Our buy rating on TVS is premised on two key drivers: 1) expanding addressable market size due to entry into three-wheeler market, launch a new scooter and increasing revenue share of higher margin three-wheeler should boost profitability.
Domestic demand for two-wheeler is expected to remain reasonable and we forecast a CGR(FY11-13E) of 12.5%. We believe TVS's rising market share in the scooter and three-wheeler segments should support a revenue CAGR (FY11-13E) of 17%. We are initiating with buy and a target price of Rs 100.
TVS has managed to garner a market share of 5% in the domestic three-wheeler (3W) market within two years of launch versus a 15% share in the two-wheeler segment where it has been operating for more than three decades.
We expect TVS to continue to increase it's footprint in the higher-margin 3W segment due to lower competitive intensity.
The firm recently launched a two-wheeler in the high-end segment. TVS's entry into new segments has expanded its addressable market and should enable it to grow faster than its peers.
Between FY04-09, TVS's margins deteriorated significantly due to a shift in revenues from motorcycles to lower priced scooters. Over FY10-13E, we expect revenues to move in favour of higher-margin 3Ws (8% in FY13E versus in FY10). This would result in Ebitda margins expanding from 4.7%in Fy10 to 6.3%in FY13E versus margin of 9.7% in FY03.
Our FY12E EPS is in line with concensus, whereas FY13E EPS and target price are above concensus. We value TVS at Rs 100 per share based on discounted cash flow (DCF).
Our target price implies a P/E multiple of 17xFY12E EPS. Risks that our projections face include a slower-than-expected ramp-up of three-wheeler volumes. More importantly, TVS has a loss making Indonesian subsidiary, which the management says will break even in FY12E.
A delay in the same could pose a risk to our rating.
Chennai may become India's detroit soon
With investments of $3 billion and a new national testing-R&D facility, the city is putting India on the global auto map. Chennai is emerging as the country’s largest automotive and auto components manufacturing hub in terms of investment. According to a state government official, over $3 billion (around Rs 13,800 crore) will be invested in Chennai by global car manufacturers by end of 2010-11. The proposed investment is significantly higher than other auto hubs like Gurgaon in Haryana.
Tamil Nadu Industry Secretary Rajeev Ranjan said the total installed capacity in and around Chennai would be 1.28 million cars a year by the end of the financial year. But, that figure is expected to go up significantly thanks to projects by Ford, Hyundai, BMW, Renault- Nissan and Mitsubishi-HM coming up in the area.
“Every third car produced in India is from in and around Chennai,” says Ranjan. Similarly, the region will see the manufacture of around 350,000 commercial vehicles a year by the end of 2010-11. In 2008-09, 560,000 passenger cars were manufactured, accounting for 30.6 per cent of India’s total production.
Haryana has an installed capacity of around 4.8 million vehicles (1.2 million for Maruti and 3.6 million for Hero Honda). Harley Davidson is also setting up an assembly unit at Bawal in Haryana, which will become operational by the first half of 2011. However, the company has not yet furnished details on its investment or production plans.
Maruti will produce 1.2 million cars from its facilities at Gurgaon and Manesar. Besides, it has plans to add two more plants at its Manesar unit to increase capacity by 0.5 million by 2013. The total investment in both plants is Rs 3,625 crore. Hero Honda, which is the largest producer of motorcycles in the world, has two plants in Haryana: at Gurgaon and Rewari. It produces 6,000 units a day at each.
The automotive industry occupies an important place in the industrial map of Tamil Nadu. The state’s innovative policy for the sector offers an attractive package of support to projects investing more than Rs 4,000 crore. As a result, since May 2006, investments attracted by Tamil Nadu in automotive and auto components manufacturing is around Rs 21,900 crore. That’s almost five times the investments attracted during previous 15 years. The employment potential, both direct and indirect, in these new projects is roughly 120,000.
Tamil Nadu Industry Secretary Rajeev Ranjan said the total installed capacity in and around Chennai would be 1.28 million cars a year by the end of the financial year. But, that figure is expected to go up significantly thanks to projects by Ford, Hyundai, BMW, Renault- Nissan and Mitsubishi-HM coming up in the area.
“Every third car produced in India is from in and around Chennai,” says Ranjan. Similarly, the region will see the manufacture of around 350,000 commercial vehicles a year by the end of 2010-11. In 2008-09, 560,000 passenger cars were manufactured, accounting for 30.6 per cent of India’s total production.
Haryana has an installed capacity of around 4.8 million vehicles (1.2 million for Maruti and 3.6 million for Hero Honda). Harley Davidson is also setting up an assembly unit at Bawal in Haryana, which will become operational by the first half of 2011. However, the company has not yet furnished details on its investment or production plans.
Maruti will produce 1.2 million cars from its facilities at Gurgaon and Manesar. Besides, it has plans to add two more plants at its Manesar unit to increase capacity by 0.5 million by 2013. The total investment in both plants is Rs 3,625 crore. Hero Honda, which is the largest producer of motorcycles in the world, has two plants in Haryana: at Gurgaon and Rewari. It produces 6,000 units a day at each.
The automotive industry occupies an important place in the industrial map of Tamil Nadu. The state’s innovative policy for the sector offers an attractive package of support to projects investing more than Rs 4,000 crore. As a result, since May 2006, investments attracted by Tamil Nadu in automotive and auto components manufacturing is around Rs 21,900 crore. That’s almost five times the investments attracted during previous 15 years. The employment potential, both direct and indirect, in these new projects is roughly 120,000.
3-day clinic for bikers put chennai in top gear
BIKE manufacturers India Yamaha conducted a riders clinic for aspiring bikers at the Madras Motor Sports Club Track in Irungattukottai. The three-day clinic, which concluded on Tuesday , saw a batch of 24 bikers strutting their trade.
The best performing riders (one from each class: novice and expert) will get exposure to international competition, as they would be given a chance to represent India and participate in the Yamaha ASEAN Cup Race to be held in Malaysia in December. The riding clinic, overseen by ex-GP biker Osamu Miyazaki, was aimed at providing an experience of racing instinct and unmatched perfor mance to young biking enthusiasts. The riders were trained on basic bike check up, correct riding posture, the right racing line, braking, cornering, etc in detail.
Speaking on the occasion, Yutaka Terada, director-sales and marketing, India Yamaha Motor said: "Motor Sports has always been an integral part of Yamaha's corpo rate culture since the company's founding. We plan to inculcate the true racing spirit among the Indian biking enthusiasts and aim to take the racing culture to new : heights within the country ."
The best performing riders (one from each class: novice and expert) will get exposure to international competition, as they would be given a chance to represent India and participate in the Yamaha ASEAN Cup Race to be held in Malaysia in December. The riding clinic, overseen by ex-GP biker Osamu Miyazaki, was aimed at providing an experience of racing instinct and unmatched perfor mance to young biking enthusiasts. The riders were trained on basic bike check up, correct riding posture, the right racing line, braking, cornering, etc in detail.
Speaking on the occasion, Yutaka Terada, director-sales and marketing, India Yamaha Motor said: "Motor Sports has always been an integral part of Yamaha's corpo rate culture since the company's founding. We plan to inculcate the true racing spirit among the Indian biking enthusiasts and aim to take the racing culture to new : heights within the country ."
Upswing in Auto Sector hiring
The job index maintained by Naukri.com, the empoyment portal, shows a significant rise in hiring by the automobile sector over the past year.
Their job index touched 917 last month, compared to 621 in December 2009 and 523 in December 2008. It showed, Delhi generates about 32 per cent of jobs in the sector, followed by Tamil Nadu with 20 per cent and Pune with 19 per cent.
The index began tracking jobs in the sector from July 2008 and there was a sudden dip of 29 per cent in the month of December 2008, said V Suresh, executive vice president and national head of sales for the portal. "This has been the highest monthly dip for the sector till date. In January 2009, the index dipped to an all-time low of 512 as compared to 523 in December 2008. Thus, low hiring sentiment and a jittery job scenario prevailed for the sector all through the first half of 2009," he said.
There was some recovery from July 2009 but strong hiring trends were only seen from February this year. The index for February 2010 clocked growth of 24 per cent over the previous month. The hiring momentum has been steady since then, with the August 2010 index surpassing the 900-mark for the first time since January 2009. August had also seen an all-time high in monthly car sales.
Now, with auto sales zooming, manufacturers are cranking up their capacities and car models, resulting in strong hiring trends across functions, said Suresh.
Their job index touched 917 last month, compared to 621 in December 2009 and 523 in December 2008. It showed, Delhi generates about 32 per cent of jobs in the sector, followed by Tamil Nadu with 20 per cent and Pune with 19 per cent.
