Chennai: Rising prices of key commodities like steel and rubber have led to twowheeler companies going for price mark-ups. Both TVS Motor and Bajaj Auto have opted for price hikes in the past couple of weeks and market leader Hero Honda is in a wait-and-watch mode. Further hikes are ruled out in the April-June quarter.
The Chennai-based TVS Motor Company went in for a 1.5-2% price hike in the first week of April. The hike covered its entire range including three-wheelers. “This was on account of steel and rubber price hikes and the increase in overhead costs for suppliers. We have passed on a miniscule part of the cost increase so we will definitely look at the price line again once we come to know the full extent of the impact by the end of May. We will take a call on further price revision in June,” H S Goindi, president, TVS Motor, said.
Bajaj Auto also increased prices of its products in the first week of April and marked up export prices beginning May. As for TVS, the commodity price pressure in March has been the trigger. However, there’s no talk of further price hikes immediately.
In Hero Honda’s case, the price line remains unchanged for now but the company is in a monitoring mode. “We are monitoring the commodity situation closely and keeping all our options open,” said Anil Dua, senior vice-president (marketing and sales), Hero Honda. Hero Honda took a price increase in March and is therefore holding prices now.
Tax Sop Phaseout Fears Pull Down Export Stocks
Talk of non-renewal of duty entitlement scheme after June 30 hits Bajaj Auto, Dr Reddy’s and others
Bajaj Auto, Dr Reddy’s Laboratories and TVS Motor plunged for a second consecutive day on speculation that a popular tax incentive to exporters may be done away with by June.
The Duty Entitlement Pass Book, or DEPB, a scheme that reimburses duty paid on imported inputs that go into exports, is scheduled to end on June 30. It may not be extended since the finance ministry is seeking more avenues for revenues when the economic growth rate is forecast to fall due to higher interest rates.
Analysts say that if the scheme is not extended it will have an adverse impact on companies that depend on exports for substantial revenues. These firms are from across sectors such as pharmaceuticals, petrochemicals, engineering and automotive components. The DEPB scheme is popular among exporters as it reimburses customs duty paid by them on inputs through dutyfree scrips that can be sold freely in the market. Since the reimbursement rates are predetermined, based on the value of exports, exporters don’t have to necessarily import inputs. In that sense, it is a kind of subsidy for exports
“Apart from the DEPB, investor sentiment was also impacted because of the rate hike by the central bank,” said Murali Krishnan, head-institutional equities, Karvy Stock Broking. Automobile sales may taper off in the coming days as high interest rates and higher petrol prices may force customers postponing purchases. Most of the auto stocks reacted to news negatively led by Bajaj Auto and TVS Motors and pharma major Dr Reddy’s Laboratories as investors trimmed their holdings.
While Bajaj Auto closed the day at . 1,285.35, down 1.2%, from its previous close, TVS Motors ended 3.5% lower at . 53.30. Dr Reddy’s slipped 1% to end the day at . 1,582. About 70% of DRL’s formulations are exported and analysts see margins impact on the company of 3-4% if DEPB not extended.
It may be too early to conclude the export subsidy may be done away with exporters lobbying intensely for the continuation of the scheme for at least another five years. “On behalf of all exporters I have made a presentation to the ministry urging it to extend the scheme so that exporters can negotiate better with the buyers,” said FIEO president Ramu Deora.
Bajaj Auto, Dr Reddy’s Laboratories and TVS Motor plunged for a second consecutive day on speculation that a popular tax incentive to exporters may be done away with by June.
The Duty Entitlement Pass Book, or DEPB, a scheme that reimburses duty paid on imported inputs that go into exports, is scheduled to end on June 30. It may not be extended since the finance ministry is seeking more avenues for revenues when the economic growth rate is forecast to fall due to higher interest rates.
Analysts say that if the scheme is not extended it will have an adverse impact on companies that depend on exports for substantial revenues. These firms are from across sectors such as pharmaceuticals, petrochemicals, engineering and automotive components. The DEPB scheme is popular among exporters as it reimburses customs duty paid by them on inputs through dutyfree scrips that can be sold freely in the market. Since the reimbursement rates are predetermined, based on the value of exports, exporters don’t have to necessarily import inputs. In that sense, it is a kind of subsidy for exports
“Apart from the DEPB, investor sentiment was also impacted because of the rate hike by the central bank,” said Murali Krishnan, head-institutional equities, Karvy Stock Broking. Automobile sales may taper off in the coming days as high interest rates and higher petrol prices may force customers postponing purchases. Most of the auto stocks reacted to news negatively led by Bajaj Auto and TVS Motors and pharma major Dr Reddy’s Laboratories as investors trimmed their holdings.
While Bajaj Auto closed the day at . 1,285.35, down 1.2%, from its previous close, TVS Motors ended 3.5% lower at . 53.30. Dr Reddy’s slipped 1% to end the day at . 1,582. About 70% of DRL’s formulations are exported and analysts see margins impact on the company of 3-4% if DEPB not extended.
It may be too early to conclude the export subsidy may be done away with exporters lobbying intensely for the continuation of the scheme for at least another five years. “On behalf of all exporters I have made a presentation to the ministry urging it to extend the scheme so that exporters can negotiate better with the buyers,” said FIEO president Ramu Deora.
What drives branding decisions?
As branding choices are strategic and brand architecture decisions complex, several factors come into play while deciding a specific branding strategy.
In the light of the recent statement made by Rahul Bajaj regarding using the mother/master brand “Bajaj”, it is indeed interesting to explore what, in organisations guides branding decisions and strategies. Rajiv Bajaj had said the ‘Bajaj' name will be done away with from the motorcycles as the brand has been diluted, as it has a presence in different fields ranging from electricals to insurance to automobiles. He had also stressed that products like the Pulsar, Boxer and Discover have become brands by themselves, as a result of which the Bajaj brand has become “more like a garage”. The father, however, had ruled out dropping the ‘Bajaj' brand, as opposed to an idea toyed by Rajiv. Rahul Bajaj was also quite vocal in expressing unhappiness when his son, in a statement in December last year, decided to bring down the curtains on its scooters, thus ending the story of ‘Hamara Bajaj'.
But, recently Rahul lauded Rajiv (MD of the firm), while addressing shareholders in the annual report for 2009-10: “Your Managing Director often says that while products may generate market share, brands provide pricing power and create higher profits. I am increasingly tending to agree with him.”
Where some companies, like P&G which does not club its hair care products under a brand name, such as a P&G shampoo, there are others like Virgin, Nike, Samsung, Dabur and Godrej which use the mother brand name for their entire range of products. As for the Tata Group, group companies actually pay brand royalty to Tata Sons for using the Tata brand.
Those that use the name directly pay 0.25 per cent of the turnover or 5 per cent of profit before tax, whichever is lower; those that use the Tata brand name indirectly (like The Indian Hotels, for example) pay 0.15 per cent of the turnover.
So what really drives these branding decisions? Branding is one of the most significant aspects of business strategy. It is central to creating customer value and competitive advantage. It is not something that can be isolated from the main business and given as a task to the advertising team /communication manager as a set of activities. Marketers believe customer value is more perceptual than real and that it depends on subjective understanding of customers and less about objective facts. Consider Dettol, for instance; some images that come to mind perhaps would be: a doctor in a white coat, a strong protector with a sword, a caring and protective mother and so on.
As Douglas Holt had written, branding is a perspective that focuses on shaping perceptions. Brands are cultures that circulate in society as conventional stories. Cultures are shared, taken for granted stories, images and associations and these get authored by companies themselves, customers and influencers. Sometimes, we experience that even if we forget the product, we attribute stories and images to a brand. As these stories interact with other similar stories daily, a common view point/ a common story emerges, which is in a sense a consensus view about a brand,” says Holt. At this point a brand becomes what Holt calls a “cultural artefact”.
Psychological research demonstrates brand cultures are durable because people are so overloaded with information they rely upon a few heuristics to simplify the world. Brand cultures work as one such heuristic. Aaker and Joachimaster compare and contrast between a branded house strategy (a Samsung, for example) and a house of brands strategy (like P&G) as two extremes of alternative brand architectures. While a branded house uses a single master brand to span a set of offerings, the other involves an independent set of standalone brands, each maximising the impact on the market.
Take Croma, for instance. Croma is a 100 per cent subsidiary of Tata Sons. “When Croma first came to India, the grey market for electronics was dominant and hence we had to depend on the strength of our mother brand for credibility. Even the ‘touch, feel and try' retailing was new to India. People would not know what Croma meant but they would associate strongly with the Tata brand,” recalls Ajit Joshi, Managing Director, Croma. “The success of our brand is also strongly because of our private labels. Today we have 49 per cent penetration in vacuum cleaners and 18 per cent penetration in microwave ovens. While we started as an electronics megastore, we soon developed new categories of products like jewellery cleaners, foot spas and car seat massagers to cater to well-researched customer needs in areas where we had no competition. As we grew the “Tata” name always stood by us to provide assurance and credibility,” explains Joshi. Croma uses this interesting brand strategy called the token endorser strategy.
There are multiple reasons for companies to adopt a house of brands strategy.
Targeting niche markets and focusing on functional benefits (Head & Shoulders for dandruff control and Pantene for enhancing hair vitality), signalling breakthrough advantages of new offerings or even to value chain elements like minimising channel conflict or even avoiding a brand association that would be incompatible in an offering. While usually, sub-brands in the portfolio inherit the values of the mother brand, the opposite also holds true. Sometimes, it's a flagship brand that imbues values to the mother brand, which then gets passed on to other sub-brands. Fiat too, for instance, has associated brands like the Ferrari, Maserati and Lancia that cater to unique market segments. While the company could explore interesting ways of leveraging these brand associations for international markets, the fact is that these brands have a distinct identity in terms of the niche they cater to, their functional benefit and customer value.
