When a young agency takes on the mammoth job of re-branding a giant, it probably has all the makings of a David & Goliath story built into the plot. Law & Kenneth have begun the re-branding of Hero Honda as Hero Motocorp. The Desh Ki Dhadkan always had high-profile advertising. Yet it somehow came across as a tad over- the- top. This time, a new agency, a new logo, a new name and it seems to be falling into place rather nicely. The makeover TVC involves stringing together a number of little real-life stories into reel-life drama to bring out the potent message that there is a hero in each and every one of us. Well, I know, that theme is not exactly original, but then as I say, the last original idea came from God! Closer home, the little stories are all brought together with the magic of music. A.R.Rehman really turns on the melody with a lilting tune that could become a chartbuster in its own rights. I am not commenting on Anurag Kashyap who directed the film because I didn't feel the need to. All in all, as they say, well begun is half done.
Ramesh Narayan
TN to woo cos with easier land buy norms
Pushed to the edge by states like Gujarat and Maharashtra in the race for a slew of big-ticket investments, the Jayalalithaa government in Tamil Nadu is all set to revisit its industry policy lock, stock and barrel. Amidst the increasing competition among states in luring major companies to set up their facilities, Tamil Nadu is bracing up for the challenge by incorporating more incentives in the proposed industry policy.
“In the recent past, certain fast growing states have formulated liberalised investment policies to attract more domestic and foreign investment. In such a competitive environment, to improve the momentum of growth, a comprehensive new industrial policy would be brought out,” says a policy note on industries.
The government, in a bid a to attract more investments into the state is betting big on making available land to corporates. It is planning a mutually beneficial and partnership-based land policy as industrialisation fundamentally involves acquisition of land. “The government wants to avoid Singur-type episodes, which dented the image of the Budhadev government in West Bengal and had a negative impact on the state elections,” says an industry expert.
Higher priority would be accorded to infrastructure planning as industrial development depends on the spread and quality of the infrastructure available. The government will take up the planning part more seriously. It would be done by anticipating future infrastructure needs and evaluating the scope for attracting private investment into infrastructure. An apex body called Tamil Nadu Infrastructure Development Board will be created for this purpose.
Besides, the government is energising its nodal agencies such as Tamil Nadu Industrial Guidance and Export Promotion Bureau (Guidance Bureau), Tamil Nadu Industrial Development Corporation (TIDCO), State Industries Promotion Corporation of Tamil Nadu (SIPCOT) and Tamil Nadu Industrial Investment Corporation (TIIC). While the Guidance Bureau was set up with the objective of attracting major investment proposals, SIPCOT has been playing an important role in bringing in investment from multinational companies. As a prelude to the new industry policy, SIPCOT is planning to allot 100 acre of land each for setting up of separate industrial parks for investors from countries like Japan, South Korea, Finland, Germany and France to attract more foreign investments from them.
This time, the state is keen on having a balanced industrial growth across the state. Therefore, the need for spreading the new industries into all regions of the state, particularly, into less-developed regions of southern Tamil Nadu is being seriously debated. The state is planning the creation of industrial corridors, extension of special packages and creation of new infrastructure in such regions.
Apart from seeking to be the most industry-friendly state which can attract more number of new industrial projects of the big brands, both domestic and international, Tamil Nadu's new industrial policy will lay special emphasis on the newly emerging sectors like bio-technology, nanotechnology and pharmaceuticals. “The government wants to be a one-stop supermarket for industries who want to invest in the state,” says an official with the industry department on condition of anonymity.
According to the note, the policy of the government has been to maximise the welfare of the people of Tamil Nadu by creating gainful employment opportunities by the way of achieving higher and sustainable economic growth. The thrust has been on balanced regional development through greater private and public investment in manufacturing and infrastructure development.