The index began tracking jobs in the sector from July 2008 and there was a sudden dip of 29 per cent in the month of December 2008, said V Suresh, executive vice president and national head of sales for the portal. "This has been the highest monthly dip for the sector till date. In January 2009, the index dipped to an all-time low of 512 as compared to 523 in December 2008. Thus, low hiring sentiment and a jittery job scenario prevailed for the sector all through the first half of 2009," he said.
There was some recovery from July 2009 but strong hiring trends were only seen from February this year. The index for February 2010 clocked growth of 24 per cent over the previous month. The hiring momentum has been steady since then, with the August 2010 index surpassing the 900-mark for the first time since January 2009. August had also seen an all-time high in monthly car sales.
Now, with auto sales zooming, manufacturers are cranking up their capacities and car models, resulting in strong hiring trends across functions, said Suresh.
Electric two wheelers makers expect 100% jump in sale
With the government earmarking Rs.95-crore incentive package for electric two wheelers during the remaining part of the XI Plan, the Society of Manufacturers of Electric Vehicles on Monday expressed confidence that the electric two-wheeler market would witness 100 per cent growth.
As per a scheme approved by the Ministry of New and Renewable Energy (MNRE), the government will provide financial incentive for each electric vehicle sold in the domestic market during the remaining part of the XI Plan (2010-12). The scheme, effective from November 11, envisages incentives of up to 20 per cent on ex-factory prices of the vehicles, subject to a maximum limit.
The cap on the incentive will be Rs.4,000 for low speed electric two-wheelers, Rs.5,000 for high speed electric two-wheelers, Rs.60,000 for seven-seater three-wheeler and Rs.1 lakh for an electric car.
“This will impact sales of electric two-wheelers in a positive manner. In terms of monthly sales, we expect an immediate doubling of sales,'' Society of Manufacturers of Electric Vehicles Director Sohinder Gill said.
“Although these incentives are for the manufacturers to carry out R&D activities and to increase capacities, we will surely pass on partial benefits to the buyers,'' he added.
On an average, electric two-wheelers are priced between Rs.25,000 and Rs.40,000 depending on the speed range. For this fiscal, the government will support 20,000 units and 10,000 units of low and high speed two-wheelers, respectively.
As per a scheme approved by the Ministry of New and Renewable Energy (MNRE), the government will provide financial incentive for each electric vehicle sold in the domestic market during the remaining part of the XI Plan (2010-12). The scheme, effective from November 11, envisages incentives of up to 20 per cent on ex-factory prices of the vehicles, subject to a maximum limit.
The cap on the incentive will be Rs.4,000 for low speed electric two-wheelers, Rs.5,000 for high speed electric two-wheelers, Rs.60,000 for seven-seater three-wheeler and Rs.1 lakh for an electric car.
“This will impact sales of electric two-wheelers in a positive manner. In terms of monthly sales, we expect an immediate doubling of sales,'' Society of Manufacturers of Electric Vehicles Director Sohinder Gill said.
“Although these incentives are for the manufacturers to carry out R&D activities and to increase capacities, we will surely pass on partial benefits to the buyers,'' he added.
On an average, electric two-wheelers are priced between Rs.25,000 and Rs.40,000 depending on the speed range. For this fiscal, the government will support 20,000 units and 10,000 units of low and high speed two-wheelers, respectively.
Bajaj, KTM, Kawasaki plan global pact
The alliance will lead to products suitable to the three companies’ strategy and brand.
In an attempt to give its international plans a major fillip, Bajaj Auto, the country's second-largest motorcycle maker, is working towards bringing the technological prowess of Austrian bike maker KTM and Kawasaki of Japan together to form a global alliance.
The three companies are discussing the matter, which would lead to cost-effective manufacturing programmes for engines, platforms and components, and also a global distribution and marketing set-up.
Developed platforms can be used by the three companies to create different products suitable to their strategy and brand. Platform sharing is more common in car and sport utility vehicle industry, where some companies have multiple brands.
Pune-based Bajaj Auto has a 38.09 per cent stake in KTM, which specialises in making stylish street and off-road bikes. The two companies are in the process of developing a range of high-performance engines to serve domestic and international markets.
This new range of low- and high-capacity engines can be tapped by Kawasaki, one of the world's largest bike makers and a long-time technical partner of Bajaj Auto.
Such a multiple use of similar engines would ease the cost of manufacturing in the long run, said Rajiv Bajaj, managing director of Bajaj Auto.
"Every component is not common, but the basics, like crank cases, shafts and gears, are very similar. So, the trick is one must have scale at the back end, but one must also have specialisation in the front. So, at the front end one, we will sell a (Kawasaki) Ninja, a (KTM) Duke and a (Bajaj) Pulsar, but at the back end, they may have lot of commonality," Bajaj said.
KTM is preparing to launch Duke, a 125cc motorcycle, next year in India. The engine of the bike, likely to be priced above Rs 1 lakh, is developed by KTM and Bajaj.
"With the same people, same knowledge, same standards, they will be making those common parts," Bajaj stated.
Kawasaki - which has so far maintained a low profile in the Indian market, following increasing research and development (R&D) independence of Bajaj Auto - recently formed a subsidiary in India due to increasing demand for its Ninja 250R motorcycle.
The Japanese auto company is studying other emerging markets like China, Southeast Asia and Latin America, to carry over its alliance with Bajaj Auto.
Kawasaki is importing automotive components using the supplier base of Bajaj Auto for models sold in other parts of Asia and aims to start parts supplies to developed market of the United States and Europe.
While Bajaj Auto is helping Kawasaki by selling the latter's models in India through its own dealers, Kawasaki will provide the same assistance to Bajaj Auto in far away international markets. KTM and Kawasaki's products will come out of Bajaj Auto's Chakan plant in Pune.
At present, Kawasaki sells Bajaj bikes in countries like Columbia and the Philippines, and is exploring newer market for further expansion. Likewise, Bajaj plans to use KTM's extensive dealer network in Europe and the US to make a foray with its own range of two-wheelers.
In an attempt to give its international plans a major fillip, Bajaj Auto, the country's second-largest motorcycle maker, is working towards bringing the technological prowess of Austrian bike maker KTM and Kawasaki of Japan together to form a global alliance.
The three companies are discussing the matter, which would lead to cost-effective manufacturing programmes for engines, platforms and components, and also a global distribution and marketing set-up.
Developed platforms can be used by the three companies to create different products suitable to their strategy and brand. Platform sharing is more common in car and sport utility vehicle industry, where some companies have multiple brands.
Pune-based Bajaj Auto has a 38.09 per cent stake in KTM, which specialises in making stylish street and off-road bikes. The two companies are in the process of developing a range of high-performance engines to serve domestic and international markets.
This new range of low- and high-capacity engines can be tapped by Kawasaki, one of the world's largest bike makers and a long-time technical partner of Bajaj Auto.
Such a multiple use of similar engines would ease the cost of manufacturing in the long run, said Rajiv Bajaj, managing director of Bajaj Auto.
"Every component is not common, but the basics, like crank cases, shafts and gears, are very similar. So, the trick is one must have scale at the back end, but one must also have specialisation in the front. So, at the front end one, we will sell a (Kawasaki) Ninja, a (KTM) Duke and a (Bajaj) Pulsar, but at the back end, they may have lot of commonality," Bajaj said.
KTM is preparing to launch Duke, a 125cc motorcycle, next year in India. The engine of the bike, likely to be priced above Rs 1 lakh, is developed by KTM and Bajaj.
"With the same people, same knowledge, same standards, they will be making those common parts," Bajaj stated.
Kawasaki - which has so far maintained a low profile in the Indian market, following increasing research and development (R&D) independence of Bajaj Auto - recently formed a subsidiary in India due to increasing demand for its Ninja 250R motorcycle.
The Japanese auto company is studying other emerging markets like China, Southeast Asia and Latin America, to carry over its alliance with Bajaj Auto.
Kawasaki is importing automotive components using the supplier base of Bajaj Auto for models sold in other parts of Asia and aims to start parts supplies to developed market of the United States and Europe.
While Bajaj Auto is helping Kawasaki by selling the latter's models in India through its own dealers, Kawasaki will provide the same assistance to Bajaj Auto in far away international markets. KTM and Kawasaki's products will come out of Bajaj Auto's Chakan plant in Pune.
At present, Kawasaki sells Bajaj bikes in countries like Columbia and the Philippines, and is exploring newer market for further expansion. Likewise, Bajaj plans to use KTM's extensive dealer network in Europe and the US to make a foray with its own range of two-wheelers.