There are reasons why companies would use the branded house strategy as well. Particularly in emerging markets like India, a branded house strategy would in some sense help fill “institutional voids”. An excerpt from Tarun Khanna and Krishna Palepu's paper on emerging markets gives an interesting perspective on this. As emerging markets are hardly uniform, they fall short to varying degrees in providing the institutions necessary to support basic business operations. As regards product markets, first, the communications infrastructure in emerging markets is often underdeveloped; second, even when information about products does get around, there are no mechanisms to corroborate the claims made by sellers; consumers have no redress mechanisms if a product does not deliver on its promise. As a result of this lack of information, companies in emerging markets face much higher costs in building credible brands. In turn, established brands wield tremendous power.
A conglomerate with a reputation for quality products and services can use its group name to enter new businesses, even if those businesses are completely unrelated to its current lines. Groups also have an advantage when they do try to build up a brand because they can spread the cost of maintaining it across multiple lines of businesses.
“There is an interplay between the mother brand and the sub-brand that is important to understand,” says P. M. Telang, MD, India Operations, Tata Motors. “The Tata brand stands for concern, integrity, ethics, corporate social responsibility, reliability and trust and Tata Motors has derived strength from it. For example, in spite of the initial problems we had when we launched the Indica, we eventually sailed out of it. People knew that the Tatas won't let them down and gave us time till we launched the V2. Having said that, Tata Motors too has contributed to its mother brand by producing reliable products, be it commercial vehicles or passenger cars. “Given that we stand for values and integrity, we have easier access to international markets and world-renowned players like Bosch prefer to work with us,” says Telang.
Brand architecture decisions are complex and should be taken based on responses to critical questions like - does the mother brand contribute to the offering by adding associations; enhancing the value proposition or credibility with organisational associations or visibility or communication efficiencies? Will the mother brand be strengthened with the new offering? Will the new offering be able to leverage the strength of its mother brand? Is there a need for a separate brand because it will create its own associations, represent a new different offering, avoid an association or retain/capture customer/brand bond? Will the business support a new brand name?
The options on the branding spectrum are distinct and interesting in terms of frameworks and options like nested sub-brands, endorsed brands. The challenge really lies in creating a family / a brand team where all these fit in and are productive.
(Dr Mukta Kamplikar is Head, Strategy, for Fiat India Automobiles Ltd. These are her personal views and do not represent those of the company/group.)
In the light of the recent statement made by Rahul Bajaj regarding using the mother/master brand “Bajaj”, it is indeed interesting to explore what, in organisations guides branding decisions and strategies. Rajiv Bajaj had said the ‘Bajaj' name will be done away with from the motorcycles as the brand has been diluted, as it has a presence in different fields ranging from electricals to insurance to automobiles. He had also stressed that products like the Pulsar, Boxer and Discover have become brands by themselves, as a result of which the Bajaj brand has become “more like a garage”. The father, however, had ruled out dropping the ‘Bajaj' brand, as opposed to an idea toyed by Rajiv. Rahul Bajaj was also quite vocal in expressing unhappiness when his son, in a statement in December last year, decided to bring down the curtains on its scooters, thus ending the story of ‘Hamara Bajaj'.
But, recently Rahul lauded Rajiv (MD of the firm), while addressing shareholders in the annual report for 2009-10: “Your Managing Director often says that while products may generate market share, brands provide pricing power and create higher profits. I am increasingly tending to agree with him.”
Where some companies, like P&G which does not club its hair care products under a brand name, such as a P&G shampoo, there are others like Virgin, Nike, Samsung, Dabur and Godrej which use the mother brand name for their entire range of products. As for the Tata Group, group companies actually pay brand royalty to Tata Sons for using the Tata brand.
Those that use the name directly pay 0.25 per cent of the turnover or 5 per cent of profit before tax, whichever is lower; those that use the Tata brand name indirectly (like The Indian Hotels, for example) pay 0.15 per cent of the turnover.
So what really drives these branding decisions? Branding is one of the most significant aspects of business strategy. It is central to creating customer value and competitive advantage. It is not something that can be isolated from the main business and given as a task to the advertising team /communication manager as a set of activities. Marketers believe customer value is more perceptual than real and that it depends on subjective understanding of customers and less about objective facts. Consider Dettol, for instance; some images that come to mind perhaps would be: a doctor in a white coat, a strong protector with a sword, a caring and protective mother and so on.
As Douglas Holt had written, branding is a perspective that focuses on shaping perceptions. Brands are cultures that circulate in society as conventional stories. Cultures are shared, taken for granted stories, images and associations and these get authored by companies themselves, customers and influencers. Sometimes, we experience that even if we forget the product, we attribute stories and images to a brand. As these stories interact with other similar stories daily, a common view point/ a common story emerges, which is in a sense a consensus view about a brand,” says Holt. At this point a brand becomes what Holt calls a “cultural artefact”.
Psychological research demonstrates brand cultures are durable because people are so overloaded with information they rely upon a few heuristics to simplify the world. Brand cultures work as one such heuristic. Aaker and Joachimaster compare and contrast between a branded house strategy (a Samsung, for example) and a house of brands strategy (like P&G) as two extremes of alternative brand architectures. While a branded house uses a single master brand to span a set of offerings, the other involves an independent set of standalone brands, each maximising the impact on the market.
Take Croma, for instance. Croma is a 100 per cent subsidiary of Tata Sons. “When Croma first came to India, the grey market for electronics was dominant and hence we had to depend on the strength of our mother brand for credibility. Even the ‘touch, feel and try' retailing was new to India. People would not know what Croma meant but they would associate strongly with the Tata brand,” recalls Ajit Joshi, Managing Director, Croma. “The success of our brand is also strongly because of our private labels. Today we have 49 per cent penetration in vacuum cleaners and 18 per cent penetration in microwave ovens. While we started as an electronics megastore, we soon developed new categories of products like jewellery cleaners, foot spas and car seat massagers to cater to well-researched customer needs in areas where we had no competition. As we grew the “Tata” name always stood by us to provide assurance and credibility,” explains Joshi. Croma uses this interesting brand strategy called the token endorser strategy.
There are multiple reasons for companies to adopt a house of brands strategy.
Targeting niche markets and focusing on functional benefits (Head & Shoulders for dandruff control and Pantene for enhancing hair vitality), signalling breakthrough advantages of new offerings or even to value chain elements like minimising channel conflict or even avoiding a brand association that would be incompatible in an offering. While usually, sub-brands in the portfolio inherit the values of the mother brand, the opposite also holds true. Sometimes, it's a flagship brand that imbues values to the mother brand, which then gets passed on to other sub-brands. Fiat too, for instance, has associated brands like the Ferrari, Maserati and Lancia that cater to unique market segments. While the company could explore interesting ways of leveraging these brand associations for international markets, the fact is that these brands have a distinct identity in terms of the niche they cater to, their functional benefit and customer value.
There are reasons why companies would use the branded house strategy as well. Particularly in emerging markets like India, a branded house strategy would in some sense help fill “institutional voids”. An excerpt from Tarun Khanna and Krishna Palepu's paper on emerging markets gives an interesting perspective on this. As emerging markets are hardly uniform, they fall short to varying degrees in providing the institutions necessary to support basic business operations. As regards product markets, first, the communications infrastructure in emerging markets is often underdeveloped; second, even when information about products does get around, there are no mechanisms to corroborate the claims made by sellers; consumers have no redress mechanisms if a product does not deliver on its promise. As a result of this lack of information, companies in emerging markets face much higher costs in building credible brands. In turn, established brands wield tremendous power.
A conglomerate with a reputation for quality products and services can use its group name to enter new businesses, even if those businesses are completely unrelated to its current lines. Groups also have an advantage when they do try to build up a brand because they can spread the cost of maintaining it across multiple lines of businesses.
“There is an interplay between the mother brand and the sub-brand that is important to understand,” says P. M. Telang, MD, India Operations, Tata Motors. “The Tata brand stands for concern, integrity, ethics, corporate social responsibility, reliability and trust and Tata Motors has derived strength from it. For example, in spite of the initial problems we had when we launched the Indica, we eventually sailed out of it. People knew that the Tatas won't let them down and gave us time till we launched the V2. Having said that, Tata Motors too has contributed to its mother brand by producing reliable products, be it commercial vehicles or passenger cars. “Given that we stand for values and integrity, we have easier access to international markets and world-renowned players like Bosch prefer to work with us,” says Telang.
Brand architecture decisions are complex and should be taken based on responses to critical questions like - does the mother brand contribute to the offering by adding associations; enhancing the value proposition or credibility with organisational associations or visibility or communication efficiencies? Will the mother brand be strengthened with the new offering? Will the new offering be able to leverage the strength of its mother brand? Is there a need for a separate brand because it will create its own associations, represent a new different offering, avoid an association or retain/capture customer/brand bond? Will the business support a new brand name?
The options on the branding spectrum are distinct and interesting in terms of frameworks and options like nested sub-brands, endorsed brands. The challenge really lies in creating a family / a brand team where all these fit in and are productive.
(Dr Mukta Kamplikar is Head, Strategy, for Fiat India Automobiles Ltd. These are her personal views and do not represent those of the company/group.)
Red Alert - CBR 250
There are many ways to describe the new Honda CBR250R. However, if I had only one way to describe it, it would be ‘path-breaking.’ That’s right, ladies and gentlemen. Indian motorcyclists have always yearned for a ‘real’ performance motorcycle, one that not only looks the part, but also goes the part. While the CBR250R might not appear to be a substantial jump in terms of displacement and power, it is certainly so in terms of performance and what a proper big motorcycle should feel like.