Traditionally, Tamil Nadu has always been at the forefront of industrialisation with a strong presence in the manufacture of engineering and auto components, textiles, leather and sugar. When states started taking industrialisation initiatives after the liberlisation drive in the country, Tamil Nadu seized the opportunity and announced its industrial policy in 1992. The policy had facilitated the electronics and automobile industry revolution in Tamil Nadu by attracting major projects from industrial giants. These projects, in turn, triggered a multiplier effect by attracting a large number of auto and other ancillary industries.
Significantly, Tamil Nadu has been ranked the fifth-largest economy among the Indian states with the share of secondary sector being 27.39%. The total number of factories in the state has touched 26,122 and the value of industrial output was at Rs 3,00,801 crore during 2008-09. To give further steam to industrialisation, the Tamil Nadu government had brought out a pragmatic and far-sighted industrial policy in 2003 which paved the way for the electronics revolution in Tamil Nadu by attracting substantial foreign and domestic investment into the state.
To provide further momentum to the industrialisation drive, the Jayalalithaa's government is planning to build a Financial City in Chennai. The land, to an extent of 187 acre, has been identified in Sholinganallur and Perumbakkam villages of Rajiv Gandhi Salai for establishing the Financial City and media and entertainment park projects. The state has roped in the consortium led by PriceWaterhouse Coopers as consultants for the preparation of the comprehensive development plan. Once, TIDCO – the state nodal agency – finalises the report in consultation with the government, tenders will be floated for selection of developer as well as a joint-venture partner. The first phase of the Financial City project will be in an area of 25 acre.
On new industrial projects, the policy note says that the Tamil Nadu government has signed MoUs with several major industries for setting up their facilities in the state of which 30 are located in the industrial complexes of SIPCOT and of these 20 industries have already commenced production.
“In the recent past, certain fast growing states have formulated liberalised investment policies to attract more domestic and foreign investment. In such a competitive environment, to improve the momentum of growth, a comprehensive new industrial policy would be brought out,” says a policy note on industries.
The government, in a bid a to attract more investments into the state is betting big on making available land to corporates. It is planning a mutually beneficial and partnership-based land policy as industrialisation fundamentally involves acquisition of land. “The government wants to avoid Singur-type episodes, which dented the image of the Budhadev government in West Bengal and had a negative impact on the state elections,” says an industry expert.
Higher priority would be accorded to infrastructure planning as industrial development depends on the spread and quality of the infrastructure available. The government will take up the planning part more seriously. It would be done by anticipating future infrastructure needs and evaluating the scope for attracting private investment into infrastructure. An apex body called Tamil Nadu Infrastructure Development Board will be created for this purpose.
Besides, the government is energising its nodal agencies such as Tamil Nadu Industrial Guidance and Export Promotion Bureau (Guidance Bureau), Tamil Nadu Industrial Development Corporation (TIDCO), State Industries Promotion Corporation of Tamil Nadu (SIPCOT) and Tamil Nadu Industrial Investment Corporation (TIIC). While the Guidance Bureau was set up with the objective of attracting major investment proposals, SIPCOT has been playing an important role in bringing in investment from multinational companies. As a prelude to the new industry policy, SIPCOT is planning to allot 100 acre of land each for setting up of separate industrial parks for investors from countries like Japan, South Korea, Finland, Germany and France to attract more foreign investments from them.
This time, the state is keen on having a balanced industrial growth across the state. Therefore, the need for spreading the new industries into all regions of the state, particularly, into less-developed regions of southern Tamil Nadu is being seriously debated. The state is planning the creation of industrial corridors, extension of special packages and creation of new infrastructure in such regions.
Apart from seeking to be the most industry-friendly state which can attract more number of new industrial projects of the big brands, both domestic and international, Tamil Nadu's new industrial policy will lay special emphasis on the newly emerging sectors like bio-technology, nanotechnology and pharmaceuticals. “The government wants to be a one-stop supermarket for industries who want to invest in the state,” says an official with the industry department on condition of anonymity.
