposed investment of Rs.4,000 crore, GM's Rs.1,400-crore investment with a further Rs.900-crore expansion, Volkswagen's project of Rs.3,800 crore, Mercedes' Rs.250 crore investment and Mahindra & Mahindra planning a huge Rs.5,0000-crore investment by 2012. Bajaj Auto proposes Rs.300-crore investment in two-three wheelers and a further Rs.1,000-crore investment in the car plant.
Among large auto suppliers are Cummins Engines which set up shop in the 1960s with Kirloskar and later alone, Kirloskar Oil Engines and Bridgestone's new Chakan plant for tyres with an investment of Rs.2,600 crore.
Commitment by MNCs
In the last 18 months, large multinational auto component suppliers like ZF Group of Germany have committed around Rs.50 crore, Prembo of Italy is setting up a Rs.100-crore disc brakes facility and Norma of Germany plans to invest euro 3 million (about Rs.18 crore).
Pune's USP
In addition to the auto OEMs (original equipment manufacturers), Pune has a range of Tier-1, Tier-2 and infrastructure suppliers, including Bharat Forge, among the top forging companies in the world and Sandvik's large cutting tools facility.
Arun Firodia, Chairman, Kinetic Group, said the easy availability of skilled manpower is the prime reason for the rapid development of the auto sector in Pune.
Skilled manpower
“At present, one lakh engineers are working in and around Pune, a figure probably unmatched anywhere in the world. Maharashtra Industrial Development Corporation (MIDC) has created mega industrial estates at Pimpri-Chinchwad, Chakan and Talegaon on a scale that too is unmatched. These have fostered the growth of automobile companies. As automobile companies grow, it is but natural that auto component industry flourishes in Pune.” Concurring with this view, Mr. Sardeshmukh said, “This region has a steady supply of trained technical manpower with more than 1,000 technical and engineering institutions dotting the landscape. There is a steady availability of a 3-lakh-strong qualified manpower here.”
Mr. Sardeshmukh said the development of Pune's unique selling proposition (USP) is not far to seek if one looks at the history of this region's industry.
“The seeds were sown in the 1960s when Bajaj and the Tatas invested heavily in their facilities in the region and this fostered the mushrooming of first generation technocrat promoted units to cater to the needs of these facilities. These have developed to such an extent that the small and medium enterprises (SME) segment today can fulfil any component requirement of the auto sector now, irrespective of the scale.”
What was lacking though is a focussed vendor development programme and access to quality technical training. That need is now being directly addressed by interested parties including an aggressive approach by the state government.
The first automobile cluster is Pune although it is not really a cluster because all the players are not located in a particular demarcated area.
State support
“In fact, Pune was the first to have manufacturing clusters with one being auto and the other being white goods. There has been funding from the State government and units have been encouraged to increase capacity and upgrade technology.
“Recently, a joint programme for supplier development was tied up with UNIDO and the Italian Government.”
There is a general lament about the quality of power in Pune city, although there is no doubt that infrastructure in the region is still good compared to other parts of the country.
“The city was the first in the State to give a ‘Pune model' of buying power from the open market about three years ago and it has been implemented successfully. The Maharashtra Government is in the process of formulating the new industrial policy the first draft of which is expected to be announced in the next two months.
“Industry is confident that issues like quality of power and other infrastructure bottlenecks will be adequately addressed in the policy,” said Mr. Sardeshmukh.
Mr. Firodia felt that although Chennai and Gurgaon are catching up as alternatives as auto hubs, the USP of Pune would continue to “attract the best talent from all parts of India and all parts of the world, thanks to its salubrious climate, fabulous education facilities and superb cosmopolitan cultural scene.
Uncertainty over JV clouds Hero Honda
If Hero Honda Motors goes on its own, it would have to invest significant amounts into research and development to keep pace in the marketplace
Shares of the world’s largest two-wheeler maker, Hero Honda Motors Ltd (HHML), have fallen sharply in the last few months as media reports signal the exit of its Japanese technology partner, Honda of Japan. While the company has not confirmed this, the key question is: Will Hero Honda be able to retain pole position against such a development?
Analysts say that despite its large vendor base and indigenization, HHML almost entirely depends on Honda for engine technology. Its power-packed brands—Splendor and Passion— that have catapulted the firm’s brand equity, have Honda’s engine technology. If HHML goes on its own, it would have to invest significant amounts into research and development (R&D) to keep pace in the marketplace. Another option will be to scout for a new technology partner. But this would warrant a brand relaunch, which, in turn, could mean marketing costs and risk of product acceptance.
Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
But the flip side is not too rosy either. If technology transfer continues for sometime after Honda exits, it could come at a higher cost. At present, HHML pays around 2.5% of sales as royalty fees every year—Rs420 crore in fiscal 2010, slated to rise to around Rs500 crore in 2011. Take the case of Maruti Suzuki India Ltd, where royalty expenses increased from 3.6% to 7.5% of sales in the June quarter. As it stands though, the terms of agreement, which are reviewed every 10 years, are valid up to 2014.
In fact, industry experts say the stalemate between the two companies is on issues relating to royalty payments, HHML’s desire to expand in new overseas markets and its intent to set up a third greenfield factory, where Honda seems to be delaying on granting permission.
Even the timing for such an altercation is wrong. At a time when India is among the fastest growing two-wheeler markets, and when HHML with top-of-the-line products, is already constrained for capacity, these issues would hinder growth.
Due to component shortages, HHML’s market share has dropped from 51% to 44% in the last few months. And competitors such as Bajaj Auto Ltd and TVS Motor Co. Ltd have been quick to capitalize on this.
Of course, reports suggest that Honda’s Indian arm—Honda Motorcycle and Scooter India Pvt. Ltd (HMSI), may want to go it on its own. So far, the firm had focused on scooters in India. Now it is aggressive in motorcycles, too. It is investing around Rs500 crore to ramp up its two-wheeler capacity from 1.5 million to 2.2 million units a year.
This is nearly the size of TVS, while it is still only one-third of HHML. An IDFC Securities Ltd report says, “It would take at least three to four years for HMSI to scale up to a level to challenge the two domestic market leaders. Honda may also have to forgo income in terms of dividend, royalty as well as its share of profit after tax from its most profitable joint venture.”
More importantly, the Munjals would have to cough up around Rs9,000 crore at the current market price of around Rs1,700 to buy out the 26% stake of Honda. The promoters are reportedly trying to rope in private equity players, to partly fund the same. Given these odds, some analysts hope the 25-year partnership will continue.
The imbroglio bears a resemblance to the exit of Japan’s Suzuki Motor Corp. from TVS about a decade ago, when TVS shares plummeted. The firm gathered momentum on its own in a couple of years, but not without pain.
In comparison, HHML is on a stronger wicket in terms of its market share, distribution reach, brand equity and even technology absorption. Yet, a severance would affect performance of the company and the share price in the short-term. In the last three months, HHML shares have lost 13% on rumours of Honda’s exit coupled with a drop in revenue growth and profitability. Uncertainty about the future has brought down its price-earnings multiple of around 16-17 times to around 12 times fiscal 2012 earnings.
Shares of the world’s largest two-wheeler maker, Hero Honda Motors Ltd (HHML), have fallen sharply in the last few months as media reports signal the exit of its Japanese technology partner, Honda of Japan. While the company has not confirmed this, the key question is: Will Hero Honda be able to retain pole position against such a development?
Analysts say that despite its large vendor base and indigenization, HHML almost entirely depends on Honda for engine technology. Its power-packed brands—Splendor and Passion— that have catapulted the firm’s brand equity, have Honda’s engine technology. If HHML goes on its own, it would have to invest significant amounts into research and development (R&D) to keep pace in the marketplace. Another option will be to scout for a new technology partner. But this would warrant a brand relaunch, which, in turn, could mean marketing costs and risk of product acceptance.
Graphic: Yogesh Kumar/Mint
Graphic: Yogesh Kumar/Mint
But the flip side is not too rosy either. If technology transfer continues for sometime after Honda exits, it could come at a higher cost. At present, HHML pays around 2.5% of sales as royalty fees every year—Rs420 crore in fiscal 2010, slated to rise to around Rs500 crore in 2011. Take the case of Maruti Suzuki India Ltd, where royalty expenses increased from 3.6% to 7.5% of sales in the June quarter. As it stands though, the terms of agreement, which are reviewed every 10 years, are valid up to 2014.
In fact, industry experts say the stalemate between the two companies is on issues relating to royalty payments, HHML’s desire to expand in new overseas markets and its intent to set up a third greenfield factory, where Honda seems to be delaying on granting permission.
Even the timing for such an altercation is wrong. At a time when India is among the fastest growing two-wheeler markets, and when HHML with top-of-the-line products, is already constrained for capacity, these issues would hinder growth.