TVS Motor launches 24-hour service facility for 3-wheelers
TVS Motor Company has launched a service programme for its auto-rickshaws, according to a press release from the company. The programme, TVS Service Anytime Anywhere, will provide emergency service to TVS King 3-wheeler owners and drivers round the clock at auto stands. Trained technicians with auto-rickshaws, equipped with tools and spare parts, will be positioned at strategic locations in Chennai to offer “service on call”. Customers can call Ramkay TVS on 95001 33333 for one of these mobile units to respond.
Bajaj to manufacture commercial vehicles at its small car plant
India’s second-largest motorcycle maker Bajaj Auto Ltd plans to manufacture commercial vehicles as well on a new platform it is developing in Waluj, Maharashtra, for its small car project, said two people familiar with the development.
“Bajaj Auto Ltd intends to develop a multidimensional platform through which it can manufacture commercial vehicles and passenger cars,” said an industry expert, requesting anonymity.
A Bajaj Auto executive confirmed the plan.
“What we are trying to do is to develop a four-wheeler platform, and then we will see what else can we get out of the new platform,” said the executive, who also did not want to be named.
A company spokesperson declined comment.
The Waluj plant is being set up at a cost of Rs.500 crore, the company has earlier stated.
Of this, Rs.225-250 crore has been earmarked for investment in the current fiscal, said the expert cited above.
India’s largest two-wheeler manufacturer had announced plans to launch a small car this year that will rival the Nano, the world’s cheapest car built by Tata Motors Ltd. The launch was later deferred to 2012.
Bajaj Auto is developing the small car project in partnership with Renault SA and Nissan Motor Co. Ltd. While Bajaj Auto will handle design, engineering, sourcing and manufacturing, Renault-Nissan will take care of marketing and sales.
The alliance wants to sell the car for $2,500, or Rs.1.10 lakh, compared with the Nano’s ex-showrom price of around Rs.1.5 lakh in Mumbai.
Bajaj Auto has also said it hopes to make the car engine twice as fuel efficient as the best available in the market.
Small cars in India have an average fuel efficiency of 17km per litre. Bajaj wants to lift that to around 30km per litre.
Nano’s fuel efficiency is 23.6km per litre, according to Automotive Research Association of India.
“Bajaj Auto Ltd intends to develop a multidimensional platform through which it can manufacture commercial vehicles and passenger cars,” said an industry expert, requesting anonymity.
A Bajaj Auto executive confirmed the plan.
“What we are trying to do is to develop a four-wheeler platform, and then we will see what else can we get out of the new platform,” said the executive, who also did not want to be named.
A company spokesperson declined comment.
The Waluj plant is being set up at a cost of Rs.500 crore, the company has earlier stated.
Of this, Rs.225-250 crore has been earmarked for investment in the current fiscal, said the expert cited above.
India’s largest two-wheeler manufacturer had announced plans to launch a small car this year that will rival the Nano, the world’s cheapest car built by Tata Motors Ltd. The launch was later deferred to 2012.
Bajaj Auto is developing the small car project in partnership with Renault SA and Nissan Motor Co. Ltd. While Bajaj Auto will handle design, engineering, sourcing and manufacturing, Renault-Nissan will take care of marketing and sales.
The alliance wants to sell the car for $2,500, or Rs.1.10 lakh, compared with the Nano’s ex-showrom price of around Rs.1.5 lakh in Mumbai.
Bajaj Auto has also said it hopes to make the car engine twice as fuel efficient as the best available in the market.
Small cars in India have an average fuel efficiency of 17km per litre. Bajaj wants to lift that to around 30km per litre.
Nano’s fuel efficiency is 23.6km per litre, according to Automotive Research Association of India.
Yamaha FZ1 coming in December
After launching the iconic Yamaha R1 and MT-01 , India Yamaha Motors is now planning to introduce Yamaha FZ1 in India in a bid to corner the high-margin power bike market. The super bike will be launched in December and will be priced between Rs 8-9 lakh.
Yamaha FZ1, with its 1000cc and four cylinders , would compete with the recentlylaunched Honda CB1000R. It is pitted in the same category as the Suzuki Bandit and Kawasaki Z1000S in the international market.
Superbikes are big-performance bikes with engine capacity of 500 cc and above. Japanese automakers such as Honda, Yamaha and Kawasaki are top players in superbikes space along with Ducati and BMW . Most of them are now present in India.
Japanese bike manufacturer is believed to have sent the FZ1 for homologation. “The bike is priced cheaper than the Honda CB1000R, which is the cheapest imported superbike currently sold. The bike will be imported as CBU from Australia or Japan,” said people close to development. It is also believed to be considering the semi-knocked down (SKD) route for the FZ1. This will help Yamaha to price the FZ1 competitively.
Yamaha, which sells super bikes in the range of Rs 14-24 lakh, plans to sell over 80-100 super bikes in India in 2010. The company hopes bike enthusiasts will overlook the cost factor and lap up its products just for the iconic value they have gained on other markets, said people close to the development. Such bikes are often featured in local automobile magazines which are read by most bike enthusiasts, who are a target market.
“There will be fierce competition in coming time, so we are gearing up for that. the company is following top to bottom strategy to conenct to the youth,” said a senior official from India Yamaha . Besides, the company is firming up plans to enhance capacity at its existing plant in Uttar Pradesh and Haryana. “We have a order backlog of 10,000 every month and plans to debottle the manufacturing plant to cater to the growing demand ,” said the official. Currently it has the capacity to manufacture 3.5 lakh bikes, this can be ramped up to 8 lakhs.
Yamaha FZ1, with its 1000cc and four cylinders , would compete with the recentlylaunched Honda CB1000R. It is pitted in the same category as the Suzuki Bandit and Kawasaki Z1000S in the international market.
Superbikes are big-performance bikes with engine capacity of 500 cc and above. Japanese automakers such as Honda, Yamaha and Kawasaki are top players in superbikes space along with Ducati and BMW . Most of them are now present in India.
Japanese bike manufacturer is believed to have sent the FZ1 for homologation. “The bike is priced cheaper than the Honda CB1000R, which is the cheapest imported superbike currently sold. The bike will be imported as CBU from Australia or Japan,” said people close to development. It is also believed to be considering the semi-knocked down (SKD) route for the FZ1. This will help Yamaha to price the FZ1 competitively.
Yamaha, which sells super bikes in the range of Rs 14-24 lakh, plans to sell over 80-100 super bikes in India in 2010. The company hopes bike enthusiasts will overlook the cost factor and lap up its products just for the iconic value they have gained on other markets, said people close to the development. Such bikes are often featured in local automobile magazines which are read by most bike enthusiasts, who are a target market.
“There will be fierce competition in coming time, so we are gearing up for that. the company is following top to bottom strategy to conenct to the youth,” said a senior official from India Yamaha . Besides, the company is firming up plans to enhance capacity at its existing plant in Uttar Pradesh and Haryana. “We have a order backlog of 10,000 every month and plans to debottle the manufacturing plant to cater to the growing demand ,” said the official. Currently it has the capacity to manufacture 3.5 lakh bikes, this can be ramped up to 8 lakhs.
Honda's exit from Hero depends on returns
A private equity (PE)-assisted buyout of Honda Motor Co. Ltd’s stake in motorcycle maker Hero Honda Motors Ltd hinges on the Indian promoters, the Munjal family, being able to guarantee returns once the new entity comes into being, said three persons familiar with the discussions, who did not want to be identified.
This return is determined by the discount the Munjals are willing to offer on the current share price to the PE firms. Hero Honda’s shares closed at Rs. 1,953 apiece on the Bombay Stock Exchange on Tuesday.
Japanese auto maker Honda’s 26% stake in the 26-year-old joint venture (JV), Hero Honda, is worth approximately $2 billion (Rs. 9,120 crore) at the company’s current market cap of Rs. 38,853 crore.
The negotiations, which could extend over the next 6-12 months, are aimed at narrowing the gap with valuations by PE funds, said to include Warburg Pincus Llc, Kohlberg Kravis Roberts and Co. and the Carlyle Group, the same persons said.
A Hero Honda spokesperson refused to comment, as did the PE investors, while a Honda spokesperson said he was not authorized to comment on the issue.
“Hero (the Munjal family) has to guarantee returns somehow,” said a senior official with a top consultancy firm familiar with the development. “The expected purchase will go through only if the Munjal family is able to guarantee results once the new entity comes into being.”
The same person said Honda’s evaluation of its 26% share “is on the table and unlikely to change. The Japanese party is sitting pretty. The terms being debated are by Hero and the PEs”.