The CBR250R is an important motorcycle for Honda, not just in India but also for its international markets where increasingly the average age of motorcyclists is rising and hardcore sportsbikes are too expensive and intimidating to draw in the younger crowd. Young and old, internationally and in India, the CBR250R is intended to offer people a new experience.
On the Indian front, in a market crowded at the bottom, Honda has set out to capture the higher rungs of the performance segment. And as thousands of enthusiasts will testify, it’s about time too, as Indian manufacturers have always been hesitant to offer a proper 250cc motorcycle for reasons unexplained, never mind the duty-stricken (and hence super-expensive) Kawasaki Ninja 250R. However, it seems Honda has shown them how it’s done. Honda plans to sell around 30,000 units of the CBR250R in its first year — that should open the eyes and ears of its competitors, and it won’t be long before we see similar products rolling off their assembly lines. When it was announced, the CBR250R looked set to be a milestone in Indian motorcycling and after riding it, we think it has already become one.
Makes you wonder why they called it the CBR then, doesn’t it? Well, it’s probably because buyers in this segment probably aspire to Honda’s flagship CBRs, so having the same aura envelop this 250cc motorcycle is a good selling point.
The CBR250R is a well-proportioned motorcycle. It is also bigger than the 220-odd cc motorcycles that we’ve seen in India for some time now. This motorcycle’s face is what grabs people’s attention, while the rest of the bike succeeds in holding that attention, judging by the reactions we got while riding it. It looks sophisticated and fast, while the chunky rubber gives it a planted stance. The instrument console has a digital speedometer, a tachometer and a trip meter along with a clock, a fuel gauge and a coolant temperature indicator. The exhaust is a substantial upswept unit that adds to the sporty look. Overall, it’s quite the looker. The level of quality is top notch too, as expected from a premium Honda.
PERFORMANCE
This is where the fun begins! The CBR250R comes with a 249.6cc four-stroke motor that uses a four-valve head and liquid-cooling to produce 25 bhp@8,500 rpm and 2.33 kgm@7,000 rpm. These numbers are enough to propel the 167 kg CBR to 100 kmph in around 9 seconds, while top speed is in excess of 150 kmph — that’s shattering performance for a 250, really! The lower three gears have enough grunt to keep the rider grinning, while the top three gears continue building the superb acceleration into sensational top speed.
What’s more important is how the motor feels while it’s out on the road — smooth and fast. The six-speed gearbox has well spaced-out ratios that are on the taller side, so you get an excellent highway steed that possesses great in-gear acceleration to overtake any kind of traffic one might encounter. However, the flip side is that in the city, it is not very easy to put it in a higher gear and trundle around; you need to keep working the gearbox. However, all said and done, the CBR250R goes as well as it looks.
Engine efficiency, given the performance and the way we’ve ridden it, is surprising. Out on the highway, cruising in top gear between 5,000 and 8,000 rpm, we got a figure of 45 kmpl. In the city, it drops to 39 kmpl, though it’s not a bad number by any stretch for a bike like this.
RIDE AND HANDLING
The CBR250R’s sporty riding position is excellent — not too upright but not back-breaking either. You feel at home in traffic as well as out on the open roads. The seat, however, could be less firm and makes you thank the CBR’s ride quality, which is great. One cannot term it as plush, but it certainly absorbs everything without unsettling the bike. Going around corners is a comfortable experience, though handling response is not exactly razor sharp, thanks to the fat rear tyre and the bike’s considerable mass. However, even though it feels a bit too soft, everything remains predictable enough for you to enjoy any road that you might chance upon. The best part is the brakes, especially the optional Combined Anti-lock Braking System (C-ABS) package, with which you get strong braking power via the 296 mm front disc. You only have to squeeze the front lever and the CBR simply stops without any sign of getting out of shape
WHAT YOU GET
An accomplished motorcycle that’s fantastic value for money. By pricing the CBR250R at Rs 1.51 lakh for the base model and Rs 1.71 lakh (ex-showroom, Mumbai) for the C-ABS version, Honda has dealt a serious blow to nearly everything in the premium motorcycle segment.
To be honest, the CBR is more than just a brilliant motorcycle. It’s a wake-up call for every other manufacturer who has ignored Indian motorcycling enthusiasts’ pleas for a well-engineered and fast motorcycle that’s also value for money. By deciding to make it here in India, Honda has again shown faith in the Indian motorcycling market and stolen a march on its rivals at the same time. Reward then, is assured.
The CBR250R is an important motorcycle for Honda, not just in India but also for its international markets where increasingly the average age of motorcyclists is rising and hardcore sportsbikes are too expensive and intimidating to draw in the younger crowd. Young and old, internationally and in India, the CBR250R is intended to offer people a new experience.
On the Indian front, in a market crowded at the bottom, Honda has set out to capture the higher rungs of the performance segment. And as thousands of enthusiasts will testify, it’s about time too, as Indian manufacturers have always been hesitant to offer a proper 250cc motorcycle for reasons unexplained, never mind the duty-stricken (and hence super-expensive) Kawasaki Ninja 250R. However, it seems Honda has shown them how it’s done. Honda plans to sell around 30,000 units of the CBR250R in its first year — that should open the eyes and ears of its competitors, and it won’t be long before we see similar products rolling off their assembly lines. When it was announced, the CBR250R looked set to be a milestone in Indian motorcycling and after riding it, we think it has already become one.
Makes you wonder why they called it the CBR then, doesn’t it? Well, it’s probably because buyers in this segment probably aspire to Honda’s flagship CBRs, so having the same aura envelop this 250cc motorcycle is a good selling point.
The CBR250R is a well-proportioned motorcycle. It is also bigger than the 220-odd cc motorcycles that we’ve seen in India for some time now. This motorcycle’s face is what grabs people’s attention, while the rest of the bike succeeds in holding that attention, judging by the reactions we got while riding it. It looks sophisticated and fast, while the chunky rubber gives it a planted stance. The instrument console has a digital speedometer, a tachometer and a trip meter along with a clock, a fuel gauge and a coolant temperature indicator. The exhaust is a substantial upswept unit that adds to the sporty look. Overall, it’s quite the looker. The level of quality is top notch too, as expected from a premium Honda.
PERFORMANCE
This is where the fun begins! The CBR250R comes with a 249.6cc four-stroke motor that uses a four-valve head and liquid-cooling to produce 25 bhp@8,500 rpm and 2.33 kgm@7,000 rpm. These numbers are enough to propel the 167 kg CBR to 100 kmph in around 9 seconds, while top speed is in excess of 150 kmph — that’s shattering performance for a 250, really! The lower three gears have enough grunt to keep the rider grinning, while the top three gears continue building the superb acceleration into sensational top speed.
What’s more important is how the motor feels while it’s out on the road — smooth and fast. The six-speed gearbox has well spaced-out ratios that are on the taller side, so you get an excellent highway steed that possesses great in-gear acceleration to overtake any kind of traffic one might encounter. However, the flip side is that in the city, it is not very easy to put it in a higher gear and trundle around; you need to keep working the gearbox. However, all said and done, the CBR250R goes as well as it looks.
Engine efficiency, given the performance and the way we’ve ridden it, is surprising. Out on the highway, cruising in top gear between 5,000 and 8,000 rpm, we got a figure of 45 kmpl. In the city, it drops to 39 kmpl, though it’s not a bad number by any stretch for a bike like this.
RIDE AND HANDLING
The CBR250R’s sporty riding position is excellent — not too upright but not back-breaking either. You feel at home in traffic as well as out on the open roads. The seat, however, could be less firm and makes you thank the CBR’s ride quality, which is great. One cannot term it as plush, but it certainly absorbs everything without unsettling the bike. Going around corners is a comfortable experience, though handling response is not exactly razor sharp, thanks to the fat rear tyre and the bike’s considerable mass. However, even though it feels a bit too soft, everything remains predictable enough for you to enjoy any road that you might chance upon. The best part is the brakes, especially the optional Combined Anti-lock Braking System (C-ABS) package, with which you get strong braking power via the 296 mm front disc. You only have to squeeze the front lever and the CBR simply stops without any sign of getting out of shape
WHAT YOU GET
An accomplished motorcycle that’s fantastic value for money. By pricing the CBR250R at Rs 1.51 lakh for the base model and Rs 1.71 lakh (ex-showroom, Mumbai) for the C-ABS version, Honda has dealt a serious blow to nearly everything in the premium motorcycle segment.
To be honest, the CBR is more than just a brilliant motorcycle. It’s a wake-up call for every other manufacturer who has ignored Indian motorcycling enthusiasts’ pleas for a well-engineered and fast motorcycle that’s also value for money. By deciding to make it here in India, Honda has again shown faith in the Indian motorcycling market and stolen a march on its rivals at the same time. Reward then, is assured.
Two-wheeler makers bullish on smaller towns
Quite unlike carmakers, two-wheeler companies are bullish on growth this fiscal, with overall numbers expected to be in the range of 15 million units — a 20 per cent jump from 2010-11.
Hero Honda and Bajaj Auto would together account for a lion's share of this output with around 10 million bikes and scooters. TVS Motor Company and Honda Motorcycle & Scooter will take up a little over 4.5 million units, with Mahindra & Mahindra, Suzuki and Yamaha bringing the net tally to 15 million units.
Top Four
The Top Four reported sales of over nearly 1.2 million two-wheelers in April, and indications are that the brisk trend will continue in the coming months while peaking during the festive season.
There is a lot of buying happening in smaller towns and companies are going flat out to woo new buyers. Also, with petrol prices set to see another hike in the coming weeks, mileage will be the top priority on everyone's minds and here is where commuter bikes will see sales shoot through the roof.