Due to component shortages, HHML’s market share has dropped from 51% to 44% in the last few months. And competitors such as Bajaj Auto Ltd and TVS Motor Co. Ltd have been quick to capitalize on this.
Of course, reports suggest that Honda’s Indian arm—Honda Motorcycle and Scooter India Pvt. Ltd (HMSI), may want to go it on its own. So far, the firm had focused on scooters in India. Now it is aggressive in motorcycles, too. It is investing around Rs500 crore to ramp up its two-wheeler capacity from 1.5 million to 2.2 million units a year.
This is nearly the size of TVS, while it is still only one-third of HHML. An IDFC Securities Ltd report says, “It would take at least three to four years for HMSI to scale up to a level to challenge the two domestic market leaders. Honda may also have to forgo income in terms of dividend, royalty as well as its share of profit after tax from its most profitable joint venture.”
More importantly, the Munjals would have to cough up around Rs9,000 crore at the current market price of around Rs1,700 to buy out the 26% stake of Honda. The promoters are reportedly trying to rope in private equity players, to partly fund the same. Given these odds, some analysts hope the 25-year partnership will continue.
The imbroglio bears a resemblance to the exit of Japan’s Suzuki Motor Corp. from TVS about a decade ago, when TVS shares plummeted. The firm gathered momentum on its own in a couple of years, but not without pain.
In comparison, HHML is on a stronger wicket in terms of its market share, distribution reach, brand equity and even technology absorption. Yet, a severance would affect performance of the company and the share price in the short-term. In the last three months, HHML shares have lost 13% on rumours of Honda’s exit coupled with a drop in revenue growth and profitability. Uncertainty about the future has brought down its price-earnings multiple of around 16-17 times to around 12 times fiscal 2012 earnings.
GST to enhance SMEs' efficiency
The input credit mechanism under goods and services tax will help price products more competitively
The proposed goods and service tax (GST), which has seen the main political parties adopt opposing views, spells a mixture of good news and some restrictions for small and medium enterprises (SMEs), industry experts said.
Venu Srinivasan, chairman and managing director of TVS Motor Company, a leading two-wheeler manufacturer, believes that GST will enhance the competitiveness and efficiency of the manufacturing sector (which houses a substantial number of SMEs) and mitigate the cascading effect of the current tax system.
“GST will give a huge fillip to SMEs in my view,” said Srinivasan. “There will be many benefits, and though there are also concerns, they can be removed.”
Srinivasan said GST will help in “normal tiering”. Speaking of TVS Motor’s experience, he said, “We have Tier-I, -II and -III suppliers. When you go from sub-contracting to bought-out, the four per cent Central sales tax makes it uneconomical to do a complete bought-out. Therefore we have hybrid models, which are not efficient, and quality suffers in the process. Once the GST comes in, there will be tier-I units to make complete assemblies, tier-II units to make sub-assemblies and tier-III units to make ‘child’ parts.”
Sachin Menon, head of indirect tax at professional services firm KPMG, said the GST is a “mixed basket” for SMEs: “Like any other tax law, it brings good news for this sector along with some restrictions as well.”
Once GST is introduced, he added, SMEs would be in a position to avail themselves of the complete input credit for taxes paid (other than basic Customs duty) on procurement from various sources such as import, inter-state purchases and local purchases.
Both Menon and Srinivasan spoke to Business Standard on the sidelines of a seminar on GST, which was recently organised in Chennai by the Confederation of Indian Industry.
Under the current value-added tax (VAT) regime, the ability of SMEs to reach potential consumers across India is limited because of the Central sales tax (CST) on inter-state sales, which is not available as input credit to the buyer and thereby increases the purchase cost in the hands of the buyer.
Menon said unlike larger players, SMEs lack the infrastructure to open depots in other states and stock-transfer the goods to avoid the impact of CST. Under the proposed GST regime, despite this handicap, this cost will get neutralised through the input tax credit mechanism, thereby increasing the competitiveness of products.
The input credit mechanism under GST does away with the cascading impact of input taxes in product pricing completely, and hence products are likely to be more competitive, depending upon the rates of tax applicable currently and in the GST regime.
However, on the downside, according to Menon, the turnover threshold for tax exemption may come down from the current Rs1.5 crore to Rs10 lakh. In any case, in those sectors that cater to businesses, the reduction in the exemption threshold at worst, could call for increased working capital to finance the tax payment until receivables are realised.
To the SME customer the tax is a flow-through, since the GST levy will be available to him as input credit and hence the reduction in exemption threshold may not impact SMEs significantly. However, SMEs that manufacture consumer goods which are sold directly to end-customers may face a challenge in the face of reduction in exemption threshold, since no credit is available to consumers and this will add to the cost of goods sold to consumers.
The proposed goods and service tax (GST), which has seen the main political parties adopt opposing views, spells a mixture of good news and some restrictions for small and medium enterprises (SMEs), industry experts said.
Venu Srinivasan, chairman and managing director of TVS Motor Company, a leading two-wheeler manufacturer, believes that GST will enhance the competitiveness and efficiency of the manufacturing sector (which houses a substantial number of SMEs) and mitigate the cascading effect of the current tax system.
“GST will give a huge fillip to SMEs in my view,” said Srinivasan. “There will be many benefits, and though there are also concerns, they can be removed.”
Srinivasan said GST will help in “normal tiering”. Speaking of TVS Motor’s experience, he said, “We have Tier-I, -II and -III suppliers. When you go from sub-contracting to bought-out, the four per cent Central sales tax makes it uneconomical to do a complete bought-out. Therefore we have hybrid models, which are not efficient, and quality suffers in the process. Once the GST comes in, there will be tier-I units to make complete assemblies, tier-II units to make sub-assemblies and tier-III units to make ‘child’ parts.”
Sachin Menon, head of indirect tax at professional services firm KPMG, said the GST is a “mixed basket” for SMEs: “Like any other tax law, it brings good news for this sector along with some restrictions as well.”
Once GST is introduced, he added, SMEs would be in a position to avail themselves of the complete input credit for taxes paid (other than basic Customs duty) on procurement from various sources such as import, inter-state purchases and local purchases.
Both Menon and Srinivasan spoke to Business Standard on the sidelines of a seminar on GST, which was recently organised in Chennai by the Confederation of Indian Industry.
Under the current value-added tax (VAT) regime, the ability of SMEs to reach potential consumers across India is limited because of the Central sales tax (CST) on inter-state sales, which is not available as input credit to the buyer and thereby increases the purchase cost in the hands of the buyer.
Menon said unlike larger players, SMEs lack the infrastructure to open depots in other states and stock-transfer the goods to avoid the impact of CST. Under the proposed GST regime, despite this handicap, this cost will get neutralised through the input tax credit mechanism, thereby increasing the competitiveness of products.
The input credit mechanism under GST does away with the cascading impact of input taxes in product pricing completely, and hence products are likely to be more competitive, depending upon the rates of tax applicable currently and in the GST regime.
However, on the downside, according to Menon, the turnover threshold for tax exemption may come down from the current Rs1.5 crore to Rs10 lakh. In any case, in those sectors that cater to businesses, the reduction in the exemption threshold at worst, could call for increased working capital to finance the tax payment until receivables are realised.
To the SME customer the tax is a flow-through, since the GST levy will be available to him as input credit and hence the reduction in exemption threshold may not impact SMEs significantly. However, SMEs that manufacture consumer goods which are sold directly to end-customers may face a challenge in the face of reduction in exemption threshold, since no credit is available to consumers and this will add to the cost of goods sold to consumers.
Atul Auto Looks at majority stake in scooters India
Three-wheeler maker, Atul Auto, is interested in acquiring a "not-less-than 51 per cent stake" in Scooters India, a public sector undertaking in which the Government is mulling a divestment.
"We are interested in acquiring a majority stake in Scooters India. We will not go ahead with the deal if the Government sells us less than 51 per cent stake," Atul Auto's Director, Vijay Kedia, told PTI here.
Heavy Industries and Public Enterprises Minister, Vilasrao Deshmukh, had earlier said the Government was scouting for a joint venture partner to revive Scooters India.
"We are going for a joint venture (for Scooters India) and there are many companies which have shown an interest," Deshmukh had said.
Apart from Atul Auto, there is speculation that other majors such Bajaj Auto, M&M and Piaggio are also eyeing a stake acquisition in the Lucknow-based company.
Atul Auto and Scooters India make similar products in terms of front-engine three-wheelers, whereas Bajaj and Piaggio are focusing on rear-engine options.
"We intend to invest in Scooters India's technology and expand capacity. We have similar products," Kedia said, adding "we want to acquire a liability-free company."