Meanwhile, the structure of the deal is still being finalized, an investment banker familiar with the development has said. “Private equity funds, the only ones who can provide the kind of liquidity required for the purchase”, will be paying $500 million each. The person did not want to be identified.
“The promoters will borrow a further $500 million for picking up the remaining shares, which will be used as collateral in case the new entity fails,” the investment banker said.
Another detail being discussed is a non-compete agreement between the Indian and Japanese parties, said a management consultant familiar with the deal.
Meanwhile, Hero Honda, which is the market leader in two-wheeler sales, is facing an erosion in market share. In the quarter ended September, this fell to 52.9% from 60.4% in the same period last year, according to data from the Society of Indian Automobile Manufacturers.
Analysts say the firm is losing ground to Bajaj Auto Ltd, which re-entered the 100cc motorcycle segment in July 2009. It has also not been able to keep pace with the spurt in demand because of capacity constraints. Bajaj Auto’s market share increased to 34% from 29% a year earlier.
Honda’s exit from Hero is not the first such separation between Japanese and Indian partners. In 2000, Suzuki Motor Corp. pulled out of its JV with TVS Motor Co., which bought the 25.97% stake of the Japanese company for Rs. 9 crore, much lower than an estimated Rs. 52.4 crore it was worth based on the prevailing share price.
Honda has previously exited its JV with the Firodias and sold its stake in Kinetic Honda to the Indian promoter. LML had problems with Piaggio, resulting in the Indian promoter buying out the stake held by the Italian partner. Yamaha bought out its Indian partner’s stake in the Escorts Yamaha JV.
Both Suzuki and Honda are present in the Indian two-wheeler market through fully owned subsidiaries.
This return is determined by the discount the Munjals are willing to offer on the current share price to the PE firms. Hero Honda’s shares closed at Rs. 1,953 apiece on the Bombay Stock Exchange on Tuesday.
Japanese auto maker Honda’s 26% stake in the 26-year-old joint venture (JV), Hero Honda, is worth approximately $2 billion (Rs. 9,120 crore) at the company’s current market cap of Rs. 38,853 crore.
The negotiations, which could extend over the next 6-12 months, are aimed at narrowing the gap with valuations by PE funds, said to include Warburg Pincus Llc, Kohlberg Kravis Roberts and Co. and the Carlyle Group, the same persons said.
A Hero Honda spokesperson refused to comment, as did the PE investors, while a Honda spokesperson said he was not authorized to comment on the issue.
“Hero (the Munjal family) has to guarantee returns somehow,” said a senior official with a top consultancy firm familiar with the development. “The expected purchase will go through only if the Munjal family is able to guarantee results once the new entity comes into being.”
The same person said Honda’s evaluation of its 26% share “is on the table and unlikely to change. The Japanese party is sitting pretty. The terms being debated are by Hero and the PEs”.
Meanwhile, the structure of the deal is still being finalized, an investment banker familiar with the development has said. “Private equity funds, the only ones who can provide the kind of liquidity required for the purchase”, will be paying $500 million each. The person did not want to be identified.
“The promoters will borrow a further $500 million for picking up the remaining shares, which will be used as collateral in case the new entity fails,” the investment banker said.
Another detail being discussed is a non-compete agreement between the Indian and Japanese parties, said a management consultant familiar with the deal.
Meanwhile, Hero Honda, which is the market leader in two-wheeler sales, is facing an erosion in market share. In the quarter ended September, this fell to 52.9% from 60.4% in the same period last year, according to data from the Society of Indian Automobile Manufacturers.
Analysts say the firm is losing ground to Bajaj Auto Ltd, which re-entered the 100cc motorcycle segment in July 2009. It has also not been able to keep pace with the spurt in demand because of capacity constraints. Bajaj Auto’s market share increased to 34% from 29% a year earlier.
Honda’s exit from Hero is not the first such separation between Japanese and Indian partners. In 2000, Suzuki Motor Corp. pulled out of its JV with TVS Motor Co., which bought the 25.97% stake of the Japanese company for Rs. 9 crore, much lower than an estimated Rs. 52.4 crore it was worth based on the prevailing share price.
Honda has previously exited its JV with the Firodias and sold its stake in Kinetic Honda to the Indian promoter. LML had problems with Piaggio, resulting in the Indian promoter buying out the stake held by the Italian partner. Yamaha bought out its Indian partner’s stake in the Escorts Yamaha JV.
Both Suzuki and Honda are present in the Indian two-wheeler market through fully owned subsidiaries.
TVS launches TRU4 engine oil
Two wheeler manufacturer TVS Motor Company today launched semi-synthetic 4stroke engine oil 'TRU4 Premium' offering better fuel economy, longevity of engine life and lower emission levels.
TRU4 comes with higher standard of certification from Japanese Automotive Standards Organisation - JASO MA2 and American Petroleum Institute-API SL, TVS Motor Company said in a statement here.
TVS TRU4 Premium is blended with highly purified water-white, high viscosity index base oils. It uses an advanced formulation technology for extreme thermal conditions to establish superior thermal stability both at high and low temperatures, it said.
The product is available in one litre and 900 ml packs and is priced Rs 235 per litre, the statement added.
TRU4 comes with higher standard of certification from Japanese Automotive Standards Organisation - JASO MA2 and American Petroleum Institute-API SL, TVS Motor Company said in a statement here.
TVS TRU4 Premium is blended with highly purified water-white, high viscosity index base oils. It uses an advanced formulation technology for extreme thermal conditions to establish superior thermal stability both at high and low temperatures, it said.
The product is available in one litre and 900 ml packs and is priced Rs 235 per litre, the statement added.
Bajaj to add dealers, upgrade centres
Two-wheeler maker Bajaj Auto Ltd plans to add 130 new dealerships, largely in small towns, taking its total dealerships to 600, and upgrade 1,100 service centres over the next one year to meet its growth targets.
Mr S. Sridhar, President, Motorcycle Business, BAL said, “We are well-placed in terms of distribution as far as Pulsar – a premium brand, with an urban focus – is concerned. Discover, which is a mass commuter, has huge potential in the smaller towns.
“While its growth in terms of volumes and market share has been outstanding, the next big boost will come from increasing the share in these towns and in rural India which accounts for more than 50 per cent sales of this category. These new dealerships will help the company to increase the share that this model has in the smaller towns, which are today inadequately catered to by only the secondary network.”
The 10 proposed new dealerships in Maharashtra will be in Sagamner, Chalisgaon, Bhandara, Nagpur, Hingoli, Aurangabad, Icchalkaranji, Washim, Pune and Solapur.
Design focus
He added, “We are also working with a reputed international retail design agency to enhance the experience at our dealerships. The new showroom design will also incorporate the twin brand strategy of the company. This showroom upgradation plan will be implemented phase-wise across all our dealerships over the next year.” The company is simultaneously upgrading service centres to support the advanced technology used in Discover and Pulsar. “Around 1,100 service centres are being upgraded at an investment of more than Rs 18 crore,” Mr Sridhar said. A typical Bajaj dealership in these towns requires 1,800 sq. ft. of showroom space, 2,200 sq ft. of workshop space, and has potential to employ around 50 people.
Mr S. Sridhar, President, Motorcycle Business, BAL said, “We are well-placed in terms of distribution as far as Pulsar – a premium brand, with an urban focus – is concerned. Discover, which is a mass commuter, has huge potential in the smaller towns.
“While its growth in terms of volumes and market share has been outstanding, the next big boost will come from increasing the share in these towns and in rural India which accounts for more than 50 per cent sales of this category. These new dealerships will help the company to increase the share that this model has in the smaller towns, which are today inadequately catered to by only the secondary network.”
The 10 proposed new dealerships in Maharashtra will be in Sagamner, Chalisgaon, Bhandara, Nagpur, Hingoli, Aurangabad, Icchalkaranji, Washim, Pune and Solapur.
Design focus
He added, “We are also working with a reputed international retail design agency to enhance the experience at our dealerships. The new showroom design will also incorporate the twin brand strategy of the company. This showroom upgradation plan will be implemented phase-wise across all our dealerships over the next year.” The company is simultaneously upgrading service centres to support the advanced technology used in Discover and Pulsar. “Around 1,100 service centres are being upgraded at an investment of more than Rs 18 crore,” Mr Sridhar said. A typical Bajaj dealership in these towns requires 1,800 sq. ft. of showroom space, 2,200 sq ft. of workshop space, and has potential to employ around 50 people.
Two-wheeler capacities may touch 15 m next fiscal
Two-wheeler plant capacities across India are projected to be close to 15 million units in 2011-12, as manufacturers plan to go flat out in a buoyant market. This would translate into a 25 per cent jump from this fiscal, which is expected to close at a little over 12 million units.