This fiscal is also expected to see sharper growth in sales of gearless scooters, and sources say monthly numbers could eventually reach two lakh units. HMSI is the market leader with the Activa with TVS Motor in second place with the Scooty and Wego. Hero Honda's Pleasure has been doing good business, while M&M and Suzuki will look for bigger growth this year.
“Gearless scooters are the best bet for the working woman and go beyond the big cities. The coming months will see demand grow from a host of smaller towns and villages where commuting is paramount. Women prefer the safety and privacy of their scooters to travelling in a bus,” sources said.
It is not as if men shun these products either because the Activa, for instance, has a substantial share of male customers. As an official said, “Gone are the days when gearless scooters were associated with pansies. Men no longer have such hang-ups and realise that they are the best bet in crowded traffic.”
Tug-of-war
Industry will, doubtless, be monitoring the keen tug-of-war between rival companies. If the April numbers are anything to go by, Hero Honda will reign supreme with annual sales projected to touch six million units. The Splendor brand continues to be a huge draw in the commuter segment, and the Munjals will be keen to prove a point that they are capable of holding their own sans Honda.
In its turn, the Japanese company has already made public its intent to go flat out in the coming years to regain leadership position. For the moment, its wholly-owned arm, HMSI, has targeted 2.2 million units for this fiscal, but could double this tally by 2014-15.
HMSI will also have to contend with TVS Motor which has been working quietly on consolidating its numbers. Its sales touched the two million mark in 2010-11, and the company would be looking at a higher growth curve this fiscal, especially with its scooters doing well.
New models
Bajaj Auto has already indicated that it is targeting a 20 per cent growth this fiscal, which means it would like to end with over four million motorcycles. The Discover has been the best piece of news from the viewpoint of growing its presence in the commuter category dominated by Hero Honda. This year will also see Bajaj bring out a new range of Pulsar and Discover bikes which promise to be more stylish and powerful.
Hero Honda and Bajaj Auto would together account for a lion's share of this output with around 10 million bikes and scooters. TVS Motor Company and Honda Motorcycle & Scooter will take up a little over 4.5 million units, with Mahindra & Mahindra, Suzuki and Yamaha bringing the net tally to 15 million units.
Top Four
The Top Four reported sales of over nearly 1.2 million two-wheelers in April, and indications are that the brisk trend will continue in the coming months while peaking during the festive season.
There is a lot of buying happening in smaller towns and companies are going flat out to woo new buyers. Also, with petrol prices set to see another hike in the coming weeks, mileage will be the top priority on everyone's minds and here is where commuter bikes will see sales shoot through the roof.
This fiscal is also expected to see sharper growth in sales of gearless scooters, and sources say monthly numbers could eventually reach two lakh units. HMSI is the market leader with the Activa with TVS Motor in second place with the Scooty and Wego. Hero Honda's Pleasure has been doing good business, while M&M and Suzuki will look for bigger growth this year.
“Gearless scooters are the best bet for the working woman and go beyond the big cities. The coming months will see demand grow from a host of smaller towns and villages where commuting is paramount. Women prefer the safety and privacy of their scooters to travelling in a bus,” sources said.
It is not as if men shun these products either because the Activa, for instance, has a substantial share of male customers. As an official said, “Gone are the days when gearless scooters were associated with pansies. Men no longer have such hang-ups and realise that they are the best bet in crowded traffic.”
Tug-of-war
Industry will, doubtless, be monitoring the keen tug-of-war between rival companies. If the April numbers are anything to go by, Hero Honda will reign supreme with annual sales projected to touch six million units. The Splendor brand continues to be a huge draw in the commuter segment, and the Munjals will be keen to prove a point that they are capable of holding their own sans Honda.
In its turn, the Japanese company has already made public its intent to go flat out in the coming years to regain leadership position. For the moment, its wholly-owned arm, HMSI, has targeted 2.2 million units for this fiscal, but could double this tally by 2014-15.
HMSI will also have to contend with TVS Motor which has been working quietly on consolidating its numbers. Its sales touched the two million mark in 2010-11, and the company would be looking at a higher growth curve this fiscal, especially with its scooters doing well.
New models
Bajaj Auto has already indicated that it is targeting a 20 per cent growth this fiscal, which means it would like to end with over four million motorcycles. The Discover has been the best piece of news from the viewpoint of growing its presence in the commuter category dominated by Hero Honda. This year will also see Bajaj bring out a new range of Pulsar and Discover bikes which promise to be more stylish and powerful.
SIAM Reclassifies Segments For Reporting Sales Data
The Society of Indian Automobile Manufacturers (SIAM) has come up with a revised format in accordance with which sales data of automobile manufacturers will be reported from this month.
Senior director Sugato Sen said, “The existing format was put in place in 2002. Since then, the automobile industry has undergone a major transformation. There are more cars available on Wednesday, due to which we felt the need to increase segmentation and provide more detailed data.”
The passenger vehicle (PV) segment would now have nine categories with cars being reclassified according to their length, price and engine capacity. Earlier, the segment had models classified under six sub-segments. The new category — the micro — sub-segment has Tata Nano as the sole contender. The two additional sub-segments are the super compact category which would include cars with length between 4,000 mm and 4,250 mm and the coupe, which would cover 2-4 door roadsters with firm or retractable roofs.
Utility vehicles (UVs), which were earlier classified into two sub-segments on the basis of the number of seats and mass, have now been re-grouped into five sub-segments depending on the length and price. The first three segments — UV1, UV2 and UV3 — would have products priced up to Rs 15 lakh. While the UV4 sub-segment would group products tagged between Rs 15 and Rs 25 lakh, UV5 would report sales of products priced above Rs 25 lakh.
Multi-purpose vehicles would now be classified into two groups — V1 vans with hard tops used for personal transport and V2, which would include vans with soft tops used as maxi cabs.
The medium and heavy commercial vehicles would continue to have three and five sub-segments for carriers used for passenger transportation and goods transportation purposes, respectively. No changes have been made in the manner in which sales data for two-wheelers and three-wheelers is reported.
Sen said passenger vehicles such as the Tata Winger, which were earlier categorised in the PV segment, would now be considered in the light commercial vehicle (LCV, passenger) one. “This would be the re-arrangement as far as volumes are concerned. We would be re-adjusting the data for last year to make figures comparable.”
LCV used for passenger transportation would have two sub-segments while those used for carrying goods would have four sub-segments.
Sen said the industry body has held discussions with members and they would release model-wise sales numbers, possibly from this month onwards. The data would be disclosed a week after the monthly report is released by SIAM.
Senior director Sugato Sen said, “The existing format was put in place in 2002. Since then, the automobile industry has undergone a major transformation. There are more cars available on Wednesday, due to which we felt the need to increase segmentation and provide more detailed data.”
The passenger vehicle (PV) segment would now have nine categories with cars being reclassified according to their length, price and engine capacity. Earlier, the segment had models classified under six sub-segments. The new category — the micro — sub-segment has Tata Nano as the sole contender. The two additional sub-segments are the super compact category which would include cars with length between 4,000 mm and 4,250 mm and the coupe, which would cover 2-4 door roadsters with firm or retractable roofs.
Utility vehicles (UVs), which were earlier classified into two sub-segments on the basis of the number of seats and mass, have now been re-grouped into five sub-segments depending on the length and price. The first three segments — UV1, UV2 and UV3 — would have products priced up to Rs 15 lakh. While the UV4 sub-segment would group products tagged between Rs 15 and Rs 25 lakh, UV5 would report sales of products priced above Rs 25 lakh.
Multi-purpose vehicles would now be classified into two groups — V1 vans with hard tops used for personal transport and V2, which would include vans with soft tops used as maxi cabs.
The medium and heavy commercial vehicles would continue to have three and five sub-segments for carriers used for passenger transportation and goods transportation purposes, respectively. No changes have been made in the manner in which sales data for two-wheelers and three-wheelers is reported.
Sen said passenger vehicles such as the Tata Winger, which were earlier categorised in the PV segment, would now be considered in the light commercial vehicle (LCV, passenger) one. “This would be the re-arrangement as far as volumes are concerned. We would be re-adjusting the data for last year to make figures comparable.”
LCV used for passenger transportation would have two sub-segments while those used for carrying goods would have four sub-segments.
Sen said the industry body has held discussions with members and they would release model-wise sales numbers, possibly from this month onwards. The data would be disclosed a week after the monthly report is released by SIAM.
Hero may use Honda’s current technology for future models
Hero Honda may utilise erstwhile promoter Honda’s technology used in its current models for developing future products.
After deciding to part ways on their 26-year-old joint venture, the Hero Group and Honda signed a new licensing agreement under which the Indian firm will pay its Japanese counterpart 45 billion yen (about Rs 2,450 crore) till 2014.
“We have the right to use the (Honda) technology in perpetuity for the existing models as part of the arrangement,” said Mr Ravi Sud, Chief Financial Officer, Hero Honda Motors Ltd.
Under the agreement, Hero Honda is free to modify or use the platforms of all the existing products, including Splendor, Passion, CBZ to develop new models, he said.
“Earlier, we had to take Honda’s permission to make a change even on the design graphics but now we can change the engine or gearbox or develop on the platforms, if we wish, on our own,” Mr Sud said.
Asked if Hero Honda will use the existing technology for developing future products, he said: “Well, we have the rights and we would like to use it“.
Apart from considering using Honda’s technology, the company is also building up its own R&D capabilities, both manpower and logistics.
The company has earmarked up to Rs 800 crore as capital expenditure for 2011—12 financial year, mainly for setting up its fourth plant and also for R&D activities.