Scooters India used to make the Lambretta model until it was forced to stop production on piling losses. The company then confined itself to the three-wheeler space.
Scooters India is a listed company with the Government owning over 95 per cent stake. It posted a Rs 22-crore loss in FY 10.
"We are interested in acquiring a majority stake in Scooters India. We will not go ahead with the deal if the Government sells us less than 51 per cent stake," Atul Auto's Director, Vijay Kedia, told PTI here.
Heavy Industries and Public Enterprises Minister, Vilasrao Deshmukh, had earlier said the Government was scouting for a joint venture partner to revive Scooters India.
"We are going for a joint venture (for Scooters India) and there are many companies which have shown an interest," Deshmukh had said.
Apart from Atul Auto, there is speculation that other majors such Bajaj Auto, M&M and Piaggio are also eyeing a stake acquisition in the Lucknow-based company.
Atul Auto and Scooters India make similar products in terms of front-engine three-wheelers, whereas Bajaj and Piaggio are focusing on rear-engine options.
"We intend to invest in Scooters India's technology and expand capacity. We have similar products," Kedia said, adding "we want to acquire a liability-free company."
Scooters India used to make the Lambretta model until it was forced to stop production on piling losses. The company then confined itself to the three-wheeler space.
Scooters India is a listed company with the Government owning over 95 per cent stake. It posted a Rs 22-crore loss in FY 10.
Dhoni Tops TV endorsements list
Indian cricket captain Mahendra Singh Dhoni has topped the chart for celebrity endorsements on television during the first six months of this year, leaving behind not only Shahrukh Khan and Sachin Tendulkar, but also the gorgeous ladies of the silver screen. During the January to June period, while Dhoni endorsed brands for 24 companies on TV, Shahrukh and Sachin were seen promoting the products of 16 and 15 firms, respectively, according to the Adex survey of TAM Media Research.
Interestingly, Dhoni also left behind many Bollywood actresses, who enjoyed a combined 45 per cent share of the total celebrity endorsements on TV between January and June.
Kareena Kapoor, Sonam Kapoor, Kajol and Aishwarya Rai Bachchan were some of the most popular Bollywood beauties, who were seen frequently endorsing products in TV advertisements.
According to the survey, Bollywood actors and sports persons accounted for 42 per cent and 10 per cent, respectively, of the total celebrity advertisements on TV.
During the period, Dhoni appeared for a host of brands, including Reebok, Aircel, Godrej and TVS.
In July, he had signed a Rs 210 crore deal with Rhiti Sports Management and Mindscapes to manage his long list of endorsements and brand associations for two years.
The deal, the richest in Indian cricket history, surpassed batting superstar Sachin Tendulkar's estimated Rs 180 crore, three-year contract with sports management firm Iconix in 2006.
As per the Adex survey, the top five categories endorsed the most by celebrities included aerated soft drinks, cellular phone services, toilet soaps and shampoos.
The brands which were advertised the most by celebrities were Lux Soap, Pepsi, Airtel, Panasonic and Coca Cola, it said.
Interestingly, Dhoni also left behind many Bollywood actresses, who enjoyed a combined 45 per cent share of the total celebrity endorsements on TV between January and June.
Kareena Kapoor, Sonam Kapoor, Kajol and Aishwarya Rai Bachchan were some of the most popular Bollywood beauties, who were seen frequently endorsing products in TV advertisements.
According to the survey, Bollywood actors and sports persons accounted for 42 per cent and 10 per cent, respectively, of the total celebrity advertisements on TV.
During the period, Dhoni appeared for a host of brands, including Reebok, Aircel, Godrej and TVS.
In July, he had signed a Rs 210 crore deal with Rhiti Sports Management and Mindscapes to manage his long list of endorsements and brand associations for two years.
The deal, the richest in Indian cricket history, surpassed batting superstar Sachin Tendulkar's estimated Rs 180 crore, three-year contract with sports management firm Iconix in 2006.
As per the Adex survey, the top five categories endorsed the most by celebrities included aerated soft drinks, cellular phone services, toilet soaps and shampoos.
The brands which were advertised the most by celebrities were Lux Soap, Pepsi, Airtel, Panasonic and Coca Cola, it said.
Auto sales touches record high in august
EVEN as Maruti Suzuki puts in place expansion plans hoping to regain the 50 per cent market share it lost in June, when its hold over the passenger car segment dipped to around 47 per cent, figures released by the Society of Indian Automobile Manufacturers (SIAM) today show that India's largest carmaker's market share in August dipped to 45.38 per cent.
Total sales of passenger vehicles for the company stood at 92,674 for August against a total industry sales of 2,04,227 units. These include passenger cars, utility vehicles and multi purpose vehicles.
While there have been a slew of new launches across segments, reducing Maruti Suzuki's share of the market, analysts point out that this is a momentary phenomenon.
"There are various reasons for a com pany's market share going down, but it it not a worrying phenomenon. It may be because of new launches or even slowing in capacity production. The main thing is that companies have to think differently to maintain market leadership," says PricewaterhouseCoopers auto practice leader Abdul Majeed.
Overall growth of the passenger car segment, however, continues to be strong and the SIAM forecast of 12-13 per cent growth for the fiscalseems moreachievable. SIAM data shows that in August, car sales rose 33 percentto1,60,794unitsasagainst1,20,681 .
unitsinthesamemonthlastyear.TotalautomobilesalesinAugustsetanewrecordwith 12,63,293 units being sold, up 25.4 per cent compared with the 10,08,712 units sold in thesamemonthin2009.Month-on-month, sales were up nearly 3 per cent, from 12,37,461 units sold in July this year.
"The fundamentals of the economy con tinuetobestrongandconsumerconfidence ishigh.Thesearedrivingthegrowthofsales of vehicles, mainly in the personal usage segments," SIAM director general Vishnu Mathur said. He said with sales continuing to be robust, SIAM expects the industry to exceed its predictions made earlier this year.
SIAM had forecast that passenger vehicles sales to grow around 13 per cent this fiscal, which is now witnessing a growth of around 30 per cent. "Similarly, utility vehicles are growing at around 17 per cent as against a forecast of 14 per cent," he said, adding the commercial vehicles segment is also growing at 24 per cent as against a forecast of 19-20 per cent for 2010-11.
In August, Maruti Suzuki posted domestic passenger car sales of 78,351 units, up 24.31 per cent from the same month last year,SIAMsaid.HyundaiMotorIndiahad sales of 28,601 units, up 17.21 per cent from August last year. Tata Motors had sales of 22,312units,up51.21percentfromtheyear ago period. In the motorcycles segment, market leader Hero Honda witnessed a marginal decline at 3,86,574 units from 3,89,814 units in the same month last year.
Rival Bajaj Auto on the other hand, gained handsomely at 2,09,567 units, up 72.27 per cent from the same month last year. TVS Motor had a sales of 49,630 units, up 22.51 per cent from the same month last year.
According to the SIAM data, scooters segment grew by 43.63 per cent at 1,70,482 units during August. The growth was led by Honda Motorcycle and Scooter India with sales of 74,405 units, up 27.72 per cent from the year-ago period.
"Overall growth levels will maintain as the penetration level in India continues to be low. The future will be dominated by the small car," said Majeed.
Total sales of passenger vehicles for the company stood at 92,674 for August against a total industry sales of 2,04,227 units. These include passenger cars, utility vehicles and multi purpose vehicles.
While there have been a slew of new launches across segments, reducing Maruti Suzuki's share of the market, analysts point out that this is a momentary phenomenon.
"There are various reasons for a com pany's market share going down, but it it not a worrying phenomenon. It may be because of new launches or even slowing in capacity production. The main thing is that companies have to think differently to maintain market leadership," says PricewaterhouseCoopers auto practice leader Abdul Majeed.
Overall growth of the passenger car segment, however, continues to be strong and the SIAM forecast of 12-13 per cent growth for the fiscalseems moreachievable. SIAM data shows that in August, car sales rose 33 percentto1,60,794unitsasagainst1,20,681 .
unitsinthesamemonthlastyear.TotalautomobilesalesinAugustsetanewrecordwith 12,63,293 units being sold, up 25.4 per cent compared with the 10,08,712 units sold in thesamemonthin2009.Month-on-month, sales were up nearly 3 per cent, from 12,37,461 units sold in July this year.
"The fundamentals of the economy con tinuetobestrongandconsumerconfidence ishigh.Thesearedrivingthegrowthofsales of vehicles, mainly in the personal usage segments," SIAM director general Vishnu Mathur said. He said with sales continuing to be robust, SIAM expects the industry to exceed its predictions made earlier this year.