Despite this impressive number, India is still behind China whose annual output of two-wheelers is in the range of 20 million units, but sources say that it is only a matter of time before the leadership equations change. “China is rapidly moving towards cars and bikes will see a gradual decline in the process. On the other hand, demand in India is literally growing by the day,” they add.
Hero Honda, Bajaj
In 2011-12, market leader, Hero Honda is expected to finalise the location of its fourth plant which means its overall capacity could end up being over 5.5 million units. Its closest rival, Bajaj Auto, has planned around 4.5 million units for its three plants, with three-wheelers taking up the balance 500,000 units.
TVS Motor Company and Honda Motorcycle & Scooter India could have around 4.5 million units between themselves. Other players like Mahindra, Suzuki and Yamaha are also planning to increase capacities though their combined numbers would be well under a million units.
While motorcycles continue to dominate the landscape, gearless scooters have been doing brisk business, too. The wave started in the mid-1980s with Kinetic Honda but since then, HMSI and TVS Motor have been the clear frontrunners in this product category. The Activa continues to be the market leader, while the recently introduced TVS Wego has caught the fancy of customers. M&M's scooters, likewise, have been averaging reasonable numbers each month.
Gearless scooters
Gearless scooters are the best option in chaotic traffic conditions and have ceased to be a gender-specific option as was the case decades ago when they first hit the roads. There is no question, though, that women have emerged a critical buyer base, which explains why top celebrities from Bollywood (Priyanka Chopra, Preity Zinta and Kareena Kapoor) endorse scooters from the stables of Hero Honda, TVS and M&M.
Relatively poor public transport in most Tier-2 and-3 centres has also prompted working women to go in for gearless scooters. The fact that cities are paying more attention to building better roads has helped improve connectivity and fuelled demand in the process.
In motorcycles, the executive commuter segment (Rs 40,000-45,000) continues to be the top seller, with monthly sales closer to the 4.5 lakh mark. The top brands here include the Splendor, Discover and Passion. Manufacturers believe that the near future could see more customers gravitating towards higher-end bikes such as the Pulsar, Unicorn and Apache which are priced upwards of Rs 60,000.
This possibly explains why companies like HMSI are bringing in bikes like the CBR 250cc which will retail at less than Rs 1.5 lakh and endeavour to build a new customer base. “India is the youngest market in the world for bikes and these buyers with higher aspiration levels are willing to spend more money,” an industry official said.
Despite this impressive number, India is still behind China whose annual output of two-wheelers is in the range of 20 million units, but sources say that it is only a matter of time before the leadership equations change. “China is rapidly moving towards cars and bikes will see a gradual decline in the process. On the other hand, demand in India is literally growing by the day,” they add.
Hero Honda, Bajaj
In 2011-12, market leader, Hero Honda is expected to finalise the location of its fourth plant which means its overall capacity could end up being over 5.5 million units. Its closest rival, Bajaj Auto, has planned around 4.5 million units for its three plants, with three-wheelers taking up the balance 500,000 units.
TVS Motor Company and Honda Motorcycle & Scooter India could have around 4.5 million units between themselves. Other players like Mahindra, Suzuki and Yamaha are also planning to increase capacities though their combined numbers would be well under a million units.
While motorcycles continue to dominate the landscape, gearless scooters have been doing brisk business, too. The wave started in the mid-1980s with Kinetic Honda but since then, HMSI and TVS Motor have been the clear frontrunners in this product category. The Activa continues to be the market leader, while the recently introduced TVS Wego has caught the fancy of customers. M&M's scooters, likewise, have been averaging reasonable numbers each month.
Gearless scooters
Gearless scooters are the best option in chaotic traffic conditions and have ceased to be a gender-specific option as was the case decades ago when they first hit the roads. There is no question, though, that women have emerged a critical buyer base, which explains why top celebrities from Bollywood (Priyanka Chopra, Preity Zinta and Kareena Kapoor) endorse scooters from the stables of Hero Honda, TVS and M&M.
Relatively poor public transport in most Tier-2 and-3 centres has also prompted working women to go in for gearless scooters. The fact that cities are paying more attention to building better roads has helped improve connectivity and fuelled demand in the process.
In motorcycles, the executive commuter segment (Rs 40,000-45,000) continues to be the top seller, with monthly sales closer to the 4.5 lakh mark. The top brands here include the Splendor, Discover and Passion. Manufacturers believe that the near future could see more customers gravitating towards higher-end bikes such as the Pulsar, Unicorn and Apache which are priced upwards of Rs 60,000.
This possibly explains why companies like HMSI are bringing in bikes like the CBR 250cc which will retail at less than Rs 1.5 lakh and endeavour to build a new customer base. “India is the youngest market in the world for bikes and these buyers with higher aspiration levels are willing to spend more money,” an industry official said.
Scooters post over 52% sales jump during Apr-Oct
New Delhi: Hamara Bajaj may have driven into the sunset believing that scooters are unviable business but the segment is proving the sceptics wrong, posting over 52 percent jump in sales in the first 7 months this fiscal over the same period last year.
According to Society of Indian Automobile Manufacturers (SIAM), the domestic scooter segment witnessed sales of 11,63,127 units during April-October, 2010-11 compared to 7,64,643 units in the year-ago period.
Repositioning of products, targeting new customer segments and entry of new players led by firms such as Honda Motorcycle & Scooter India (HMSI) has resulted in revival of the scooter market in the country.
"At one point, people had written off scooters. However, scooters have been repositioned and it has helped. It is doing exceedingly well by targeting a different segment of customers," SIAM Director General Vishnu Mathur said.
In October alone, the segment witnessed 104.27 percent jump in sales to 1,88,633 units compared to 92,346 units in the month last year.
Mathur said the demand from urban areas, mainly women and young people, is driving the robust revival of the scooter market.
During 2009-10, scooter sales in the domestic market stood at 14,62,507 units compared to 11,48,007 units in the previous fiscal, up 27.40 per cent.
The current market leader HMSI sold 5,20,466 units in the first 7 months of this fiscal, a jump of 35.41 percent over 3,84,369 units in the same period last year, SIAM said. The firm commands 44.75 percent market share at present.
"The latent demand for scooter was always there because of its utility value; it was a question of bringing the right product. When the scooter market was down, it needed a leader to revive the segment," HMSI Operating Head (Sales and Marketing) NK Rattan said.
In December 2009, Bajaj Auto had said that it would stop making scooters as it was no longer a viable business with motorcycles taking over the Indian two-wheeler market. However, industry observers say that HMSI and other companies may be proving Bajaj Auto's decision wrong as scooter sales continue to surge.
"By catering to different segments and by introducing new products and continuously upgrading them, we have played the role of leader in reviving the scooter market," Rattan said.
Chennai-based TVS Motor Co has registered 44.82 percent rise in scooter sales this fiscal at 2,54,812 units as against 1,75,953 units. It has a market share of 21.91 percent.
The country's largest motorcycle maker Hero Honda also witnessed 58.26 percent growth during April-October period in scooter sales to 1,76,950 units compared to 1,11,811 units. It commands market share of 15.21 percent.
"Scooter is a product whose time has come. Many other players have also come into the market and is helping in expanding the segment," Hero Honda Senior vice president (Marketing and Sales) Anil Dua said.
The company's scooter market is 70 per cent dominated by women as they find it more convenient, he added
According to Society of Indian Automobile Manufacturers (SIAM), the domestic scooter segment witnessed sales of 11,63,127 units during April-October, 2010-11 compared to 7,64,643 units in the year-ago period.
Repositioning of products, targeting new customer segments and entry of new players led by firms such as Honda Motorcycle & Scooter India (HMSI) has resulted in revival of the scooter market in the country.
"At one point, people had written off scooters. However, scooters have been repositioned and it has helped. It is doing exceedingly well by targeting a different segment of customers," SIAM Director General Vishnu Mathur said.
In October alone, the segment witnessed 104.27 percent jump in sales to 1,88,633 units compared to 92,346 units in the month last year.
Mathur said the demand from urban areas, mainly women and young people, is driving the robust revival of the scooter market.
During 2009-10, scooter sales in the domestic market stood at 14,62,507 units compared to 11,48,007 units in the previous fiscal, up 27.40 per cent.
The current market leader HMSI sold 5,20,466 units in the first 7 months of this fiscal, a jump of 35.41 percent over 3,84,369 units in the same period last year, SIAM said. The firm commands 44.75 percent market share at present.
"The latent demand for scooter was always there because of its utility value; it was a question of bringing the right product. When the scooter market was down, it needed a leader to revive the segment," HMSI Operating Head (Sales and Marketing) NK Rattan said.