According to the note, the policy of the government has been to maximise the welfare of the people of Tamil Nadu by creating gainful employment opportunities by the way of achieving higher and sustainable economic growth. The thrust has been on balanced regional development through greater private and public investment in manufacturing and infrastructure development.
Traditionally, Tamil Nadu has always been at the forefront of industrialisation with a strong presence in the manufacture of engineering and auto components, textiles, leather and sugar. When states started taking industrialisation initiatives after the liberlisation drive in the country, Tamil Nadu seized the opportunity and announced its industrial policy in 1992. The policy had facilitated the electronics and automobile industry revolution in Tamil Nadu by attracting major projects from industrial giants. These projects, in turn, triggered a multiplier effect by attracting a large number of auto and other ancillary industries.
Significantly, Tamil Nadu has been ranked the fifth-largest economy among the Indian states with the share of secondary sector being 27.39%. The total number of factories in the state has touched 26,122 and the value of industrial output was at Rs 3,00,801 crore during 2008-09. To give further steam to industrialisation, the Tamil Nadu government had brought out a pragmatic and far-sighted industrial policy in 2003 which paved the way for the electronics revolution in Tamil Nadu by attracting substantial foreign and domestic investment into the state.
To provide further momentum to the industrialisation drive, the Jayalalithaa's government is planning to build a Financial City in Chennai. The land, to an extent of 187 acre, has been identified in Sholinganallur and Perumbakkam villages of Rajiv Gandhi Salai for establishing the Financial City and media and entertainment park projects. The state has roped in the consortium led by PriceWaterhouse Coopers as consultants for the preparation of the comprehensive development plan. Once, TIDCO – the state nodal agency – finalises the report in consultation with the government, tenders will be floated for selection of developer as well as a joint-venture partner. The first phase of the Financial City project will be in an area of 25 acre.
On new industrial projects, the policy note says that the Tamil Nadu government has signed MoUs with several major industries for setting up their facilities in the state of which 30 are located in the industrial complexes of SIPCOT and of these 20 industries have already commenced production.
Auto cos see no fireworks this Diwali
With market analysts feeling that the Reserve Bank is unlikely to pause on its tight monetary policy, the auto industry sees no respite even during the forthcoming festive season and expects further slowdown in sales in the months ahead.
"We don't expect any significant sales growth this festive season. The market has been dented by high fuel prices and interest rates. Any further rate hike will impact sales during the festive season," Icra Senior Analyst (Automotive Sector) Shamsher Dewan said.
PwC India Head (Automotive Practice) Abdul Majeed concurred, saying, "The chances of another interest hike next month has dampened the prospects of the auto industry during the upcoming festive season. This comes at a time when the market is already reeling under pressure from high interest rates and rising fuel costs".
Given the rising interest rate scenario, coupled with higher fuel and commodity prices as well as inflation, the industry expects sales to remain depressed in the coming festive season too, Majeed said, adding sales will continue to grow in single-digit.
The market analysts see the Reserve Bank going in for another rate hike at its mid-quarterly policy review on September 16 to fight sticky inflation. The monetary authority has already raised interest rates 11 times since March, 2010 in its bid to battle high inflation.
In July, headline inflation slipped a tad to 9.22 per cent from 9.44 per cent in the previous month. But food inflation has started moving up again in recent weeks due to supply disruptions, following incessant rains in some parts of the country, further escalating the chances of another rate hike by the apex bank. .
"We don't expect any significant sales growth this festive season. The market has been dented by high fuel prices and interest rates. Any further rate hike will impact sales during the festive season," Icra Senior Analyst (Automotive Sector) Shamsher Dewan said.
PwC India Head (Automotive Practice) Abdul Majeed concurred, saying, "The chances of another interest hike next month has dampened the prospects of the auto industry during the upcoming festive season. This comes at a time when the market is already reeling under pressure from high interest rates and rising fuel costs".