SIAM had forecast that passenger vehicles sales to grow around 13 per cent this fiscal, which is now witnessing a growth of around 30 per cent. "Similarly, utility vehicles are growing at around 17 per cent as against a forecast of 14 per cent," he said, adding the commercial vehicles segment is also growing at 24 per cent as against a forecast of 19-20 per cent for 2010-11.
In August, Maruti Suzuki posted domestic passenger car sales of 78,351 units, up 24.31 per cent from the same month last year,SIAMsaid.HyundaiMotorIndiahad sales of 28,601 units, up 17.21 per cent from August last year. Tata Motors had sales of 22,312units,up51.21percentfromtheyear ago period. In the motorcycles segment, market leader Hero Honda witnessed a marginal decline at 3,86,574 units from 3,89,814 units in the same month last year.
Rival Bajaj Auto on the other hand, gained handsomely at 2,09,567 units, up 72.27 per cent from the same month last year. TVS Motor had a sales of 49,630 units, up 22.51 per cent from the same month last year.
According to the SIAM data, scooters segment grew by 43.63 per cent at 1,70,482 units during August. The growth was led by Honda Motorcycle and Scooter India with sales of 74,405 units, up 27.72 per cent from the year-ago period.
"Overall growth levels will maintain as the penetration level in India continues to be low. The future will be dominated by the small car," said Majeed.
TVS Group infuses Rs 42 cr in energy arm
The TVS group has infused around Rs42 crore in the newly floated subsidiary TVS Energy Pvt Ltd, which will mark TVS Group’s foray into the power business. It may be recalled that in September last year Business Standard reported that the country’s third largest two-wheeler company TVS Motor, by sales, was planning to foray into the power sector through its group company.
The foray was through Sundaram Clayton Ltd (SCL), part of the $4 billion TVS group, a auto components manufacturing and distribution group, and it is also a leading supplier of aluminum die castings to automotive and non-automotive sectors.
SCL has invested Rs4.50 crore as equity capital in TVS Energy Ltd (TVS Energy), a subsidiary of the SCL. Both, TVS Motor Company Ltd and the SCL, hold the entire paid up capital of TVS Energy, amounting to Rs 42 crore.
It may be noted in December the Chennai-based two-wheeler manufacturer invested Rs5 lakh as equity in
TVS Energy which had become a wholly-owned subsidiary of TVS Motor during December, 2009.
TVS Motor will be the first automobile company which will foray into power generation in the country.
While company officials were not available for comment on TVS Energy Pvt Ltd’s business plan, earlier Venu Srinivasan, chairman and managing director, TVS Motor told Business Standard that the company’s focus will be on wind and micro-hydro followed by solar and biomass.
He also said, the foray will be through Sundaram Clayton, TVS Motor’s group company, which was planning to set up a 5 mega watt (Mw) wind farm in Tamil Nadu, said Srinivasan.
SCL has reported a net profit of Rs 2.32 crore during the quarter-ended June 30, 2010, compared to net loss of Rs 2.08 crore. The company’s total income rose to Rs 176.05 crore from Rs 101.81 crore, an increase of 74 per cent
The foray was through Sundaram Clayton Ltd (SCL), part of the $4 billion TVS group, a auto components manufacturing and distribution group, and it is also a leading supplier of aluminum die castings to automotive and non-automotive sectors.
SCL has invested Rs4.50 crore as equity capital in TVS Energy Ltd (TVS Energy), a subsidiary of the SCL. Both, TVS Motor Company Ltd and the SCL, hold the entire paid up capital of TVS Energy, amounting to Rs 42 crore.
It may be noted in December the Chennai-based two-wheeler manufacturer invested Rs5 lakh as equity in
TVS Energy which had become a wholly-owned subsidiary of TVS Motor during December, 2009.
TVS Motor will be the first automobile company which will foray into power generation in the country.
While company officials were not available for comment on TVS Energy Pvt Ltd’s business plan, earlier Venu Srinivasan, chairman and managing director, TVS Motor told Business Standard that the company’s focus will be on wind and micro-hydro followed by solar and biomass.
He also said, the foray will be through Sundaram Clayton, TVS Motor’s group company, which was planning to set up a 5 mega watt (Mw) wind farm in Tamil Nadu, said Srinivasan.
SCL has reported a net profit of Rs 2.32 crore during the quarter-ended June 30, 2010, compared to net loss of Rs 2.08 crore. The company’s total income rose to Rs 176.05 crore from Rs 101.81 crore, an increase of 74 per cent
Munjals turn to PE for stake buy
Hero Honda, India's largest two-wheeler maker, could see a change in ownership as the Delhi-based Munjal family seeks to buy the stake held by partner Honda Motor Company of Japan in the joint venture. The Indian promoters are reportedly talking to private equity (PE) players to raise the money needed to buy the 26 per cent stake held by Honda Motor. The purchase could be made in tranches of 6.5 per cent each.
Sources close to the development said six of the top PE players in India — including Blackstone, KKR, Carlyle, Temasek and CD&R — and others have examined the deal. While the auto sector has been growing in double digits, PE players say that the deal would be discounted because, as one PE player explained, because “Honda wants to leave the JV”.
“The Munjals have been exploring this proposition as Honda plans to exit. They are still evaluating the structure of the deal and talks have been going on for the last three to four months. But the Munjals are looking to raise debt. In case they cannot, they will look at equity. Honda’s stake is huge, hence an equity partner would be the only way,” said another leading PE player on condition of anonymity.
Bankers and PE players were of the opinion that a deal could take another two to three months to fructify, as discussions are only at an early stage.
Hero Honda shares closed 2.14 per cent higher at Rs 1,736.15 on the Bombay Stock Exchange on Friday, against a closing price of Rs 1,699.75 a day earlier.
Meanwhile, both the Hero group and Honda Motor have denied the development. Anil Dua, senior vice-president (sales & marketing) at Hero Honda, refuted reports of a stake sale by the Japanese partner in Hero Honda. Sunil Munjal, managing director and chief executive, Hero Corporate Services, did not respond to calls and messages, despite repeated attempts.
A statement issued by the Hero group on Tuesday after reports first surfaced of a possible Honda Motor exit surfaced, said, “The news report is incorrect and speculative. We have already conveyed that the Hero group and Honda Motor have for years enjoyed very cordial and fruitful relations, and there has been no change in the relationship in any manner.”
At today’s closing price on the BSE, the stake held by Honda Motor is valued at Rs 9,013 crore. The company owns 51,918,750 shares in Hero Honda. Hero Honda's cash reserves presently stand at around Rs 3,500 crore, down from Rs 5,400 crore as it paid a 4,000-per cent special dividend.
Sources close to the development said six of the top PE players in India — including Blackstone, KKR, Carlyle, Temasek and CD&R — and others have examined the deal. While the auto sector has been growing in double digits, PE players say that the deal would be discounted because, as one PE player explained, because “Honda wants to leave the JV”.
“The Munjals have been exploring this proposition as Honda plans to exit. They are still evaluating the structure of the deal and talks have been going on for the last three to four months. But the Munjals are looking to raise debt. In case they cannot, they will look at equity. Honda’s stake is huge, hence an equity partner would be the only way,” said another leading PE player on condition of anonymity.
Bankers and PE players were of the opinion that a deal could take another two to three months to fructify, as discussions are only at an early stage.
Hero Honda shares closed 2.14 per cent higher at Rs 1,736.15 on the Bombay Stock Exchange on Friday, against a closing price of Rs 1,699.75 a day earlier.
Meanwhile, both the Hero group and Honda Motor have denied the development. Anil Dua, senior vice-president (sales & marketing) at Hero Honda, refuted reports of a stake sale by the Japanese partner in Hero Honda. Sunil Munjal, managing director and chief executive, Hero Corporate Services, did not respond to calls and messages, despite repeated attempts.
A statement issued by the Hero group on Tuesday after reports first surfaced of a possible Honda Motor exit surfaced, said, “The news report is incorrect and speculative. We have already conveyed that the Hero group and Honda Motor have for years enjoyed very cordial and fruitful relations, and there has been no change in the relationship in any manner.”
At today’s closing price on the BSE, the stake held by Honda Motor is valued at Rs 9,013 crore. The company owns 51,918,750 shares in Hero Honda. Hero Honda's cash reserves presently stand at around Rs 3,500 crore, down from Rs 5,400 crore as it paid a 4,000-per cent special dividend.
Honda could emerge stronger post-divorce
Hero group may focus more on smaller markets.
While one story doing the rounds is that Honda will offload its entire 26 per cent stake to a clutch of PE investors, another suggests that the Munjals will pick up the stake.
The imminent split between Honda and the Hero group will mark the end of the last Indo-Japanese bike collaboration wave, which kicked off in the mid-1980s.