In December 2009, Bajaj Auto had said that it would stop making scooters as it was no longer a viable business with motorcycles taking over the Indian two-wheeler market. However, industry observers say that HMSI and other companies may be proving Bajaj Auto's decision wrong as scooter sales continue to surge.
"By catering to different segments and by introducing new products and continuously upgrading them, we have played the role of leader in reviving the scooter market," Rattan said.
Chennai-based TVS Motor Co has registered 44.82 percent rise in scooter sales this fiscal at 2,54,812 units as against 1,75,953 units. It has a market share of 21.91 percent.
The country's largest motorcycle maker Hero Honda also witnessed 58.26 percent growth during April-October period in scooter sales to 1,76,950 units compared to 1,11,811 units. It commands market share of 15.21 percent.
"Scooter is a product whose time has come. Many other players have also come into the market and is helping in expanding the segment," Hero Honda Senior vice president (Marketing and Sales) Anil Dua said.
The company's scooter market is 70 per cent dominated by women as they find it more convenient, he added
TN to come out with auto policy soon
The Tamil Nadu Government will soon announce an automotive sector-specific policy to build up on the strong automobile industry base the State already has. The policy details were being worked out by the State Manufacturing Competitive Council, said Mr Rajeev Ranjan, Industry Secretary to the State.
In his keynote address to the Auto Serve 2010, organised here by the Confederation of Indian Industry, he said the State already has a production base of six major car companies in addition to commercial vehicles and tyres, and will soon receive more investments in this sector.
Earlier addressing the gathering, Mr R. Seshasayee, Managing Director, Ashok Leyland, said there is a huge skill gap and called for collective efforts and investments in skill development.
“The automotive sector should continue to work together as a networked body to manage and monitor the changes and challenges in the industry collectively,” he said.
The growing automotive aftermarket presents a large opportunity for layers across the value chain. However, with the market demand for parts and services set to double over the next five years, being able to satisfy this demand is a significant challenge, says a CII study on Opportunities in the Indian automotive aftermarket.
The study conducted by McKinsey further says, companies across the value chain will have to double their capacity as well as enhance capabilities to produce parts for and service a wider variety and complexity of vehicles. This will require significant additional investments. The reason why both the automotive dealer fraternity and the after-market servicing equipment industry are being upbeat is the same – the massive base of vehicles that will now need regular repairs and maintenance. The base of vehicles (including two-wheelers, cars, utility vehicles and commercial vehicles) now on the roads in India is estimated to be nearly 120 million units.
The market for automotive repairs and service maintenance in the US is estimated to be over $ 100 billion.
The numbers are pretty promising here too. The Indian automotive aftermarket is expected to grow to around $ 9.4 billion by 2015 from its present estimated size $ 3.7 billion.
In his keynote address to the Auto Serve 2010, organised here by the Confederation of Indian Industry, he said the State already has a production base of six major car companies in addition to commercial vehicles and tyres, and will soon receive more investments in this sector.
Earlier addressing the gathering, Mr R. Seshasayee, Managing Director, Ashok Leyland, said there is a huge skill gap and called for collective efforts and investments in skill development.
“The automotive sector should continue to work together as a networked body to manage and monitor the changes and challenges in the industry collectively,” he said.
The growing automotive aftermarket presents a large opportunity for layers across the value chain. However, with the market demand for parts and services set to double over the next five years, being able to satisfy this demand is a significant challenge, says a CII study on Opportunities in the Indian automotive aftermarket.
The study conducted by McKinsey further says, companies across the value chain will have to double their capacity as well as enhance capabilities to produce parts for and service a wider variety and complexity of vehicles. This will require significant additional investments. The reason why both the automotive dealer fraternity and the after-market servicing equipment industry are being upbeat is the same – the massive base of vehicles that will now need regular repairs and maintenance. The base of vehicles (including two-wheelers, cars, utility vehicles and commercial vehicles) now on the roads in India is estimated to be nearly 120 million units.
The market for automotive repairs and service maintenance in the US is estimated to be over $ 100 billion.
The numbers are pretty promising here too. The Indian automotive aftermarket is expected to grow to around $ 9.4 billion by 2015 from its present estimated size $ 3.7 billion.
Bajaj to ride on Pulsar, Discover brand identities
Bajaj to ride on Pulsar, Discover brand identities
Bajaj Auto will incorporate its twin brand strategy of the Pulsar and Discover across all its dealerships with the help of a UK-based design house.
“Within the company, we have aligned ourselves to this brand statement and the next step is to take it to all our dealerships so that customers will have a clear understanding of what we stand for. The brand identity will be the main focus while the Bajaj corporate identity, in contrast, will be understated,” Mr S. Sridhar, President, Motorcycle Business, told Business Line.
This is keeping in line with the company's priority to focus on brands, and not just products, which it believes will hold the key to growth in the future. The Discover and Pulsar have played a big role in doubling its market share in bikes to nearly 35 per cent in the last 12-15 months and combined volumes of the two brands are nearly 2.5 lakh units each month.
The transition to these newly designed showrooms will happen in phases and the exercise will be completed for the entire network by the end of next fiscal. Bajaj is also increasing the number of its dealerships by 130 to over 600 with the focus being on Tier 2 and 3 centres. In addition, nearly 1,100 service centres are also being upgraded at an investment of nearly Rs 20 crore to meet the needs of the Pulsar and Discover.
From the company's point of view, this initiative is particularly important to get the bigger numbers from small town India where the Discover will play the catalyst as a mass commuter motorcycle. The flagship, Pulsar is more of the urban bike where growth will largely come from cities.
“We were waiting for the Discover to reach the right volumes before embarking on this network expansion drive. The timing is perfect now since the brand is doing 1.2 lakh units a month in the domestic market alone,” Mr Sridhar said.
This translates into a market share of 23 per cent in the commuter segment and Bajaj has targeted increasing this to 30 per cent by the start of the festive season in 2011. Growth in the Tier 2 and 3 centres is critical to this goal since this is where Hero Honda reigns supreme with its Splendor and Passion brands which clock over 2.7 lakh units each month.
The Discover 100 and 150 have been the best piece of news to Bajaj Auto in the volumes-driven commuter segment. It remains to be seen if another bike under this brand umbrella will debut next fiscal to keep the momentum going. If everything goes according to plan, monthly numbers of the Discover could average 200,000 units by the end of next fiscal, sources said.
Bajaj Auto will incorporate its twin brand strategy of the Pulsar and Discover across all its dealerships with the help of a UK-based design house.
“Within the company, we have aligned ourselves to this brand statement and the next step is to take it to all our dealerships so that customers will have a clear understanding of what we stand for. The brand identity will be the main focus while the Bajaj corporate identity, in contrast, will be understated,” Mr S. Sridhar, President, Motorcycle Business, told Business Line.
This is keeping in line with the company's priority to focus on brands, and not just products, which it believes will hold the key to growth in the future. The Discover and Pulsar have played a big role in doubling its market share in bikes to nearly 35 per cent in the last 12-15 months and combined volumes of the two brands are nearly 2.5 lakh units each month.
The transition to these newly designed showrooms will happen in phases and the exercise will be completed for the entire network by the end of next fiscal. Bajaj is also increasing the number of its dealerships by 130 to over 600 with the focus being on Tier 2 and 3 centres. In addition, nearly 1,100 service centres are also being upgraded at an investment of nearly Rs 20 crore to meet the needs of the Pulsar and Discover.
From the company's point of view, this initiative is particularly important to get the bigger numbers from small town India where the Discover will play the catalyst as a mass commuter motorcycle. The flagship, Pulsar is more of the urban bike where growth will largely come from cities.
“We were waiting for the Discover to reach the right volumes before embarking on this network expansion drive. The timing is perfect now since the brand is doing 1.2 lakh units a month in the domestic market alone,” Mr Sridhar said.
This translates into a market share of 23 per cent in the commuter segment and Bajaj has targeted increasing this to 30 per cent by the start of the festive season in 2011. Growth in the Tier 2 and 3 centres is critical to this goal since this is where Hero Honda reigns supreme with its Splendor and Passion brands which clock over 2.7 lakh units each month.
The Discover 100 and 150 have been the best piece of news to Bajaj Auto in the volumes-driven commuter segment. It remains to be seen if another bike under this brand umbrella will debut next fiscal to keep the momentum going. If everything goes according to plan, monthly numbers of the Discover could average 200,000 units by the end of next fiscal, sources said.
Hero Honda likely to ride past its worst this quater
We believe the current quarter will mark the bottom for Hero Honda’s market share and margins. While we cut our FY11E EPS by 8%, we raise our FY12-13E by 15-19% (earnings to grow 24% pa over FY11-13E) and raise our DCF-based target price to Rs 2,365. We believe HH is the best play on Indian consumers as of now.