Given the rising interest rate scenario, coupled with higher fuel and commodity prices as well as inflation, the industry expects sales to remain depressed in the coming festive season too, Majeed said, adding sales will continue to grow in single-digit.
The market analysts see the Reserve Bank going in for another rate hike at its mid-quarterly policy review on September 16 to fight sticky inflation. The monetary authority has already raised interest rates 11 times since March, 2010 in its bid to battle high inflation.
In July, headline inflation slipped a tad to 9.22 per cent from 9.44 per cent in the previous month. But food inflation has started moving up again in recent weeks due to supply disruptions, following incessant rains in some parts of the country, further escalating the chances of another rate hike by the apex bank. .
BoB,TVS Motor Company Ltd signs MoU
Bank of Baroda (BoB) signed a Memorandum of Understanding (MoU) with M/s. TVS Motor Company Ltd. J. Ramesh, GM (SME and Wealth Management) BoB, and K. Srinivasan, Vice President (Sales & Service)-3 Wheelers-TVS Motor Co. Ltd signed the MoU. This would enable the bank to pool mutual resources and increase financing to eligible customers in line with applicable lending norms and interest rates.
Govt reconsiders replacing DEPB with duty drawback
The government is taking a relook at its automobile industry-specific plan to replace the Duty Entitlement Pass Book (DEPB) scheme with the duty drawback scheme originally set to roll out next month-end.
The Society of Indian Automobile Manufacturers (SIAM) has undertaken a study to determine reimbursement rates for the automobile industry under the duty drawback scheme which is set to replace the 14-year-old DEPB incentive that the government has been giving exporters. A detailed report is expected to be placed before the Commerce ministry next month, after which a final decision would be taken, a top official of the industry body said on Saturday.
Sugato Sen, senior director, SIAM said the basic as well as customs duties currented amounted to 7-9 per cent of total costs for two-wheeler and commercial vehicle manufacturers. “The DEPB scheme reimburses this component ensuring global competiveness of Indian manufacturers who export their products,” he said. “We are negotiating with the government for the extension of the DEPB scheme until a comprehensive package is determined to replace it.”
According to industry sources, two-wheeler manufacturers such as Bajaj Auto (BAL) and TVS Motor Company, which account for over 65 per cent of the 2.3 million vehicles annually exported from India, are exploring options to import components to sustain export operations profitably.
Said an industry official: “Under the duty drawback scheme, manufacturers would only be reimbursed the customs duty component. Leading two-wheeler makers are now mulling options to import components to avail the cost benefits. This will adversely affect the domestic auto component industry.”
BAL exported nearly a million two-wheelers last fiscal. It is set to double by 2013-14. Recently, Hero MotoCorp, the country's largest two-wheeler manufacturer, too announced plans to export 10 per cent of the 10 million units it aims to sell annually by 2020. Added Sen: “The replacement of the DEPB scheme at this point of time would impact adversely both production and exports plans of manufacturers. Pricing of automobiles are determined on a long-term basis. A nine per cent increase in vehicle costs due to withdrawal of DEPB would hamper prospects in international markets.”
The Auto Component Manufacturers Association said the auto component exports have over the past four years grown at a CAGR of 18-20 per cent. “The sales picked up last fiscal in overseas markets,” pointed out its president, Srivats Ram. “With passenger vehicle sales sliding in the domestic industry and uncertainty in capital markets globally, the withdrawal of the scheme is not advisable at the moment.”
An Ernst & Young report on the Indian auto component industry states that exports from the segment are likely to go up to $29 billion by 2020 -- up from $13 billion of auto components exported in 2009-10. To achieve this target required continued policy support from the government, Ram said.
DEPB, as is applicable on Saturday, is scheduled to be withdrawn on September 30. The government has set up a committee that would seek to replace the scheme with duty drawback. Commerce Secretary Rahul Khullar had earlier said the panel would look at determining rates on a case-to-case basis instead of having a uniform drawback rate for all exporters.