The only difference though, according to sources, is that Honda will emerge even stronger on its own, quite unlike Yamaha and Suzuki which, after parting ways with Escorts and TVS Motor respectively, are still fringe players.
Bajaj and Kawasaki have confined their decades-long partnership to the technical sphere though there were talks some years ago of a possible equity stake. The two continue to work together on local assembly and sale of Kawasaki bikes and retailing Bajaj products in key markets across the Asean region.
Both Honda and the Hero group have constantly denied any news of a separation but industry circles do not buy this while insisting that ‘there is no smoke without fire'. What remains to be seen are the modalities of the divorce.
Outlay
While one story doing the rounds is that Honda will offload its entire 26 per cent stake to a clutch of PE investors, another suggests that the Munjals will pick up the stake.
This will cost the Indian partner upwards of Rs 8,000 crore which would typically be an outlay for setting up nearly three motorcycle plants.
Is it worth the Hero group's while to spend this kind of money just to access the present bike portfolio? “It does seem an awful lot to cough up unless there are added goodies like royalty waivers, new products coming in and so on,” said a source.
From Honda's point of view, it is getting increasingly aware that the Indian two-wheeler terrain may not be a cakewalk parade as was the case over the last few years. Competition has been intensifying with rivals like Bajaj Auto and TVS Motor, becoming far more confident and focused on their product development plans.In addition, said an industry veteran, Honda could just be getting peeved about the fact that its 100 per cent arm, Honda Motorcycle and Scooter India (HMSI), has just not been able to make a forceful impact in the motorcycle space. The company has, doubtless, emerged the undisputed leader of the gearless scooter pack but the real action is still in the bike arena.
Even while HMSI has constantly positioned itself as a premium motorcycle maker, this has not translated into the kind of volumes that could even remotely scare competition.
One key reason is the fact that nearly all of its bikes are relatively expensive when competitors have local alternatives that are as good and more affordable. Its only offering in the volumes-driven commuter segment is the Twister, which is still someway behind the Splendor, Passion and Discover brands in terms of sales.
Competition
Sources said Honda's top priority is to position HMSI as a formidable rival in this space. “Once it parts ways with the Hero group, the company will launch at least two top-class commuter bikes which would be priced at Rs 40,000 each. This is the only way it can hope to knock off competition,” said a source.
And what would the Hero group do in the meantime? Assuming the terms of the split include use of the Honda name on the bikes, the Indian company will continue to focus aggressively on smaller markets where its brand equity is still very strong.
In fact, the Hero group has played a big role over the years in stretching the joint venture's retail network to every nook and corner of the country.
While one story doing the rounds is that Honda will offload its entire 26 per cent stake to a clutch of PE investors, another suggests that the Munjals will pick up the stake.
The imminent split between Honda and the Hero group will mark the end of the last Indo-Japanese bike collaboration wave, which kicked off in the mid-1980s.
The only difference though, according to sources, is that Honda will emerge even stronger on its own, quite unlike Yamaha and Suzuki which, after parting ways with Escorts and TVS Motor respectively, are still fringe players.
Bajaj and Kawasaki have confined their decades-long partnership to the technical sphere though there were talks some years ago of a possible equity stake. The two continue to work together on local assembly and sale of Kawasaki bikes and retailing Bajaj products in key markets across the Asean region.
Both Honda and the Hero group have constantly denied any news of a separation but industry circles do not buy this while insisting that ‘there is no smoke without fire'. What remains to be seen are the modalities of the divorce.
Outlay
While one story doing the rounds is that Honda will offload its entire 26 per cent stake to a clutch of PE investors, another suggests that the Munjals will pick up the stake.
This will cost the Indian partner upwards of Rs 8,000 crore which would typically be an outlay for setting up nearly three motorcycle plants.
Is it worth the Hero group's while to spend this kind of money just to access the present bike portfolio? “It does seem an awful lot to cough up unless there are added goodies like royalty waivers, new products coming in and so on,” said a source.
From Honda's point of view, it is getting increasingly aware that the Indian two-wheeler terrain may not be a cakewalk parade as was the case over the last few years. Competition has been intensifying with rivals like Bajaj Auto and TVS Motor, becoming far more confident and focused on their product development plans.In addition, said an industry veteran, Honda could just be getting peeved about the fact that its 100 per cent arm, Honda Motorcycle and Scooter India (HMSI), has just not been able to make a forceful impact in the motorcycle space. The company has, doubtless, emerged the undisputed leader of the gearless scooter pack but the real action is still in the bike arena.
Even while HMSI has constantly positioned itself as a premium motorcycle maker, this has not translated into the kind of volumes that could even remotely scare competition.
One key reason is the fact that nearly all of its bikes are relatively expensive when competitors have local alternatives that are as good and more affordable. Its only offering in the volumes-driven commuter segment is the Twister, which is still someway behind the Splendor, Passion and Discover brands in terms of sales.
Competition
Sources said Honda's top priority is to position HMSI as a formidable rival in this space. “Once it parts ways with the Hero group, the company will launch at least two top-class commuter bikes which would be priced at Rs 40,000 each. This is the only way it can hope to knock off competition,” said a source.
And what would the Hero group do in the meantime? Assuming the terms of the split include use of the Honda name on the bikes, the Indian company will continue to focus aggressively on smaller markets where its brand equity is still very strong.
In fact, the Hero group has played a big role over the years in stretching the joint venture's retail network to every nook and corner of the country.
Auto sales in top gear again
Auto sales continued to be in top gear during August on the back of easy finance and new launches. The major highlight was the country's largest car manufacturer Maruti Suzuki posting its highest monthly sales ever at over 1,00,000 units. This was the third time the company sold one-lakh plus units in a month this fiscal.
Maruti's total sales stood at 1.04 lakh units in August compared to 84,808 units in the same month last year thereby registering a growth of 23.5%. "This is the highest-ever monthly sales recorded by the company," Maruti stated. The domestic sales of the company stood at 92,674 units in August compared to 69,961 units a year back. Maruti Suzuki's A2 segment rose 26% to 65,953 units on the back of the launch of Alto K10 and five CNG variants.
Its South Korean rival Hyundai Motor India, the country's second largest passenger car manufacturer, sales increased 17% with total domestic sales at 28,601 units in August against 24,401 units in August 2009. The company's exports, however, declined over 12% to 22,035 units against 25,120 units last year.
Tata Motors (TATAMOTORS.BO : 1028.65 +11.6) sold 25,196 units in August primarily riding on high Nano sales registering a growth of over 40% as compared to 17,364 units sold in August last year. During the month, 8,103 Nanos were sold.
The traction in the bottom half of the car market is getting intense with General Motors and Ford getting more aggressive. While the former sold a 7,941 units in the month compared to 5,939 units last year, Ford witnessed an over two-fold jump in sales to 7,925 vehicles compared to August 2009.
The two hatchbacks Beat and Figo launched by the two carmakers respectively helped them create a foothold in the market. Since its launch in March this year, Figo has got a total bookings of 34,000 in 25 weeks. The company is slated to launch eight models by 2015. Skoda Auto India rose 24% during the month selling 1,511 units. Nissan sold 1,249 units during the month.
In the two-wheeler segment, the country's largest two-wheeler maker by volumes Hero Honda sold a whopping 4.24 lakh units in August growing at 2.2% over August 2009 when the company sold 4.15 lakh units. "The domestic two-wheeler industry remains buoyant and we expect growth to maintain this trajectory in the coming months," senior vice-president (marketing & sales) Hero Honda Anil Dua said.
TVS Motors two-wheeler sales rose 32% with 1,67,109 units against 1,26,842 units recorded in August 2009. Sales of Yamaha Motors jumped 30% to 30,450 units in the month compared to 23,466 units in August 2009. The two-wheeler sales of Mahindra & Mahindra stood at 15,165 units compared to 4,005 units in August 2009. M&M's Farm Equipment Sector (FES) division grew 26% in tractor sales in August to 13,435 units.
Maruti's total sales stood at 1.04 lakh units in August compared to 84,808 units in the same month last year thereby registering a growth of 23.5%. "This is the highest-ever monthly sales recorded by the company," Maruti stated. The domestic sales of the company stood at 92,674 units in August compared to 69,961 units a year back. Maruti Suzuki's A2 segment rose 26% to 65,953 units on the back of the launch of Alto K10 and five CNG variants.
Its South Korean rival Hyundai Motor India, the country's second largest passenger car manufacturer, sales increased 17% with total domestic sales at 28,601 units in August against 24,401 units in August 2009. The company's exports, however, declined over 12% to 22,035 units against 25,120 units last year.