Bottoming out: HH has lost market share in the past one year (-775 bp YTD), giving up the extraordinary share gains it had registered the previous year. Its share price movement was more on account of weakness and subsequent correction of Bajaj’s portfolio rather than any changes in HH’s positioning.
We believe the market shares have now reverted to sustainable levels and expect HH to start growing in line with the market. During the past year, HH’s margin has contracted sharply (-440 bp YTD) as the firm has been reluctant to pass on cost inflation even though its competitors have already done so. We expect this situation to be remedied soon as the current supply situation and competitive structure leave HH with tremendous pricing power.
Catalysts: We expect key near-term triggers to be strong volume growth and potential price increases later this year.
A key event that’s been widely discussed in the media is a potential exit of Honda from the joint venture. This could be sentimentally negative but we do not expect Honda’s potential exit to be meaningfully detrimental to HH’s prospects.
Valuation: We value HH on a DCF basis and set a target price of Rs2,365, after factoring in earnings changes.
At our target price, HH would trade at 18x FY12E, at a substantial discount to most other consumer stocks in the domestic market. We upgrade HH to an outperformer.
Bottoming out: HH has lost market share in the past one year (-775 bp YTD), giving up the extraordinary share gains it had registered the previous year. Its share price movement was more on account of weakness and subsequent correction of Bajaj’s portfolio rather than any changes in HH’s positioning.
We believe the market shares have now reverted to sustainable levels and expect HH to start growing in line with the market. During the past year, HH’s margin has contracted sharply (-440 bp YTD) as the firm has been reluctant to pass on cost inflation even though its competitors have already done so. We expect this situation to be remedied soon as the current supply situation and competitive structure leave HH with tremendous pricing power.
Catalysts: We expect key near-term triggers to be strong volume growth and potential price increases later this year.
A key event that’s been widely discussed in the media is a potential exit of Honda from the joint venture. This could be sentimentally negative but we do not expect Honda’s potential exit to be meaningfully detrimental to HH’s prospects.
Valuation: We value HH on a DCF basis and set a target price of Rs2,365, after factoring in earnings changes.
At our target price, HH would trade at 18x FY12E, at a substantial discount to most other consumer stocks in the domestic market. We upgrade HH to an outperformer.
TVS asked to show it didn't infringe patent
A division bench of the Madras high court last week asked TVS Motor Co. Ltd to prove that the technology used in its Flame brand of motorcycles did not infringe on a patent held by Bajaj Auto Ltd.
The division bench directive reverses an order of a single bench of the same high court, which a few months ago had asked Bajaj to prove that TVS impinged on patented technology used in its Pulsar range of bikes.
Both the companies declined to comment on the latest order.
In 2007, TVS had filed a lawsuit against Bajaj seeking a declaration of non-infringement, groundless threats and compensation on the back of Bajaj’s media campaign that TVS’ 125cc Flame bike infringed its patent.
Soon after this, Bajaj filed a counter-suit seeking an injunction against TVS’ new product on the ground that it infringed upon its patent on a twin-spark technology used in its Pulsar motorcycles.
The division bench said that since TVS contested the patent obtained by Bajaj, the burden of proof was on TVS.
“Since the plaintiff has made a categorical assertion in the plaint that they would prove the groundless threat and non-infringement of patent by adducing evidence, it should have been called upon to produce evidence in support of their contentions,” the division bench said.
In response to an interim injunction filed by TVS in May 2009, which restrained Bajaj from interfering with the manufacturing and marketing of TVS products with two spark plugs and three valves, the Supreme Court in a September 2009 judgement allowed TVS to sell the Flame, but directed that it maintain and file accounts of sales that would have to be verified by a receiver appointed by the Madras high court.
“The nature of these litigations, which had no precedent in the country, was actually delayed on lack of clarity on the lead of evidence since the court had clubbed the hearing of two suits on the same matter,” said Sumathi Chandrashekaran, a patent lawyer who first blogged on the court’s new directive.
The division bench directive reverses an order of a single bench of the same high court, which a few months ago had asked Bajaj to prove that TVS impinged on patented technology used in its Pulsar range of bikes.
Both the companies declined to comment on the latest order.
In 2007, TVS had filed a lawsuit against Bajaj seeking a declaration of non-infringement, groundless threats and compensation on the back of Bajaj’s media campaign that TVS’ 125cc Flame bike infringed its patent.
Soon after this, Bajaj filed a counter-suit seeking an injunction against TVS’ new product on the ground that it infringed upon its patent on a twin-spark technology used in its Pulsar motorcycles.
The division bench said that since TVS contested the patent obtained by Bajaj, the burden of proof was on TVS.
“Since the plaintiff has made a categorical assertion in the plaint that they would prove the groundless threat and non-infringement of patent by adducing evidence, it should have been called upon to produce evidence in support of their contentions,” the division bench said.
In response to an interim injunction filed by TVS in May 2009, which restrained Bajaj from interfering with the manufacturing and marketing of TVS products with two spark plugs and three valves, the Supreme Court in a September 2009 judgement allowed TVS to sell the Flame, but directed that it maintain and file accounts of sales that would have to be verified by a receiver appointed by the Madras high court.
“The nature of these litigations, which had no precedent in the country, was actually delayed on lack of clarity on the lead of evidence since the court had clubbed the hearing of two suits on the same matter,” said Sumathi Chandrashekaran, a patent lawyer who first blogged on the court’s new directive.
TVS Motor plans low-cost bikes
TVS Motor is scripting a new twist in the race to capture the12-million plus two-wheeler market. The company plans to introduce low-cost models across product segments. This would result in creation of a new segment within an existing segment.
“The work is on (for low-cost models) but I can’t share more details,” the company’s chairman Venu Srinivasan told FE.
Over the last one year, leading motorcycle makers have been developing cost-effective products, primarily, in the low-cost segment to rake in high numbers. The FE had reported in October that Mahindra & Mahindra has started preliminary work on developing a low-cost motorcycle which is going to be sub-100cc. Hero Honda Motors and Bajaj Auto are also weighing options to introduce a low-cost & high mileage bike.
TVS Motor is looking at international designs and new technologies for its product portfolio.
An auto analyst said the rankings in the two-wheeler market could see a major churn in the next few years.
“The approach that the two-wheeler makers adopt will determine who’s at the top. With uncertainty over the future of the alliance between the Hero Group and Honda Motors, Bajaj Auto and TVS Motor could be the companies to watch out for as far as innovation and product development is concerned,” he added. “The introduction of the Nano made us take notice (of producing low cost products)... it is possible to manufacture low cost products in the country,” Srinivasan said.
He said the low-cost model would thrive in the country because of the vast potential in rural areas. “Rural area sales will be important because people want to climb up the value chain,” he added. The company has no plans to introduce cars by leveraging technology that will be used for its low-cost bikes.
“The two-wheeler market is huge in India and we are going to focus solely on it.”
Currently, Bajaj Auto is the contract manufacturer for Renault-Nissan’s ultra- low-cost car that would take on Tata Nano. Srinivasan expects scooters to stage a comeback. He sees scooters’ share of the two-wheeler market to rise to 35% from 20% over five years .
TVS New Star Sport is among the cheapest bikes in the country. The ex-showroom price of this 100cc bike is Rs 32,000. In October, TVS Motors sold 1,95,271 units, 48% more than in October 2009. Bajaj Auto sales increase 32% to 3.3 lakh units.
“The work is on (for low-cost models) but I can’t share more details,” the company’s chairman Venu Srinivasan told FE.
Over the last one year, leading motorcycle makers have been developing cost-effective products, primarily, in the low-cost segment to rake in high numbers. The FE had reported in October that Mahindra & Mahindra has started preliminary work on developing a low-cost motorcycle which is going to be sub-100cc. Hero Honda Motors and Bajaj Auto are also weighing options to introduce a low-cost & high mileage bike.
TVS Motor is looking at international designs and new technologies for its product portfolio.
An auto analyst said the rankings in the two-wheeler market could see a major churn in the next few years.
“The approach that the two-wheeler makers adopt will determine who’s at the top. With uncertainty over the future of the alliance between the Hero Group and Honda Motors, Bajaj Auto and TVS Motor could be the companies to watch out for as far as innovation and product development is concerned,” he added. “The introduction of the Nano made us take notice (of producing low cost products)... it is possible to manufacture low cost products in the country,” Srinivasan said.