The Society of Indian Automobile Manufacturers (SIAM) has undertaken a study to determine reimbursement rates for the automobile industry under the duty drawback scheme which is set to replace the 14-year-old DEPB incentive that the government has been giving exporters. A detailed report is expected to be placed before the Commerce ministry next month, after which a final decision would be taken, a top official of the industry body said on Saturday.
Sugato Sen, senior director, SIAM said the basic as well as customs duties currented amounted to 7-9 per cent of total costs for two-wheeler and commercial vehicle manufacturers. “The DEPB scheme reimburses this component ensuring global competiveness of Indian manufacturers who export their products,” he said. “We are negotiating with the government for the extension of the DEPB scheme until a comprehensive package is determined to replace it.”
According to industry sources, two-wheeler manufacturers such as Bajaj Auto (BAL) and TVS Motor Company, which account for over 65 per cent of the 2.3 million vehicles annually exported from India, are exploring options to import components to sustain export operations profitably.
Said an industry official: “Under the duty drawback scheme, manufacturers would only be reimbursed the customs duty component. Leading two-wheeler makers are now mulling options to import components to avail the cost benefits. This will adversely affect the domestic auto component industry.”
BAL exported nearly a million two-wheelers last fiscal. It is set to double by 2013-14. Recently, Hero MotoCorp, the country's largest two-wheeler manufacturer, too announced plans to export 10 per cent of the 10 million units it aims to sell annually by 2020. Added Sen: “The replacement of the DEPB scheme at this point of time would impact adversely both production and exports plans of manufacturers. Pricing of automobiles are determined on a long-term basis. A nine per cent increase in vehicle costs due to withdrawal of DEPB would hamper prospects in international markets.”
The Auto Component Manufacturers Association said the auto component exports have over the past four years grown at a CAGR of 18-20 per cent. “The sales picked up last fiscal in overseas markets,” pointed out its president, Srivats Ram. “With passenger vehicle sales sliding in the domestic industry and uncertainty in capital markets globally, the withdrawal of the scheme is not advisable at the moment.”
An Ernst & Young report on the Indian auto component industry states that exports from the segment are likely to go up to $29 billion by 2020 -- up from $13 billion of auto components exported in 2009-10. To achieve this target required continued policy support from the government, Ram said.
DEPB, as is applicable on Saturday, is scheduled to be withdrawn on September 30. The government has set up a committee that would seek to replace the scheme with duty drawback. Commerce Secretary Rahul Khullar had earlier said the panel would look at determining rates on a case-to-case basis instead of having a uniform drawback rate for all exporters.
Fall in input cost, export subsidy extension vital for two wheeler companies like Hero Motorcorp and Bajaj Auto
The top two companies in the twowheeler sector - Hero MotoCorp and Bajaj Auto - are seeing renewed investor interest after several months, with stocks trading close to their 52-week highs. According to analysts at broking firms, motorcycle manufacturers have benefited from an expansion in their rural marketing strategy and continued to grow their vehicle sales, even in a rather difficult operating environment marked by rising finance rates that have not shown signs of easing.
Also, with the country experiencing a broadly normal monsoon this year, investors remain confident of rural demand, going forward. They are equally positive about the growth prospects for the motorcycle segment. Motorcycles constitute nearly 79-80% of total two-wheeler sales. This is in contrast to the scenario in other segments of the auto industry such as four-wheeler passenger cars, where domestic demand has been rather sluggish and the outlook also remains difficult in the near term. Hero MotoCorp closed 0.7% lower at Rs 1,993 on Tuesday and is not too far away from its 52-week high. Bajaj Auto gained 4.2% to Rs 1,545 and is also within striking distance of its 52-week high.