Tata Motors (TATAMOTORS.BO : 1028.65 +11.6) sold 25,196 units in August primarily riding on high Nano sales registering a growth of over 40% as compared to 17,364 units sold in August last year. During the month, 8,103 Nanos were sold.
The traction in the bottom half of the car market is getting intense with General Motors and Ford getting more aggressive. While the former sold a 7,941 units in the month compared to 5,939 units last year, Ford witnessed an over two-fold jump in sales to 7,925 vehicles compared to August 2009.
The two hatchbacks Beat and Figo launched by the two carmakers respectively helped them create a foothold in the market. Since its launch in March this year, Figo has got a total bookings of 34,000 in 25 weeks. The company is slated to launch eight models by 2015. Skoda Auto India rose 24% during the month selling 1,511 units. Nissan sold 1,249 units during the month.
In the two-wheeler segment, the country's largest two-wheeler maker by volumes Hero Honda sold a whopping 4.24 lakh units in August growing at 2.2% over August 2009 when the company sold 4.15 lakh units. "The domestic two-wheeler industry remains buoyant and we expect growth to maintain this trajectory in the coming months," senior vice-president (marketing & sales) Hero Honda Anil Dua said.
TVS Motors two-wheeler sales rose 32% with 1,67,109 units against 1,26,842 units recorded in August 2009. Sales of Yamaha Motors jumped 30% to 30,450 units in the month compared to 23,466 units in August 2009. The two-wheeler sales of Mahindra & Mahindra stood at 15,165 units compared to 4,005 units in August 2009. M&M's Farm Equipment Sector (FES) division grew 26% in tractor sales in August to 13,435 units.
Suzuki plans to ride superbikes for growth; 2 launches next year
Mumbai: Suzuki Motorcycle India is revving up its sales plan for superbikes in India. The company aims to sell 300 units of its four superbike models-GSX-R1000, Bandit 1250S, Hayabusa-GSX1300R and Intruder-M1800R in the country this year. Suzuki, which has a share of less than 5% in the Indian motorcycles market, wants to take it to 10% by 2012.
The company plans to launch one more motorcycle and scooter next year, though it has no plans to drive in any new superbike this year.
“We are selling around 20 units of our four completely built units (CBUs). The demand has been as per our target and we hope to end this year with a sale of 300 CBUs," Anand Singh Thakur, senior manager (sales & marketing), Suzuki Motorcycle India, told FE. On plans to assemble models in India, Thakur said, "We are importing them and will continue to do that. Assembly is not on our cards.”
Of late, the superbike segment in India has seen a decent growth with all big names, from Harley-Davidson to Ducati, setting up their shop in the country. The high import duty of 110% on superbikes is a concern for motorcycle players and they see assembly a way out only if the volumes justify it.
On the same lines, the company has no plans to start producing electric cars either for the next few years, though Maruti Suzuki India is planning to showcase its hybrid technology vehicles for the Commonwealth Games. “The cost of making electric vehicles is high. It is highly unlikely that we commercially enter the electric car segment in the Indian market for the next few years,” Shashank Srivastava, chief general mananger (marketing), said.
Abdul Majeed, India automotive practice, PricewaterhouseCoopers (PwC), said, "The superbike segment has been growing at 30-40% on a low base effect. The overall offtake in the last 12 months indicates the demand in the market. Today, all major names in this segment are present in the country."
The company plans to launch one more motorcycle and scooter next year, though it has no plans to drive in any new superbike this year.
“We are selling around 20 units of our four completely built units (CBUs). The demand has been as per our target and we hope to end this year with a sale of 300 CBUs," Anand Singh Thakur, senior manager (sales & marketing), Suzuki Motorcycle India, told FE. On plans to assemble models in India, Thakur said, "We are importing them and will continue to do that. Assembly is not on our cards.”
Of late, the superbike segment in India has seen a decent growth with all big names, from Harley-Davidson to Ducati, setting up their shop in the country. The high import duty of 110% on superbikes is a concern for motorcycle players and they see assembly a way out only if the volumes justify it.
On the same lines, the company has no plans to start producing electric cars either for the next few years, though Maruti Suzuki India is planning to showcase its hybrid technology vehicles for the Commonwealth Games. “The cost of making electric vehicles is high. It is highly unlikely that we commercially enter the electric car segment in the Indian market for the next few years,” Shashank Srivastava, chief general mananger (marketing), said.
Abdul Majeed, India automotive practice, PricewaterhouseCoopers (PwC), said, "The superbike segment has been growing at 30-40% on a low base effect. The overall offtake in the last 12 months indicates the demand in the market. Today, all major names in this segment are present in the country."
Hero, Honda may part ways
Hero, Honda may part ways
Scrip Falls On News,But Cos’Denial Saves Day
Arun Kumar & Chanchal Pal Chauhan NEW DELHI
JAPAN’S Honda is believed to be in talks to sell its 26% stake in Hero Honda Motors, the enormously successful, 26-year-old joint venture responsible for transforming the local motorcycle industry and spurring an entire generation of Indians to take to biking.
A person close to the development said Honda and its Indian partner, the BM Munjalowned Hero group, are discussing a formula that would enable the Japanese firm to sell its shares at a discount. A Munjal family company will purchase most of the shares with some help from private equity firms, he added.
The news, broken first by ET NOW, this newspaper’s business channel, drove down the shares of Hero Honda in the market on Tuesday as investors worried over the impact the separation will have on India’s largest motorcycle maker.
The management of both the companies, though, strongly denied it. A Honda Motors spokesman told Bloomberg News that the company had no plans to sell. A statement issued by the Hero group said it has enjoyed very c ordial a nd f ruitful r elations’ w ith Honda and there is no change in the relationship in any manner. A top Hero Honda executive said ‘stake sale was not even on the table’, though he added that discussions between the two partners centred around securing the future of the joint venture.
Hero Honda shares slumped 6.8% before the denials triggered a pull-back. The shares ended down just 0.11% at 1,790.
But the person with direct knowledge of the situation said talks are on and the Munjalowned company incorporated overseas will buy the shares from Honda and take the Hero group’s stake in the motorcycle firm to 52%. Sparring over some key issues
AT CURRENT market price, the 26% stake is being valued at Rs 9,293 crore, or $2 billion, but this person said the Hero group, which has the right of first refusal over Honda’s shares, is likely to pay at a discount as part of an amicable settlement.
He added that the Hero group will raise money from private equity investors in the new company after the first leg of the transaction, giving them an indirect stake in Hero Honda. Discussions are on with three private equity firms and this new holding company will be valued on the basis of its 26% in Hero Honda, the person added. Other combinations, such as a direct sale by Honda to a private equity firm, are also being discussed, but no details were available.
A senior auto industry veteran, however, said Honda and the Hero group have been sparring over some key issues such as royalty and spare parts purchases for some time now. Honda wants to increase its royalty from the sales of the joint venture but has been unable to do so because bulk of the sales, about 60%, are contributed by Splendor and Passion, two old bikes. Honda also wants the Hero group to route all spare part purchases through Honda Motorcycles and Scooters India, (HMSI), which the Hero group has been resisting for a long time. “This could be Honda’s way of getting the Hero group to the negotiating table,” he added.
The Hero group and Honda came together in 1984 to build and sell motorbikes in the country and their venture was an instant hit. A consumer boom
triggered by former prime minister Rajiv Gandhi’s economic reforms and the success of another Indo-Japanese joint venture, Maruti Suzuki, quickly propelled Hero Honda to the top of the sales charts. Its cleverly-worded, catchy slogan, `Fill it, Shut it, Forget it’ focused on the Indian consumer’s concern for mileage and reliability, helping shut out competition completely. Very soon, Honda was selling more bikes than Bajaj Auto’s scooters, despite the latter’s decades-old headstart. A separation at India’s largest motorcycle maker, if true, will have large implications for the company and its shareholders. Hero Honda has spent the last few months trying to stare down the threat from a resurgent Bajaj Auto, and a shareholder squabble and split will divert attention at a very crucial time.
The second issue relates to access to technology. Honda has shouldered much of the burden, though the Hero group’s marketing acumen and knowledge of the consumer has also played a big role in the company’s success. “For the next three years, Hero Honda will not have any problem as it will have technology commitment. But what will happen after that is yet to be seen,” Ramdeo Agarwal, managing director of brokerage firm Motilal Oswal Securities, said. The current technology agreement between the two companies is due to expire in 2014. “This development can have two major impacts. What will happen to Hero Honda’s new product line after three years when the current technology contract ends? Second, it will result in a far more aggressive HMSI,” said a senior auto analyst with a foreign securities firm.
Scrip Falls On News,But Cos’Denial Saves Day
Arun Kumar & Chanchal Pal Chauhan NEW DELHI
JAPAN’S Honda is believed to be in talks to sell its 26% stake in Hero Honda Motors, the enormously successful, 26-year-old joint venture responsible for transforming the local motorcycle industry and spurring an entire generation of Indians to take to biking.