After deciding to part ways on their 26-year-old joint venture, the Hero Group and Honda signed a new licensing agreement under which the Indian firm will pay its Japanese counterpart 45 billion yen (about Rs 2,450 crore) till 2014.
“We have the right to use the (Honda) technology in perpetuity for the existing models as part of the arrangement,” said Mr Ravi Sud, Chief Financial Officer, Hero Honda Motors Ltd.
Under the agreement, Hero Honda is free to modify or use the platforms of all the existing products, including Splendor, Passion, CBZ to develop new models, he said.
“Earlier, we had to take Honda’s permission to make a change even on the design graphics but now we can change the engine or gearbox or develop on the platforms, if we wish, on our own,” Mr Sud said.
Asked if Hero Honda will use the existing technology for developing future products, he said: “Well, we have the rights and we would like to use it“.
Apart from considering using Honda’s technology, the company is also building up its own R&D capabilities, both manpower and logistics.
The company has earmarked up to Rs 800 crore as capital expenditure for 2011—12 financial year, mainly for setting up its fourth plant and also for R&D activities.
Auto sales growth slows in April
After clocking strong double-digit growth numbers over the past year, automobile sales in the domestic market moderated to 13 per cent more last month. Nine of the country’s leading car manufacturers reported offtake of 187,933 vehicles in April as against the 166,221 units sold by them during the corresponding period last year.
Maruti Suzuki India Ltd (MSIL), Hyundai Motor India Ltd (HMIL) and Tata Motors — together accounting for 73 per cent of passenger vehicles sold in the domestic market — grew at eight per cent during the month. The growth was largely driven by smaller manufacturers such as Mahindra & Mahindra, Volkswagen, Toyota and Skoda.
MSIL had, for the time in over a year, registered single-digit growth of 8.9 per cent in domestic sales, at 87,144 units. The company reported average sales of a little over 100,000 units in the domestic market over the past three months. Exports, too, continued to be an area of concern for it, declining for the seventh consecutive month to 10,011 units. This is a dip of 23 per cent over April last year.
Abdul Majeed, leader, automotive practice, PricewaterhouseCoopers, said: “With a hike interest rates, liquidity is getting squeezed. Historically, it has been noticed automobile sales are lowest in April, on account of strong sales in March. Growth rates have thus moderated in the industry.”
HMIL sold 31,636 units last month, a rise of 11 per cent compared to 28,501 vehicles sold in April 2010. Exports, however, fell 13 per cent to 20,422 units, dragging down overall volumes. HMIL reported a marginal increase of 0.1 per cent in total sales last month, at 52,058 units.
Maruti Suzuki India Ltd (MSIL), Hyundai Motor India Ltd (HMIL) and Tata Motors — together accounting for 73 per cent of passenger vehicles sold in the domestic market — grew at eight per cent during the month. The growth was largely driven by smaller manufacturers such as Mahindra & Mahindra, Volkswagen, Toyota and Skoda.
MSIL had, for the time in over a year, registered single-digit growth of 8.9 per cent in domestic sales, at 87,144 units. The company reported average sales of a little over 100,000 units in the domestic market over the past three months. Exports, too, continued to be an area of concern for it, declining for the seventh consecutive month to 10,011 units. This is a dip of 23 per cent over April last year.
Abdul Majeed, leader, automotive practice, PricewaterhouseCoopers, said: “With a hike interest rates, liquidity is getting squeezed. Historically, it has been noticed automobile sales are lowest in April, on account of strong sales in March. Growth rates have thus moderated in the industry.”
HMIL sold 31,636 units last month, a rise of 11 per cent compared to 28,501 vehicles sold in April 2010. Exports, however, fell 13 per cent to 20,422 units, dragging down overall volumes. HMIL reported a marginal increase of 0.1 per cent in total sales last month, at 52,058 units.
Hero Honda's net profit falls 14% in 2010-11 at Rs 1,928 crore
The country's largest two-wheeler maker Hero Honda today reported 13.62 per cent decline in its net profit for 2010-11 at Rs 1,927.90 crore, mainly due to higher expenses on raw materials and payment of license fee to erstwhile promoter Honda.
Hero Honda's net profit stood at Rs 2,231.83 crore in FY'10, the company said in a statement.
The total income from operations during last fiscal, however, increased by 22.32 per cent to Rs 19,401.15 crore from Rs 15,860.51 crore in 2009-10.
Hero Honda sold a total of 54,02,444 motorcycles and scooters in FY'11 as against 46,00,130 units in the previous fiscal, up 17.44 per cent.
"There was tremendous pressure on margins during the year due to higher input costs and also due to upgradation of technology to comply with BSIII emission norms, which we could not fully pass on to customers," Hero Honda Motors Ltd (HHML) Chief Financial Officer Ravi Sud told PTI.
Moreover, the company has decided to amortise the licence fee payment of Rs 2,479.33 crore to Japan's Honda that will be reflected on its balance sheet over the next 14 quarters. When equally divided, the expected outgo per quarter is Rs 177.1 crore.
"So for every quarter till June 30, 2014, there will be a reflection of this license fee payment, but there will not be any royalty payment made to Honda anymore," he added. During the fiscal, the company spent Rs 14,135.17 crore in purchasing raw materials compared to Rs 10,730.41 crore in the previous fiscal, which is up by 31.73 per cent.
The company's provisioning for depreciation also went up by over two-fold to Rs 402.38 crore from Rs 191.47 crore. Besides, other expenditure in last year rose by 14.31 per cent to Rs 2,054.10 crore from Rs 1,796.88 crore in FY'10. The HHML board recommended a final dividend of 1,750 per cent, which is Rs 35 per share of the face value of Rs 2 each for 2010-11.
Reacting to the results, shares of the company today closed 3.63 per cent down at Rs 1,600.10 a piece on the Bombay Stock Exchange. Commenting on the results, HHML Chairman Brijmohan Lall said: "Our performance all through the fiscal 2011 has been very satisfying. We crossed the five million sales mark in a year for the first time and recorded robust volumes of 5.4 million."
For the quarter ended March 31, 2011, Hero Honda's net profit slipped 16.23 per cent to Rs 501.61 crore from Rs 598.81 crore in the corresponding quarter of 2009-10.
Hero Honda's net profit stood at Rs 2,231.83 crore in FY'10, the company said in a statement.
The total income from operations during last fiscal, however, increased by 22.32 per cent to Rs 19,401.15 crore from Rs 15,860.51 crore in 2009-10.
Hero Honda sold a total of 54,02,444 motorcycles and scooters in FY'11 as against 46,00,130 units in the previous fiscal, up 17.44 per cent.
"There was tremendous pressure on margins during the year due to higher input costs and also due to upgradation of technology to comply with BSIII emission norms, which we could not fully pass on to customers," Hero Honda Motors Ltd (HHML) Chief Financial Officer Ravi Sud told PTI.
Moreover, the company has decided to amortise the licence fee payment of Rs 2,479.33 crore to Japan's Honda that will be reflected on its balance sheet over the next 14 quarters. When equally divided, the expected outgo per quarter is Rs 177.1 crore.
"So for every quarter till June 30, 2014, there will be a reflection of this license fee payment, but there will not be any royalty payment made to Honda anymore," he added. During the fiscal, the company spent Rs 14,135.17 crore in purchasing raw materials compared to Rs 10,730.41 crore in the previous fiscal, which is up by 31.73 per cent.
The company's provisioning for depreciation also went up by over two-fold to Rs 402.38 crore from Rs 191.47 crore. Besides, other expenditure in last year rose by 14.31 per cent to Rs 2,054.10 crore from Rs 1,796.88 crore in FY'10. The HHML board recommended a final dividend of 1,750 per cent, which is Rs 35 per share of the face value of Rs 2 each for 2010-11.
Reacting to the results, shares of the company today closed 3.63 per cent down at Rs 1,600.10 a piece on the Bombay Stock Exchange. Commenting on the results, HHML Chairman Brijmohan Lall said: "Our performance all through the fiscal 2011 has been very satisfying. We crossed the five million sales mark in a year for the first time and recorded robust volumes of 5.4 million."
For the quarter ended March 31, 2011, Hero Honda's net profit slipped 16.23 per cent to Rs 501.61 crore from Rs 598.81 crore in the corresponding quarter of 2009-10.
TVS joins hands with Syndicate Bank for three-wheelers
TVS Motor Company today said it has tied up with Syndicate Bank to offer retail financing facilities for its three-wheeler customers.
As per the MOU, Syndicate Bank will offer finance for purchase of TVS King through all its 2,493 branches across the country, it added.
"This alliance will not only help reach prospective buyers across the country, but also open up new markets and customers, both for Syndicate Bank as well as TVS Motor Company," the statement said.
Both the companies have a wide distribution network in the urban, semi urban and rural areas and will leverage on their wide networks for mutual benefit, TVS said.
As per the MOU, Syndicate Bank will offer finance for purchase of TVS King through all its 2,493 branches across the country, it added.
"This alliance will not only help reach prospective buyers across the country, but also open up new markets and customers, both for Syndicate Bank as well as TVS Motor Company," the statement said.
Both the companies have a wide distribution network in the urban, semi urban and rural areas and will leverage on their wide networks for mutual benefit, TVS said.
BMW superbikes to sport 'made in India' gearboxes
Signalling the coming of age of Indian auto component makers, Hero Motors has bagged a contract to become the sole international supplier of gearboxes for BMW’s motorcycles for both domestic and global markets. Gearboxes are one of the most critical parts in an automobile and involve high-end engineering.
Hero Motors is part of the $4.5-billion Hero Group.
Pankaj Munjal, managing director, Hero Motors, said, “We have developed the gearbox ourselves. Usually, components such as engines and transmissions are made by the company itself, as they involve advanced technology. We have achieved the expertise. BMW Motorrad will source gearboxes from us for products it sells globally.” The agreement would be for five-eight years depending on the transmissions sourced for different products by BMW Motorrad.