Meanwhile, in July 11, the total motorcycle sales growth moderated to 13.2% on a YoY basis to 9.5 lakh units. During the June 11 quarter, growth in total motorcycle sales was nearly 18.9% YoY. In contrast, in the case of fourwheeler domestic passenger car segment, in July '11, their total sales declined nearly 9% from a year-ago period. Also, in the June 11 quarter, growth in domestic passenger car sales on a YoY basis was considerably slower than that recorded during FY11. Investors have been cautious when it comes to players in the four-wheeler car segment. For instance, Maruti Suzuki, at Rs 1157.9 per share, is hovering just above its 52-week low.
Also, in the case of Tata Motors, investors are worried that the current Euro region debt crisis could curtail the growth outlook at the company's Jaguar Land Rover operations in the near term. At Rs 727.8 per share, the stock is also hovering close to its recent 52-week low.
However, for the broader auto industry, a small cushion for operating margins is expected from a weakening in key commodity input prices over the past few weeks. Analysts highlight the fact that it is still too early to determine if this trend will be sustained in the September 11 quarter. Also, investors are waiting eagerly to see if the government extends the export promotion scheme DEPB, beyond September 30.
Hero MotoCorp trades at a P/E of 20 times on a trailing four-quarter basis and factors in the growth prospects in the short term. Bajaj Auto trades at 12.9 times.
Also, with the country experiencing a broadly normal monsoon this year, investors remain confident of rural demand, going forward. They are equally positive about the growth prospects for the motorcycle segment. Motorcycles constitute nearly 79-80% of total two-wheeler sales. This is in contrast to the scenario in other segments of the auto industry such as four-wheeler passenger cars, where domestic demand has been rather sluggish and the outlook also remains difficult in the near term. Hero MotoCorp closed 0.7% lower at Rs 1,993 on Tuesday and is not too far away from its 52-week high. Bajaj Auto gained 4.2% to Rs 1,545 and is also within striking distance of its 52-week high.
Meanwhile, in July 11, the total motorcycle sales growth moderated to 13.2% on a YoY basis to 9.5 lakh units. During the June 11 quarter, growth in total motorcycle sales was nearly 18.9% YoY. In contrast, in the case of fourwheeler domestic passenger car segment, in July '11, their total sales declined nearly 9% from a year-ago period. Also, in the June 11 quarter, growth in domestic passenger car sales on a YoY basis was considerably slower than that recorded during FY11. Investors have been cautious when it comes to players in the four-wheeler car segment. For instance, Maruti Suzuki, at Rs 1157.9 per share, is hovering just above its 52-week low.
Also, in the case of Tata Motors, investors are worried that the current Euro region debt crisis could curtail the growth outlook at the company's Jaguar Land Rover operations in the near term. At Rs 727.8 per share, the stock is also hovering close to its recent 52-week low.
However, for the broader auto industry, a small cushion for operating margins is expected from a weakening in key commodity input prices over the past few weeks. Analysts highlight the fact that it is still too early to determine if this trend will be sustained in the September 11 quarter. Also, investors are waiting eagerly to see if the government extends the export promotion scheme DEPB, beyond September 30.
Hero MotoCorp trades at a P/E of 20 times on a trailing four-quarter basis and factors in the growth prospects in the short term. Bajaj Auto trades at 12.9 times.
Scooters India: Atul Auto may drop bid if made to wait for long
New Delhi, Aug 22: The government’s move to divest its stake in beleaguered Scooters India Ltd is running into rough weather, with another possible bidder Atul Auto on Monday saying it will pull out of the race if the process takes long.
Earlier, auto majors Mahindra & Mahindra and Piaggio had withdrawn from the race to acquire the state-run firm.
“As on date I am interested in acquiring a majority stake in Scooters India. Yet, the way things are the moment it is going to take a long time. I cannot wait forever. So if the process takes long then I will have to pull out and look for options elsewhere,” said Mr Vijay Kedia, Director, Atul Auto.