A person close to the development said Honda and its Indian partner, the BM Munjalowned Hero group, are discussing a formula that would enable the Japanese firm to sell its shares at a discount. A Munjal family company will purchase most of the shares with some help from private equity firms, he added.
The news, broken first by ET NOW, this newspaper’s business channel, drove down the shares of Hero Honda in the market on Tuesday as investors worried over the impact the separation will have on India’s largest motorcycle maker.
The management of both the companies, though, strongly denied it. A Honda Motors spokesman told Bloomberg News that the company had no plans to sell. A statement issued by the Hero group said it has enjoyed very c ordial a nd f ruitful r elations’ w ith Honda and there is no change in the relationship in any manner. A top Hero Honda executive said ‘stake sale was not even on the table’, though he added that discussions between the two partners centred around securing the future of the joint venture.
Hero Honda shares slumped 6.8% before the denials triggered a pull-back. The shares ended down just 0.11% at 1,790.
But the person with direct knowledge of the situation said talks are on and the Munjalowned company incorporated overseas will buy the shares from Honda and take the Hero group’s stake in the motorcycle firm to 52%. Sparring over some key issues
AT CURRENT market price, the 26% stake is being valued at Rs 9,293 crore, or $2 billion, but this person said the Hero group, which has the right of first refusal over Honda’s shares, is likely to pay at a discount as part of an amicable settlement.
He added that the Hero group will raise money from private equity investors in the new company after the first leg of the transaction, giving them an indirect stake in Hero Honda. Discussions are on with three private equity firms and this new holding company will be valued on the basis of its 26% in Hero Honda, the person added. Other combinations, such as a direct sale by Honda to a private equity firm, are also being discussed, but no details were available.
A senior auto industry veteran, however, said Honda and the Hero group have been sparring over some key issues such as royalty and spare parts purchases for some time now. Honda wants to increase its royalty from the sales of the joint venture but has been unable to do so because bulk of the sales, about 60%, are contributed by Splendor and Passion, two old bikes. Honda also wants the Hero group to route all spare part purchases through Honda Motorcycles and Scooters India, (HMSI), which the Hero group has been resisting for a long time. “This could be Honda’s way of getting the Hero group to the negotiating table,” he added.
The Hero group and Honda came together in 1984 to build and sell motorbikes in the country and their venture was an instant hit. A consumer boom
triggered by former prime minister Rajiv Gandhi’s economic reforms and the success of another Indo-Japanese joint venture, Maruti Suzuki, quickly propelled Hero Honda to the top of the sales charts. Its cleverly-worded, catchy slogan, `Fill it, Shut it, Forget it’ focused on the Indian consumer’s concern for mileage and reliability, helping shut out competition completely. Very soon, Honda was selling more bikes than Bajaj Auto’s scooters, despite the latter’s decades-old headstart. A separation at India’s largest motorcycle maker, if true, will have large implications for the company and its shareholders. Hero Honda has spent the last few months trying to stare down the threat from a resurgent Bajaj Auto, and a shareholder squabble and split will divert attention at a very crucial time.
The second issue relates to access to technology. Honda has shouldered much of the burden, though the Hero group’s marketing acumen and knowledge of the consumer has also played a big role in the company’s success. “For the next three years, Hero Honda will not have any problem as it will have technology commitment. But what will happen after that is yet to be seen,” Ramdeo Agarwal, managing director of brokerage firm Motilal Oswal Securities, said. The current technology agreement between the two companies is due to expire in 2014. “This development can have two major impacts. What will happen to Hero Honda’s new product line after three years when the current technology contract ends? Second, it will result in a far more aggressive HMSI,” said a senior auto analyst with a foreign securities firm.
Honda exit from Hero Honda stuck?
Honda Motor Corp's exit from the world's largest two-wheeler manufacturer Hero Honda is apparently stuck over differences in valuation of its 26 per cent stake. Sources close to the companies told Hindustan Times that so far Honda has only informed Munjals, the promoters of Hero Group who hold 26.21 per cent in the firm, of their intent to exit 25-year-old joint venture, and no discussion on the worth of the stake has happened.
Over the last month, Munjals have been in discussions with various private equity firms including KKR, Texas Pacific, Blackstone, Carlyle, Clayton Subilier & Rice and Temasek to pick up stakes in the company.
At present, with the Hero Honda share trading at Rs 1,736, Honda's stake is worth over
Rs 9,000 crore but the PE firms feel that post-exit, the scrip would trade much lower.
"I expect the deliberations to go on for quite some time as it is very difficult to analyse what would be the valuation of the company post Honda exit," said an automotive analyst.
"Honda provides the technological back up to the firm. Hero Group's reach in dealer network now virtually covers every corner of the country. For Honda, concentrating on its own Honda Motorcycle and Scooters India (HMSI) would make sense, but Hero Group may be at a loss as they have minimal research and development facilities," he said.
If the Munjals agree on a valuation with some PE firms and make an offer to Honda, the latter may take more time in deciding if the offer is attractive.
It is learnt that Honda intends to invest part of the stake sale proceeds in HMSI, its fully-owned subsidiary.
Though the two companies have denied any such plans, there has been a considerable friction between the two firms ever since HMSI was set up in 2001.
HMSI is the country's largest scooter manufacturer but has ambitions in the motorcycle space, where Hero Honda is the undisputed leader with sales of over 5 million units this fiscal.
Over the last month, Munjals have been in discussions with various private equity firms including KKR, Texas Pacific, Blackstone, Carlyle, Clayton Subilier & Rice and Temasek to pick up stakes in the company.
At present, with the Hero Honda share trading at Rs 1,736, Honda's stake is worth over
Rs 9,000 crore but the PE firms feel that post-exit, the scrip would trade much lower.
"I expect the deliberations to go on for quite some time as it is very difficult to analyse what would be the valuation of the company post Honda exit," said an automotive analyst.
"Honda provides the technological back up to the firm. Hero Group's reach in dealer network now virtually covers every corner of the country. For Honda, concentrating on its own Honda Motorcycle and Scooters India (HMSI) would make sense, but Hero Group may be at a loss as they have minimal research and development facilities," he said.
If the Munjals agree on a valuation with some PE firms and make an offer to Honda, the latter may take more time in deciding if the offer is attractive.
It is learnt that Honda intends to invest part of the stake sale proceeds in HMSI, its fully-owned subsidiary.
Though the two companies have denied any such plans, there has been a considerable friction between the two firms ever since HMSI was set up in 2001.
HMSI is the country's largest scooter manufacturer but has ambitions in the motorcycle space, where Hero Honda is the undisputed leader with sales of over 5 million units this fiscal.
Hero Honda launches new super splendor
Two-wheeler market leader Hero Honda announced on Thursday the launch of the 125cc Super Splendor at Rs 45,950 (in Delhi) for the drum brakes, self-start version.
The new Super Splendor features aesthetic and technological advancements such as the Honda Intelligent Ignition System (HIIS), a newly designed carburettor to meet Bharat Stage III emission norms and a 5-step adjustable rear shock-absorber. It also has upgraded external features such as new body-art on fuel tank, new seat design, new windscreen and tail light.
Mr Anil Dua, Senior Vice-President (Marketing & Sales), Hero Honda Motors Ltd, said, “Our Splendor range is the leading volume driver in the deluxe segment. This bike caters to the changing needs of customers and offers them more contemporary styling and efficient performance. We are looking to build on this momentum with a slew of new launches leading up to the festive season.”
While the fuel-efficient Splendor was launched in 1994, the Super Splendor 125 cc was introduced in early 2005.
The new Super Splendor features aesthetic and technological advancements such as the Honda Intelligent Ignition System (HIIS), a newly designed carburettor to meet Bharat Stage III emission norms and a 5-step adjustable rear shock-absorber. It also has upgraded external features such as new body-art on fuel tank, new seat design, new windscreen and tail light.
Mr Anil Dua, Senior Vice-President (Marketing & Sales), Hero Honda Motors Ltd, said, “Our Splendor range is the leading volume driver in the deluxe segment. This bike caters to the changing needs of customers and offers them more contemporary styling and efficient performance. We are looking to build on this momentum with a slew of new launches leading up to the festive season.”
While the fuel-efficient Splendor was launched in 1994, the Super Splendor 125 cc was introduced in early 2005.
Bajaj Auto sales zoom in August
Bajaj Auto has reported its highest ever monthly sales of 329,364 units in August, a 55 per cent increase from 213,072 units in the same period last year.