The deal was closed on Tuesday. “That Europe is the best place for sourcing automobile components is not necessarily correct. The landscape is changing. Our transmission business, for one, has been growing over 70 per cent a year for the last few years”, said Munjal.
Indian companies export over $5 billion worth of automobile components in a year.
BMW Motorrad saw 12.3 per cent growth in the last financial year and sold 110,000 motorcycles.
The company is already executing contracts worth over $200 million for supplying components to a Canadian company, Bombardier Recreational Products, and Germany’s BMW.
BMW’s motorcycle business is not new to India. It has had a long relationship with Hero Motors. BMW Motorrad forayed into the Indian two-wheeler market in the mid-1990s in partnership with Hero Motors with a mid-sized single-cylinder motorcycle. While it sold a few bikes, the venture was closed due to the small size of the Indian superbike market that time.
AUTO COMPONENT DEALS
Manufacturer Exports to Products exported
Bharat Forge Toyota, Daimler Chrysler
(Germany), Fiat
Powertrain (France) Forged and
machined crankshafts,
steering knuckles, hubs
Motherson Sumi Volkswagen Group,
Hyundai, Ford, GM Mirrors, plastic parts,
wiring harnesses
Sundaram Clayton General Motors Radiator caps
Brakes India Renault SAS (France), Brake systems and
components of
special test rigs
BWW Motorrad is now back. It started selling products in India in December last year. The models are imported as completely-built units. They are priced upwards of Rs 18 lakh and distributed through Deutsche Motoren, New Delhi, and Navnit Motors, Mumbai.
Hero Motors provides end-to-end engineering solutions. Its customers include Maruti Suzuki, Toyota, BMW Hero Honda and Rotax.
It has two plants in Ghaziabad where it produces transmissions, sheet metals and gear boxes, and one at Manesar in Delhi-NCR. Its two other facilities are in Halol, Gujarat, and Talegaon, Pune.
Hero Motors is part of the $4.5-billion Hero Group.
Pankaj Munjal, managing director, Hero Motors, said, “We have developed the gearbox ourselves. Usually, components such as engines and transmissions are made by the company itself, as they involve advanced technology. We have achieved the expertise. BMW Motorrad will source gearboxes from us for products it sells globally.” The agreement would be for five-eight years depending on the transmissions sourced for different products by BMW Motorrad.
The deal was closed on Tuesday. “That Europe is the best place for sourcing automobile components is not necessarily correct. The landscape is changing. Our transmission business, for one, has been growing over 70 per cent a year for the last few years”, said Munjal.
Indian companies export over $5 billion worth of automobile components in a year.
BMW Motorrad saw 12.3 per cent growth in the last financial year and sold 110,000 motorcycles.
The company is already executing contracts worth over $200 million for supplying components to a Canadian company, Bombardier Recreational Products, and Germany’s BMW.
BMW’s motorcycle business is not new to India. It has had a long relationship with Hero Motors. BMW Motorrad forayed into the Indian two-wheeler market in the mid-1990s in partnership with Hero Motors with a mid-sized single-cylinder motorcycle. While it sold a few bikes, the venture was closed due to the small size of the Indian superbike market that time.
AUTO COMPONENT DEALS
Manufacturer Exports to Products exported
Bharat Forge Toyota, Daimler Chrysler
(Germany), Fiat
Powertrain (France) Forged and
machined crankshafts,
steering knuckles, hubs
Motherson Sumi Volkswagen Group,
Hyundai, Ford, GM Mirrors, plastic parts,
wiring harnesses
Sundaram Clayton General Motors Radiator caps
Brakes India Renault SAS (France), Brake systems and
components of
special test rigs
BWW Motorrad is now back. It started selling products in India in December last year. The models are imported as completely-built units. They are priced upwards of Rs 18 lakh and distributed through Deutsche Motoren, New Delhi, and Navnit Motors, Mumbai.
Hero Motors provides end-to-end engineering solutions. Its customers include Maruti Suzuki, Toyota, BMW Hero Honda and Rotax.
It has two plants in Ghaziabad where it produces transmissions, sheet metals and gear boxes, and one at Manesar in Delhi-NCR. Its two other facilities are in Halol, Gujarat, and Talegaon, Pune.
Auto parts sector worried over shrinking margins, profit
Despite the automotive industry witnessing a growth of 28 per cent in 2010-11, the profitability level has fallen, which is causing concern, said Mr Srivats Ram, President, Automotive Components Manufacturers Association of India.
Mr Srivats Ram told Business Line that analyses of financials for the first half of 2010-11 saw the return on investment declining for automotive companies.
“We will have to wait for companies to announce their financial results for 2010-11, to see how much the return on investment has been affected,” he said.
It is estimated that the automotive industry grew by $30 billion in 2010-11, exports reported a $5-billion growth and imports went up by $10 billion.
Exports have shown a revival, with the US economy showing signs of recovery, to post a growth of 15 per cent over the previous year. In 2009-10 the market did not grow due to the impact of the financial crisis.
Exports have risen because new entrants are sourcing components from India for their other markets. With India becoming a global platform, car companies are looking at the mass market with usage of similar auto components across countries.
Issues facing the industry
The withdrawal of Duty Entitlement Passbook (DEPB) from June 30, 2011 may hurt automotive component manufacturers particularly the small and medium enterprises that cater to the export market.
The industry is grappling with the commodity price hike and declining profits. With no Value Added Tax in place, the removal of DEPB will make the Indian automotive industry uncompetitive in global market, he said.
Mr Srivats Ram said the withdrawal of the DEPB scheme without accompanying tax reforms, which ensure that domestic taxes are not exported, would leave Indian exporters handicapped in the global market.
DEPB scheme encourages the use of domestic raw material. It is known that the element of the import duty may be contained in the pricing of the domestic suppliers itself even though such customs duty may not be reflected, he said.
Mr Srivats Ram told Business Line that analyses of financials for the first half of 2010-11 saw the return on investment declining for automotive companies.
“We will have to wait for companies to announce their financial results for 2010-11, to see how much the return on investment has been affected,” he said.
It is estimated that the automotive industry grew by $30 billion in 2010-11, exports reported a $5-billion growth and imports went up by $10 billion.
Exports have shown a revival, with the US economy showing signs of recovery, to post a growth of 15 per cent over the previous year. In 2009-10 the market did not grow due to the impact of the financial crisis.
Exports have risen because new entrants are sourcing components from India for their other markets. With India becoming a global platform, car companies are looking at the mass market with usage of similar auto components across countries.
Issues facing the industry
The withdrawal of Duty Entitlement Passbook (DEPB) from June 30, 2011 may hurt automotive component manufacturers particularly the small and medium enterprises that cater to the export market.
The industry is grappling with the commodity price hike and declining profits. With no Value Added Tax in place, the removal of DEPB will make the Indian automotive industry uncompetitive in global market, he said.
Mr Srivats Ram said the withdrawal of the DEPB scheme without accompanying tax reforms, which ensure that domestic taxes are not exported, would leave Indian exporters handicapped in the global market.
DEPB scheme encourages the use of domestic raw material. It is known that the element of the import duty may be contained in the pricing of the domestic suppliers itself even though such customs duty may not be reflected, he said.
Auto Makers See Branding Advantage in Exclusive Showcasing
Bajaj Auto has started a branding exercise for its high-end products by opening exclusive companyowned showrooms and others are following suit.The countrys second-largest two-wheeler maker has even branded these showrooms separately,as Probiking,where only the bigger bikes in its portfolio are sold.Now,several auto makers are seeing the value of the branding exercise.Force Motors,the commercial vehicle and tractor maker which is about to debut its personalised vehicle division with the launch of a sports utility vehicle,is setting up company-owned showrooms.
The first of these will come up in its home city Pune,while it plans to open such showrooms in Mumbai and Delhi.These company owned showrooms will not be sales points,they will only display our range of products.This is an investment in longterm brand building.Yes,we will start with the SUV but we will add more products.The new van,a sixseater that we plan to launch next year,could go into such a showroom.We could also showcase the 4x4 Gurkha,whose production we discontinued last year but which we plan to re-introduce with a new driveline,higher torque,more attractive and refined interiors, Prasan Firodia,managing director,Force Motors,said.While he maintained this was an investment for the long term,he declined to comment on the actual investment,beyond saying it ran into several crores.For Force Motors,sale of the SUV will happen from new showrooms which some of their existing dealers will set up,but traffic to these showrooms will be driven from such display rooms which are being located in premium residential areas.The Pune showroom is situated on Senapati Bapat road,an area that is fast developing into another high street shopping zone.In Mumbai,it will be in the upmarket south Mumbai area,while a location in Delhi is yet to be finalised.Then theres Fiat India Automobiles,which will open two brand boutiques in Delhi and Pune next month to display only Fiat products.
These outlets,which are internally being called brand image points,will be company-owned and operated,meeting international standards of the Italian group.Sales could also happen here,a company official said,requesting anonymity.This is a brand-building exercise,modelled on Fiats international practice where sales could also happen.These brand boutiques will exclusively showcase Fiat products,there will be no Tata products.These are additional and separate from the dealerships that Fiat and Tata have, the official added.Fiat India Automobiles is a fouryear old JV between the Fiat group and Tata Motors where its 175 dealers across the country sell the products of both companies.Garware Motors,the Indian assembler and distributor of Hyosung,a Korean bike brand which is currently rolling out dealerships in select cities across the country,has chosen to own and operate the showroom in its home town,Pune.Diya Garware Ibanez,managing director,Garware Motors,explained,The Garware Superbiking showroom in Pune is a model showroom.We will bring our dealers from all over the country to show the service,display,etc,here.Sales will also happen here.