He said the low-cost model would thrive in the country because of the vast potential in rural areas. “Rural area sales will be important because people want to climb up the value chain,” he added. The company has no plans to introduce cars by leveraging technology that will be used for its low-cost bikes.
“The two-wheeler market is huge in India and we are going to focus solely on it.”
Currently, Bajaj Auto is the contract manufacturer for Renault-Nissan’s ultra- low-cost car that would take on Tata Nano. Srinivasan expects scooters to stage a comeback. He sees scooters’ share of the two-wheeler market to rise to 35% from 20% over five years .
TVS New Star Sport is among the cheapest bikes in the country. The ex-showroom price of this 100cc bike is Rs 32,000. In October, TVS Motors sold 1,95,271 units, 48% more than in October 2009. Bajaj Auto sales increase 32% to 3.3 lakh units.
Honda Motorcycle to set up plant in AP
Honda Motorcycle and Scooter India (HMSI), a subsidiary of Honda Motor Company, will soon set up its third two-wheeler manufacturing facility near here with an investment of Rs1,000 crore, a government official said on Wednesday.
He also said that two more global companies -- Italian industrial manufacturing firm Camozzi and Korean power equipment major Hyosung Corporation -- are planning to invest Rs300 crore and Rs450 crore, respectively in Andra Pradesh.
“Honda wanted 100 acres of land for setting up the facility and we have shown them available land in Medak and Nalgonda districts close to Hyderabad,” Andhra Pradesh Industrial Infrastructure Corporation managing director B. R. Meena told the news agency here today.
“Honda officials said they would invest Rs1,000 crore on the production facility in a phased manner of which Rs500 crore will come in the first phase,” he added.
HMSI currently has a two-wheeler manufacturing plant at Manesar in Haryana with an annual production capacity of 1.55 million units per annum while the second plant, with a production capacity of 6 lakh units, is coming up at Tapukara in Rajasthan.
The proposed manufacturing facility in Andhra Pradesh will be HMSI’s first in South India.
Meena said Honda officials have submitted their proposal for setting up the two-wheeler manufacturing facility two days ago. Initially, the unit would manufacture 2,000 two-wheelers per month and gradually increase the capacity.
“They are yet to submit a detailed project report to us,” he added.
Meanwhile, the Camozzi Group has also come forward to set up its textile and other industrial equipment manufacturing units near Hyderabad.
“Camozzi has plans to invest Rs300 crore on the facility and wants 20 acres of land,” Meena said.
Besides, he said, power and industrial systems major Hyosung Corporation is also headed for AP to set up a Rs450 crore high-voltage transformers manufacturing plant.
The company sought allocation of 25 acres of land at Mannavaram near Tirupati where the NTPC-Bhel joint venture power plant equipment manufacturing facility is coming up.
“We had preliminary discussions with representatives of these major companies and are awaiting submission of detailed project reports. The proposals are under active consideration of the government,” Meena said.
He also said that two more global companies -- Italian industrial manufacturing firm Camozzi and Korean power equipment major Hyosung Corporation -- are planning to invest Rs300 crore and Rs450 crore, respectively in Andra Pradesh.
“Honda wanted 100 acres of land for setting up the facility and we have shown them available land in Medak and Nalgonda districts close to Hyderabad,” Andhra Pradesh Industrial Infrastructure Corporation managing director B. R. Meena told the news agency here today.
“Honda officials said they would invest Rs1,000 crore on the production facility in a phased manner of which Rs500 crore will come in the first phase,” he added.
HMSI currently has a two-wheeler manufacturing plant at Manesar in Haryana with an annual production capacity of 1.55 million units per annum while the second plant, with a production capacity of 6 lakh units, is coming up at Tapukara in Rajasthan.
The proposed manufacturing facility in Andhra Pradesh will be HMSI’s first in South India.
Meena said Honda officials have submitted their proposal for setting up the two-wheeler manufacturing facility two days ago. Initially, the unit would manufacture 2,000 two-wheelers per month and gradually increase the capacity.
“They are yet to submit a detailed project report to us,” he added.
Meanwhile, the Camozzi Group has also come forward to set up its textile and other industrial equipment manufacturing units near Hyderabad.
“Camozzi has plans to invest Rs300 crore on the facility and wants 20 acres of land,” Meena said.
Besides, he said, power and industrial systems major Hyosung Corporation is also headed for AP to set up a Rs450 crore high-voltage transformers manufacturing plant.
The company sought allocation of 25 acres of land at Mannavaram near Tirupati where the NTPC-Bhel joint venture power plant equipment manufacturing facility is coming up.
“We had preliminary discussions with representatives of these major companies and are awaiting submission of detailed project reports. The proposals are under active consideration of the government,” Meena said.
Mahindra to enter 125cc MotoGP with own team
Come the opening round of the 2011 World Championship MotoGP season and auto major Mahindra & Mahindra will embark upon a path never tread by any Indian corporate in the world of motorcycle road racing. Mahindra will enter the 125cc class of the MotoGP world championships with its very own team.
The World MotoGP Championship is the blue riband of motorcycle sport, akin to what F1 means to four-wheelers. While Mahindra has entered the vibrant Indian motorcycle market, first by buying over Kinetic and then adding its very own 110cc commuter motorcycle to its small but ever expanding range, the bigger potential is what Mahindra has overseas. Its acquisition of Italian specialist engineering firm Engines Engineering a couple of years ago is key, not just for its motorcycle ambitions in India but also its key engineering skills base across its automotive brands. Engines Engineering has been very active in the sport, having made racing machines and also specialized components for some of the world`s best known racing teams.
Technology is key driver for this move into the sport and an application has been made to the World MotoGP Championship series promoter Dorna for an entry in the 125cc class for 2011. It is expected that the team will be known as Mahindra and it will enter a team of two riders in the 2011 season. The bikes, the riders and the team management would be made up of specialists from within Mahindra & Mahindra and the team would be based at Engines Engineering facility in Italy.
Speaking of rivals, Mahindra can expect to face entrenched bike makers like Piaggio subsidiaries Gilera and Derbi and the dominant class leader, Aprilia. Group companies like Mahindra`s Engineering Services Division, its IT divisions, Systech specialist auto components division and also of course Mahindra 2Wheelers would all be involved in this unique exercise which is without parallel in the Indian automotive industry. The World MotoGP Championship is also the one which is beamed across the globe, just as F1 is, and it closely follows F1 in the audience it caters to.
The 2011 season will be the last for the 125cc two-stroke class for in 2012 this class changes to the Moto3 category for four-stroke motorcycles and this would also be a good test bed for the firm to perfect its approach to small capacity mass-produced bikes which are penciled into the Mahindra product range around the same time. Factor in the fact that there would be an Indian MotoGP Grand Prix in 2012 at the Jaypee circuit in Noida, this Mahindra move may be coincidental but it dovetails well in the overall scheme of things.
The World MotoGP Championship is the blue riband of motorcycle sport, akin to what F1 means to four-wheelers. While Mahindra has entered the vibrant Indian motorcycle market, first by buying over Kinetic and then adding its very own 110cc commuter motorcycle to its small but ever expanding range, the bigger potential is what Mahindra has overseas. Its acquisition of Italian specialist engineering firm Engines Engineering a couple of years ago is key, not just for its motorcycle ambitions in India but also its key engineering skills base across its automotive brands. Engines Engineering has been very active in the sport, having made racing machines and also specialized components for some of the world`s best known racing teams.
Technology is key driver for this move into the sport and an application has been made to the World MotoGP Championship series promoter Dorna for an entry in the 125cc class for 2011. It is expected that the team will be known as Mahindra and it will enter a team of two riders in the 2011 season. The bikes, the riders and the team management would be made up of specialists from within Mahindra & Mahindra and the team would be based at Engines Engineering facility in Italy.
Speaking of rivals, Mahindra can expect to face entrenched bike makers like Piaggio subsidiaries Gilera and Derbi and the dominant class leader, Aprilia. Group companies like Mahindra`s Engineering Services Division, its IT divisions, Systech specialist auto components division and also of course Mahindra 2Wheelers would all be involved in this unique exercise which is without parallel in the Indian automotive industry. The World MotoGP Championship is also the one which is beamed across the globe, just as F1 is, and it closely follows F1 in the audience it caters to.
The 2011 season will be the last for the 125cc two-stroke class for in 2012 this class changes to the Moto3 category for four-stroke motorcycles and this would also be a good test bed for the firm to perfect its approach to small capacity mass-produced bikes which are penciled into the Mahindra product range around the same time. Factor in the fact that there would be an Indian MotoGP Grand Prix in 2012 at the Jaypee circuit in Noida, this Mahindra move may be coincidental but it dovetails well in the overall scheme of things.