He said the company has earmarked Rs 150 crore for the next two years on acquisitions and setting up new plants. In May, the government had announced to divest its entire 95.38 per cent stake in Scooters India Ltd (SIL), which primarily manufactures three—wheelers, with an aim to revive the company that has been incurring losses since 2002—03.
Out of the private firms, including M&M, Piaggio and Atul Auto, that have evinced interest in acquiring SIL, only Lohia Auto is willing to wait.
“We are commercially looking into it and we will go ahead with the process,” Lohia Auto Industries Chief Executive Officer Mr Ayush Lohia said.
In July, M&M had said it decided not to acquire the beleaguered PSU firm, as it has “various things” to do.
“We have done our analysis and we have decided not to go after it. We are not pursuing it anymore,” M&M President (Automotive and Farm Equipment Sectors) Mr Pawan Goenka had said.
Another three-wheeler maker Piaggio, which was earlier said to have been interested for a pie in SIL, had immediately said it was staying away from the acquisition.
SIL’s entire networth completely eroded by 2008—09. In March 2009, the company was declared sick and went to the Board for Reconstruction of Public Sector Enterprises (BRPSE). As on 2009-10, it had a net loss of Rs 22.03 crore.
Earlier, auto majors Mahindra & Mahindra and Piaggio had withdrawn from the race to acquire the state-run firm.
“As on date I am interested in acquiring a majority stake in Scooters India. Yet, the way things are the moment it is going to take a long time. I cannot wait forever. So if the process takes long then I will have to pull out and look for options elsewhere,” said Mr Vijay Kedia, Director, Atul Auto.
He said the company has earmarked Rs 150 crore for the next two years on acquisitions and setting up new plants. In May, the government had announced to divest its entire 95.38 per cent stake in Scooters India Ltd (SIL), which primarily manufactures three—wheelers, with an aim to revive the company that has been incurring losses since 2002—03.
Out of the private firms, including M&M, Piaggio and Atul Auto, that have evinced interest in acquiring SIL, only Lohia Auto is willing to wait.
“We are commercially looking into it and we will go ahead with the process,” Lohia Auto Industries Chief Executive Officer Mr Ayush Lohia said.
In July, M&M had said it decided not to acquire the beleaguered PSU firm, as it has “various things” to do.
“We have done our analysis and we have decided not to go after it. We are not pursuing it anymore,” M&M President (Automotive and Farm Equipment Sectors) Mr Pawan Goenka had said.
Another three-wheeler maker Piaggio, which was earlier said to have been interested for a pie in SIL, had immediately said it was staying away from the acquisition.
SIL’s entire networth completely eroded by 2008—09. In March 2009, the company was declared sick and went to the Board for Reconstruction of Public Sector Enterprises (BRPSE). As on 2009-10, it had a net loss of Rs 22.03 crore.
Peppy Ride, But Not Enough Spark
MID CAP TVS MOTOR
TVS Motor has made a mark in some segments, but trails its more famous two-wheeler rivals in volumes and performance by a big margin
TVS Motor, the smallest of the three listed players in the twowheeler market, has carved out a niche for itself in this intensely competitive market, with its mopeds and Scooty Pep models. The company also has a presence in the fast-growing motorcycle market, but its market share in this segment is much smaller than larger rivals Bajaj Auto and Hero MotoCorp.
TVS Motor, like other players, is also expanding its presence in rural markets at a time when the broader two-wheeler market is grappling with higher auto finance rates. However, the company's ability to manage rising commodity input prices over the past several quarters has been quite mediocre compared to Bajaj Auto, which enjoys the highest operating margins.
BUSINESS
TVS Motor is present across different segments of the two and three-wheeler market. Its popular model in the scooter segment is Scooty Pep, while in the motorcycle segment it competes through models like Max, Centra and Victor. In addition, the company has a strong presence in the moped segment with its TVS 50 model.
TVS Motor’s total vehicle sales during FY11 amounted to nearly 2.05 million units, a rise of 33% y-o-y. Bajaj Auto sold 3.8 million units during FY11 and Hero MotoCorp 5.4 million units.