The first of these will come up in its home city Pune,while it plans to open such showrooms in Mumbai and Delhi.These company owned showrooms will not be sales points,they will only display our range of products.This is an investment in longterm brand building.Yes,we will start with the SUV but we will add more products.The new van,a sixseater that we plan to launch next year,could go into such a showroom.We could also showcase the 4x4 Gurkha,whose production we discontinued last year but which we plan to re-introduce with a new driveline,higher torque,more attractive and refined interiors, Prasan Firodia,managing director,Force Motors,said.While he maintained this was an investment for the long term,he declined to comment on the actual investment,beyond saying it ran into several crores.For Force Motors,sale of the SUV will happen from new showrooms which some of their existing dealers will set up,but traffic to these showrooms will be driven from such display rooms which are being located in premium residential areas.The Pune showroom is situated on Senapati Bapat road,an area that is fast developing into another high street shopping zone.In Mumbai,it will be in the upmarket south Mumbai area,while a location in Delhi is yet to be finalised.Then theres Fiat India Automobiles,which will open two brand boutiques in Delhi and Pune next month to display only Fiat products.
These outlets,which are internally being called brand image points,will be company-owned and operated,meeting international standards of the Italian group.Sales could also happen here,a company official said,requesting anonymity.This is a brand-building exercise,modelled on Fiats international practice where sales could also happen.These brand boutiques will exclusively showcase Fiat products,there will be no Tata products.These are additional and separate from the dealerships that Fiat and Tata have, the official added.Fiat India Automobiles is a fouryear old JV between the Fiat group and Tata Motors where its 175 dealers across the country sell the products of both companies.Garware Motors,the Indian assembler and distributor of Hyosung,a Korean bike brand which is currently rolling out dealerships in select cities across the country,has chosen to own and operate the showroom in its home town,Pune.Diya Garware Ibanez,managing director,Garware Motors,explained,The Garware Superbiking showroom in Pune is a model showroom.We will bring our dealers from all over the country to show the service,display,etc,here.Sales will also happen here.
Auto cos learn to handle risk tied to growth
Expansion into newer geographies, exposure to multiple currencies and uncertain political climate have increased the risk factors for the Indian automobile companies. The newer risk factors become even more acute if growing competition and volatile raw material costs are added. The combination of such factors has led the country’s top auto firms to set up separate verticals solely dedicated to risk management.
Companies such as Mahindra & Mahindra, Tata Motors, Hero Honda and Maruti Suzuki have sharply increased focus on risk management and are also considering having a designated executive or a chief risk officer (CRO) to oversee the various functional aspects and gauge the risk profile of the firm.
Even clause 49 of the listing agreement mandates every listed company to have a risk management framework in place, according to which companies are required to “lay down procedures to inform board members” about the risk profile of the company. However, the emerging risk management aims to go beyond the narrow definitions of risk by broad-basing its nature and scope.
So against the present practice where typically chief financial officers (CFO) double up as CROs, in the coming days most companies would have a distinct risk officer.
“The concept of enterprise risk management is becoming increasingly important and require a dedicated focus of a strong, full-time risk officer to champion risk management initiatives,” said Monish Chatrath, partner (consulting & markets leader) at Mazars India. He said that traditionally companies did not put a lot of emphasis on risk management, but in the backdrop of increasing challenges, many OEMs or original equipment manufacturers now prefer to have a dedicated team to look into risk management.
Adithya Bhat, managing director of consulting firm Protiviti, said that the sharper focus on enterprise risk management was mainly among the homegrown auto companies.
“We are now getting more queries on risk management. Among the Indian companies, there is sharper focus now because awareness about such practices are going up,” Bhat said. According to him, a CRO would be typically required to coordinate with the marketing and supply divisions and draw up a complete risk profile of the company. As followed in the West, a CRO reports directly to the board. The most common risk factors that companies are forced to take cognizance of include over-dependence on a particular segment or customer for revenues, threat of natural calamities, attrition and unforeseen developments such as hike in interest rates. Chatrath said that in the recent past, companies were also redrawing plans based on their risk parameters that included increased competition from China, rising unionisation and even succession planning. Mahindra & Mahindra’s president (finance, legal & financial services) and member of the board Uday Phadke said that the company has a robust risk management policy.
“At M&M, business managers are responsible for managing business risks and functional managers manage function-specific risks. We regularly review our risk universe,” he said. Similarly, Maruti Suzuki has increased its focus on risk management substantially, with the senior members of the top management also being a part of the executive risk management committee, thereby constantly gauging the risk profile of the company, which was not the case three years ago.
Companies such as Mahindra & Mahindra, Tata Motors, Hero Honda and Maruti Suzuki have sharply increased focus on risk management and are also considering having a designated executive or a chief risk officer (CRO) to oversee the various functional aspects and gauge the risk profile of the firm.
Even clause 49 of the listing agreement mandates every listed company to have a risk management framework in place, according to which companies are required to “lay down procedures to inform board members” about the risk profile of the company. However, the emerging risk management aims to go beyond the narrow definitions of risk by broad-basing its nature and scope.
So against the present practice where typically chief financial officers (CFO) double up as CROs, in the coming days most companies would have a distinct risk officer.
“The concept of enterprise risk management is becoming increasingly important and require a dedicated focus of a strong, full-time risk officer to champion risk management initiatives,” said Monish Chatrath, partner (consulting & markets leader) at Mazars India. He said that traditionally companies did not put a lot of emphasis on risk management, but in the backdrop of increasing challenges, many OEMs or original equipment manufacturers now prefer to have a dedicated team to look into risk management.
Adithya Bhat, managing director of consulting firm Protiviti, said that the sharper focus on enterprise risk management was mainly among the homegrown auto companies.
“We are now getting more queries on risk management. Among the Indian companies, there is sharper focus now because awareness about such practices are going up,” Bhat said. According to him, a CRO would be typically required to coordinate with the marketing and supply divisions and draw up a complete risk profile of the company. As followed in the West, a CRO reports directly to the board. The most common risk factors that companies are forced to take cognizance of include over-dependence on a particular segment or customer for revenues, threat of natural calamities, attrition and unforeseen developments such as hike in interest rates. Chatrath said that in the recent past, companies were also redrawing plans based on their risk parameters that included increased competition from China, rising unionisation and even succession planning. Mahindra & Mahindra’s president (finance, legal & financial services) and member of the board Uday Phadke said that the company has a robust risk management policy.
“At M&M, business managers are responsible for managing business risks and functional managers manage function-specific risks. We regularly review our risk universe,” he said. Similarly, Maruti Suzuki has increased its focus on risk management substantially, with the senior members of the top management also being a part of the executive risk management committee, thereby constantly gauging the risk profile of the company, which was not the case three years ago.
TVS Motors reports 14 per cent overall growth sales for April
CHENNAI: Automotive maker TVS Motors today reported 14 per cent growth in overall sales for April 2011, propelled by the company's scooter sales and international business besides substantial growth in the three-wheeler segment.
"The company registered sales of 167,744 units as against 147,172 units in the corresponding month of the previous year," a TVS release here said.
Scooter sales "led the growth," increasing by 31 per cent with sales of 35,074 units compared to 26,860 units in April 2010, it said. The South India-based automaker sold 69,573 motorcycles in April 2011, registering an increase of five per cent.
Domestic two-wheeler sales accounted for 141,619 units in April 2011 against 125,471 in the corresponding month of 2010, recording a growth of 13 per cent.
Exports recorded cumulative sales of 25,275 units in April 2011 as against 19,657 units in the previous year.
During the month, the company exported 22,564 units of two wheelers against 19,218 units in April 2010, the release said, adding it had sold 3,561 three wheelers as against 2,483 units in the comparable month of the previous year.
"The company registered sales of 167,744 units as against 147,172 units in the corresponding month of the previous year," a TVS release here said.
Scooter sales "led the growth," increasing by 31 per cent with sales of 35,074 units compared to 26,860 units in April 2010, it said. The South India-based automaker sold 69,573 motorcycles in April 2011, registering an increase of five per cent.
Domestic two-wheeler sales accounted for 141,619 units in April 2011 against 125,471 in the corresponding month of 2010, recording a growth of 13 per cent.
Exports recorded cumulative sales of 25,275 units in April 2011 as against 19,657 units in the previous year.
During the month, the company exported 22,564 units of two wheelers against 19,218 units in April 2010, the release said, adding it had sold 3,561 three wheelers as against 2,483 units in the comparable month of the previous year.
Hero Honda ropes in Law & Kenneth for brand positioning
Law and Kenneth has been mandated to bring alive the positioning of the new brand, and evolve an impactful 360 degree campaign to communicate the same
New Delhi: India’s largest two-wheeler maker Hero Honda Motors Ltd (HHML) on Sunday said it has roped Law & Kenneth (L& K) as a creative partner to launch and establish a new brand for the company after Honda’s exit.
Law & Kenneth (L& K), an independent brand communications firm, has been mandated to devise the new brand positioning of the company.
“Law and Kenneth has been mandated to bring alive the positioning of the new brand, and evolve an impactful 360 degree campaign to communicate the same,” HHML Senior VP (Marketing & Sales), Hero Honda Motors Ltd Anil Dua said in a statement.
L& K’s appointment follows the hiring of international brand and innovation specialist, Wolff Olins by HHML to work on its new brand identity.
“Wolff Olins and Law & Kenneth will work closely together to ensure that there is seamless transition between the strategic thought behind the new identity and the new brand campaign,” Dua added.