Of these, motorcycles accounted for 289,176 (182,441) units with commercial three-wheelers taking up the balance 40,188 (30,021) units. Exports totalled 98,578 units, up 31 per cent from August 2009's level of 75,164 units.
Bajaj has targeted sales of four million vehicles this fiscal, which roughly translates into 3.35 lakh units each month. Thus far, it has notched up nearly 1.58 million for the first five months of this fiscal, an average of 3.2 million vehicles a month.
The coming months will see the sales momentum increasing which is generally the case for the auto sector during the festive season. The biggest challenge for most manufacturers is battling capacity constraints at their plants coupled with the fact that timely supplies of key components continue to be a cause for concern.
From Bajaj Auto's point of view, the biggest growth drivers have been its Pulsar and Discover motorcycle brands which are now clocking over two lakh units a month.
The renewed brand strategy will now apply to all its key products such as the three-wheeler and possibly the ultra-low cost car which is scheduled for a 2012 launch.
Bajaj has upped the sales target for 2011-12 to five million vehicles. The scrip closed 1.28 per cent higher on Thursday at Rs 2,784.50.
Of these, motorcycles accounted for 289,176 (182,441) units with commercial three-wheelers taking up the balance 40,188 (30,021) units. Exports totalled 98,578 units, up 31 per cent from August 2009's level of 75,164 units.
Bajaj has targeted sales of four million vehicles this fiscal, which roughly translates into 3.35 lakh units each month. Thus far, it has notched up nearly 1.58 million for the first five months of this fiscal, an average of 3.2 million vehicles a month.
The coming months will see the sales momentum increasing which is generally the case for the auto sector during the festive season. The biggest challenge for most manufacturers is battling capacity constraints at their plants coupled with the fact that timely supplies of key components continue to be a cause for concern.
From Bajaj Auto's point of view, the biggest growth drivers have been its Pulsar and Discover motorcycle brands which are now clocking over two lakh units a month.
The renewed brand strategy will now apply to all its key products such as the three-wheeler and possibly the ultra-low cost car which is scheduled for a 2012 launch.
Bajaj has upped the sales target for 2011-12 to five million vehicles. The scrip closed 1.28 per cent higher on Thursday at Rs 2,784.50.
TVS Motor posts higher sales
On the back of robust growth in all segments, TVS Motor Co posted on Thursday the highest ever monthly sales for August at 1.70 lakh units.
While the overall growth in sales was 34 per cent over the same month last year, TVS's domestic sales went up 29 per cent and exports 62 per cent. With scooters and motorcycles posting 43 and 30 per cent growth respectively, total two wheeler sales of the company for the month grew 32 per cent to 167,109 units. The company's three-wheeler business also rose with sales of 3,626 units in August (1,033 units).
While the overall growth in sales was 34 per cent over the same month last year, TVS's domestic sales went up 29 per cent and exports 62 per cent. With scooters and motorcycles posting 43 and 30 per cent growth respectively, total two wheeler sales of the company for the month grew 32 per cent to 167,109 units. The company's three-wheeler business also rose with sales of 3,626 units in August (1,033 units).
Refreshingly Naughty!
Refreshingly Naughty!
Campaign: Go Babelicious Collection
Brand: Scooty Pep +
Company: TVS Motors
Agency: McCann Erickson
The Campaign
Two Scooty Pep+s zip past other vehicles on a city road and halt at a red light. The very next moment, one of the young divas turns her face towards an SUV parked right next to her Scooty and takes off her helmet. Quite noticeably, her dress, accessories, the colour of the Scooty and even the helmet indicate that she is a trendy, bright, bold, fun-loving, modern city girl who lives life on her terms. What follows next justifies the aforesaid conclusion. She takes a good look at her reflection on the window pane on the driver’s side and gets on with touching up her make-up. The young driver is visibly mesmerized to see the young girl pouting at him (actually the window pane) without any inhibitions. To spice it up, in the background plays a remix version of a hit song from the old Hindi movie Shri 420, “mudh mudh ke na dekxxh”. The song gels very well with the man intermittently looking at the young girl while his wife, sitting next to him, is busy talking on the phone. The young girl then takes out three lipsticks from her bag and compares them with the colour of the flowers on her Scooty. After her friend approves of the right shade, she turns again towards the mirror, aka the window pane, and to the utter delight of the young man starts applying it on her lips. The guy is pleasantly shocked. Seeing his mouth wide open, his wife pulls the window pane down to put an end to this show and slaps him on the back of his head. Both the driver and his co-passenger are visibly upset, well, for their own reasons.
The red light turns green and the two girls on their Scootys happily zip off again! What follows next are visuals of five brightly coloured Scooty Pep +. In the end, our diva comes again on her Scooty Pep+, with “Go Babelicious” written next to her.
There is another ad in this series, which sees a girl on a Scooty Pep + pass through a barricade while others wait for the VIP movement to clear. Using the power of expression, she manages to charm the policeman on duty who ultimately gives in to her demand and lets her go. Seeing this work, a guy on a bike attempts to do the same. But alas, our policeman doesn't swing that way! This ad too has a nice remix soundtrack of hit Hindi song, “Jaane do na”!
Our Take
It has been quite sometime that TVS came up with an ad for its Scooty. Targeted at young girls, the ad definitely strikes the right chord. It’s trendy, funny, aspirational, bold and leaves a smile on the viewer’s face. What's more, the background score of the two popular old Hindi songs are a perfect fit and add to the naughtiness of the whole situation. Even if one is from a conservative milieu, there are shades of adventure and fun-loving behaviour which co-exist with the storyline. The ad therefore succeeds in planting the new brand, Scooty Pep +, in the viewers mind. On the flip side though, there are two points.
There is no information about the features of this model of Scooty. It could be deliberate as this is a part of the launch campaign and to position it as a fashion bike for girls.
The other risk this ad runs into are the parents! Yes, some grown-ups might find it a bit too bold. May be the old songs help in bringing them into the fold, but it does not completely tone down the shock element.
Campaign: Go Babelicious Collection
Brand: Scooty Pep +
Company: TVS Motors
Agency: McCann Erickson
The Campaign
Two Scooty Pep+s zip past other vehicles on a city road and halt at a red light. The very next moment, one of the young divas turns her face towards an SUV parked right next to her Scooty and takes off her helmet. Quite noticeably, her dress, accessories, the colour of the Scooty and even the helmet indicate that she is a trendy, bright, bold, fun-loving, modern city girl who lives life on her terms. What follows next justifies the aforesaid conclusion. She takes a good look at her reflection on the window pane on the driver’s side and gets on with touching up her make-up. The young driver is visibly mesmerized to see the young girl pouting at him (actually the window pane) without any inhibitions. To spice it up, in the background plays a remix version of a hit song from the old Hindi movie Shri 420, “mudh mudh ke na dekxxh”. The song gels very well with the man intermittently looking at the young girl while his wife, sitting next to him, is busy talking on the phone. The young girl then takes out three lipsticks from her bag and compares them with the colour of the flowers on her Scooty. After her friend approves of the right shade, she turns again towards the mirror, aka the window pane, and to the utter delight of the young man starts applying it on her lips. The guy is pleasantly shocked. Seeing his mouth wide open, his wife pulls the window pane down to put an end to this show and slaps him on the back of his head. Both the driver and his co-passenger are visibly upset, well, for their own reasons.
The red light turns green and the two girls on their Scootys happily zip off again! What follows next are visuals of five brightly coloured Scooty Pep +. In the end, our diva comes again on her Scooty Pep+, with “Go Babelicious” written next to her.
There is another ad in this series, which sees a girl on a Scooty Pep + pass through a barricade while others wait for the VIP movement to clear. Using the power of expression, she manages to charm the policeman on duty who ultimately gives in to her demand and lets her go. Seeing this work, a guy on a bike attempts to do the same. But alas, our policeman doesn't swing that way! This ad too has a nice remix soundtrack of hit Hindi song, “Jaane do na”!
Our Take
It has been quite sometime that TVS came up with an ad for its Scooty. Targeted at young girls, the ad definitely strikes the right chord. It’s trendy, funny, aspirational, bold and leaves a smile on the viewer’s face. What's more, the background score of the two popular old Hindi songs are a perfect fit and add to the naughtiness of the whole situation. Even if one is from a conservative milieu, there are shades of adventure and fun-loving behaviour which co-exist with the storyline. The ad therefore succeeds in planting the new brand, Scooty Pep +, in the viewers mind. On the flip side though, there are two points.
There is no information about the features of this model of Scooty. It could be deliberate as this is a part of the launch campaign and to position it as a fashion bike for girls.
The other risk this ad runs into are the parents! Yes, some grown-ups might find it a bit too bold. May be the old songs help in bringing them into the fold, but it does not completely tone down the shock element.