Commenting on its appointment as a creative partner, Law & Kenneth chairman Praveen Kenneth said: “This is a once-in-a -lifetime opportunity for any creative agency and we feel really privileged to be the chosen one.”
Hero Honda has embarked on the journey to acquire a new brand name post the two joint venture partners of HHML- Hero Group of India and Honda Motor Co of Japan - deciding to part ways in December last year.
The Munjals-promoted Hero Group had agreed to buy out Honda’s 26% stake in HHML for Rs. 3,841.83 crore.
As per an agreement signed between the two erstwhile partners, Hero can use the Honda brand till 2014, but it is understood that the Indian group wants to acquire a new identify of its own at the earliest in order to maintain its leadership position.
Hero Group and Honda had signed a new licencing agreement in March under which the Indian firm will pay its Japanese counterpart ¥45 billion (about Rs. 2,450 crore) till 2014.
New Delhi: India’s largest two-wheeler maker Hero Honda Motors Ltd (HHML) on Sunday said it has roped Law & Kenneth (L& K) as a creative partner to launch and establish a new brand for the company after Honda’s exit.
Law & Kenneth (L& K), an independent brand communications firm, has been mandated to devise the new brand positioning of the company.
“Law and Kenneth has been mandated to bring alive the positioning of the new brand, and evolve an impactful 360 degree campaign to communicate the same,” HHML Senior VP (Marketing & Sales), Hero Honda Motors Ltd Anil Dua said in a statement.
L& K’s appointment follows the hiring of international brand and innovation specialist, Wolff Olins by HHML to work on its new brand identity.
“Wolff Olins and Law & Kenneth will work closely together to ensure that there is seamless transition between the strategic thought behind the new identity and the new brand campaign,” Dua added.
Commenting on its appointment as a creative partner, Law & Kenneth chairman Praveen Kenneth said: “This is a once-in-a -lifetime opportunity for any creative agency and we feel really privileged to be the chosen one.”
Hero Honda has embarked on the journey to acquire a new brand name post the two joint venture partners of HHML- Hero Group of India and Honda Motor Co of Japan - deciding to part ways in December last year.
The Munjals-promoted Hero Group had agreed to buy out Honda’s 26% stake in HHML for Rs. 3,841.83 crore.
As per an agreement signed between the two erstwhile partners, Hero can use the Honda brand till 2014, but it is understood that the Indian group wants to acquire a new identify of its own at the earliest in order to maintain its leadership position.
Hero Group and Honda had signed a new licencing agreement in March under which the Indian firm will pay its Japanese counterpart ¥45 billion (about Rs. 2,450 crore) till 2014.
Hero Honda to par Rs.2,450 cr royalty to Honda
NEW DELHI: Hero Honda will pay Honda 45 billion yen (about Rs.2,450 crore) till 2014 as part of a new licensing agreement signed between the Hero Group and the Japanese auto major after deciding to part ways on their joint venture. Hero Honda Motors Ltd (HHML) said the amount is in line with its existing rate of royalty payment, which is about 2.7 to 2.8 per cent of net sales. For the existing products, the Indian group will stop paying royalty by June, 2014.
“... Honda and HHML have signed a new licensing agreement, which enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was yen 45,000 million and becomes due through 2014,” Honda Motor Co said in a statement. — PTI
“... Honda and HHML have signed a new licensing agreement, which enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was yen 45,000 million and becomes due through 2014,” Honda Motor Co said in a statement. — PTI
TVS Motor misses earnings estimates, disappoints investors
Stock markets thrive on expectations and outperformance. That’s why TVS Motor Co. Ltd’s shares fell by 5.7% on the Bombay Stock Exchange on Friday, despite net profit for the March quarter doubling to Rs. 41.7 crore compared with a year ago.
But this figure was a good 30% lower than the Street’s estimate for the quarter. Also, the underperformance was attributable to its operating profit margin coming in lower over the year-ago period and the preceding quarter.
The positive side to the third largest two-wheeler maker’s results is that it has maintained its growth trajectory over the past four to six quarters. It is benefiting from the unabated boom in the two-wheeler segment, just as its peers Hero HondaMotors Ltd and Bajaj Auto Ltd.
The company’s March quarter sales volumes jumped by 27.3% and, along with a 6% improvement in realization, resulted in a robust 34.3% year-on-year (y-o-y) jump in net revenue to Rs. 1,633 crore.
Higher revenue, mainly driven by the operating leverage from rising volumes, trickled down to 11.4% y-o-y growth in operating profit. This was in spite of cost pressures, which affected operating profit margin. At 5.6% in the March quarter, it was 114 basis points (bps) lower from a year ago and about 80 bps below from the preceding quarter. One basis point is one-hundredth of a percentage point.
The main dampener was the rise in raw material cost due to a surge in commodity prices in their underlying inputs such as metals. As a percentage of sales, it rose 340 bps from a year ago, though flat compared with the December quarter. It was partially offset by the drop in other expenditure relating to marketing and advertising costs.
What did the trick to drive up profits is the all-round growth across products—mopeds, motorcycles, scooters and three-wheelers. TVS Motor is steadily gaining mileage as a pan-India player, which is a change from being predominantly a southern firm for several years.
“Its changing product mix—higher contribution of more profitable product categories like scooters and three-wheelers—augured well for TVS,” says Umesh Karne, analyst at Brics Securities Ltd.
Scooter sales grew by 54% y-o-y and now account for about one-fourth of vehicles sold by the firm. Further, three-wheeler sales grew by a significant 92%, although on a low base of about 6,200 vehicles sold in the previous year. TVS Motor is a new entrant in this segment unlike veterans such as Bajaj Auto and Piaggio.
Of course, its oldest product—mopeds—also grew by a significant 20%. So did motorcycles, which comprise two-fifths of the firm’s sales volumes. TVS Motor met its volume guidance for the year at two million vehicles.
What took the charm off the stock is the negative surprise in lower-than-estimated net profit. The firm stated that it provided about Rs. 9 crore towards the natural calamity cess for its new facility in Himachal Pradesh, where it enjoys tax exemptions.
Companies operating in the state are contesting this demand, which will affect profits, unless it is reversed. Besides, some analysts also view its other income as being lower-than-expected, while the tax outgo was higher.
TVS Motor’s stock trades at Rs. 56.30, which discounts the estimated earnings (stand-alone) for fiscal 2012 (FY12) about 10 times. Given that the firm’s revenue is estimated to grow faster than the industry growth rate of 12-15% per annum for at least two years, the stock offers value.
But some risks could trip investors. One is the performance of its Indonesian subsidiary. Although sales are growing, whether its operations are yet profitable is not known.
Losses could, therefore, pull down consolidated earnings for FY11, as it did in the previous year. If domestic operations don’t see better profitability, that too could affect its performance.
But this figure was a good 30% lower than the Street’s estimate for the quarter. Also, the underperformance was attributable to its operating profit margin coming in lower over the year-ago period and the preceding quarter.
The positive side to the third largest two-wheeler maker’s results is that it has maintained its growth trajectory over the past four to six quarters. It is benefiting from the unabated boom in the two-wheeler segment, just as its peers Hero HondaMotors Ltd and Bajaj Auto Ltd.
The company’s March quarter sales volumes jumped by 27.3% and, along with a 6% improvement in realization, resulted in a robust 34.3% year-on-year (y-o-y) jump in net revenue to Rs. 1,633 crore.
Higher revenue, mainly driven by the operating leverage from rising volumes, trickled down to 11.4% y-o-y growth in operating profit. This was in spite of cost pressures, which affected operating profit margin. At 5.6% in the March quarter, it was 114 basis points (bps) lower from a year ago and about 80 bps below from the preceding quarter. One basis point is one-hundredth of a percentage point.
The main dampener was the rise in raw material cost due to a surge in commodity prices in their underlying inputs such as metals. As a percentage of sales, it rose 340 bps from a year ago, though flat compared with the December quarter. It was partially offset by the drop in other expenditure relating to marketing and advertising costs.
What did the trick to drive up profits is the all-round growth across products—mopeds, motorcycles, scooters and three-wheelers. TVS Motor is steadily gaining mileage as a pan-India player, which is a change from being predominantly a southern firm for several years.
“Its changing product mix—higher contribution of more profitable product categories like scooters and three-wheelers—augured well for TVS,” says Umesh Karne, analyst at Brics Securities Ltd.
Scooter sales grew by 54% y-o-y and now account for about one-fourth of vehicles sold by the firm. Further, three-wheeler sales grew by a significant 92%, although on a low base of about 6,200 vehicles sold in the previous year. TVS Motor is a new entrant in this segment unlike veterans such as Bajaj Auto and Piaggio.
Of course, its oldest product—mopeds—also grew by a significant 20%. So did motorcycles, which comprise two-fifths of the firm’s sales volumes. TVS Motor met its volume guidance for the year at two million vehicles.
What took the charm off the stock is the negative surprise in lower-than-estimated net profit. The firm stated that it provided about Rs. 9 crore towards the natural calamity cess for its new facility in Himachal Pradesh, where it enjoys tax exemptions.
Companies operating in the state are contesting this demand, which will affect profits, unless it is reversed. Besides, some analysts also view its other income as being lower-than-expected, while the tax outgo was higher.
TVS Motor’s stock trades at Rs. 56.30, which discounts the estimated earnings (stand-alone) for fiscal 2012 (FY12) about 10 times. Given that the firm’s revenue is estimated to grow faster than the industry growth rate of 12-15% per annum for at least two years, the stock offers value.
But some risks could trip investors. One is the performance of its Indonesian subsidiary. Although sales are growing, whether its operations are yet profitable is not known.
Losses could, therefore, pull down consolidated earnings for FY11, as it did in the previous year. If domestic operations don’t see better profitability, that too could affect its performance.