FINANCIALS
The company's operating profit margin was broadly flat on a yo-y basis at 7.2% in the June 11 quarter. Net sales grew 25.3%, and net profit improved 45.5% y-o-y in the quarter.
Its average realisations improved nearly 8.4% y-o-y in the first quarter of FY12, while volumes grew 15.6%. This helped it deal with rising commodity input costs to some extent.
TVS Motor’s operating margins are mediocre compared to its peers. For the trailing 12-months ended June, its operating margins improved nearly 200 basis points y-o-y to 6.3%. Bajaj Auto’s operating margins were at 19.5% in this period, a decline of 110 basis points.
GROWTH DRIVERS/CONCERNS
Many states across the country have allowed fresh permits for three wheelers. This should benefit TVS Motor. Threewheeler vehicles enjoy comparatively higher margins, point out analysts. Key commodity input prices have shown signs of easing, but they remain at elevated levels. The company’s ability to manage this cost will be crucial. Also, auto finance rates are on an upward trend and are likely to impact vehicle sales in the short term.
VALUATIONS
TVS Motor trades at a P/E of nearly 11.4 times on a trailing four-quarter basis. Bajaj Auto trades at 12 times, while Hero MotoCorp trades at 20 times. Rather than TVS Motor, investors should consider Bajaj Auto which has posted superior operating margins.
TVS Motor has made a mark in some segments, but trails its more famous two-wheeler rivals in volumes and performance by a big margin
TVS Motor, the smallest of the three listed players in the twowheeler market, has carved out a niche for itself in this intensely competitive market, with its mopeds and Scooty Pep models. The company also has a presence in the fast-growing motorcycle market, but its market share in this segment is much smaller than larger rivals Bajaj Auto and Hero MotoCorp.
TVS Motor, like other players, is also expanding its presence in rural markets at a time when the broader two-wheeler market is grappling with higher auto finance rates. However, the company's ability to manage rising commodity input prices over the past several quarters has been quite mediocre compared to Bajaj Auto, which enjoys the highest operating margins.
BUSINESS
TVS Motor is present across different segments of the two and three-wheeler market. Its popular model in the scooter segment is Scooty Pep, while in the motorcycle segment it competes through models like Max, Centra and Victor. In addition, the company has a strong presence in the moped segment with its TVS 50 model.
TVS Motor’s total vehicle sales during FY11 amounted to nearly 2.05 million units, a rise of 33% y-o-y. Bajaj Auto sold 3.8 million units during FY11 and Hero MotoCorp 5.4 million units.
FINANCIALS
The company's operating profit margin was broadly flat on a yo-y basis at 7.2% in the June 11 quarter. Net sales grew 25.3%, and net profit improved 45.5% y-o-y in the quarter.
Its average realisations improved nearly 8.4% y-o-y in the first quarter of FY12, while volumes grew 15.6%. This helped it deal with rising commodity input costs to some extent.
TVS Motor’s operating margins are mediocre compared to its peers. For the trailing 12-months ended June, its operating margins improved nearly 200 basis points y-o-y to 6.3%. Bajaj Auto’s operating margins were at 19.5% in this period, a decline of 110 basis points.
GROWTH DRIVERS/CONCERNS
Many states across the country have allowed fresh permits for three wheelers. This should benefit TVS Motor. Threewheeler vehicles enjoy comparatively higher margins, point out analysts. Key commodity input prices have shown signs of easing, but they remain at elevated levels. The company’s ability to manage this cost will be crucial. Also, auto finance rates are on an upward trend and are likely to impact vehicle sales in the short term.
VALUATIONS
TVS Motor trades at a P/E of nearly 11.4 times on a trailing four-quarter basis. Bajaj Auto trades at 12 times, while Hero MotoCorp trades at 20 times. Rather than TVS Motor, investors should consider Bajaj Auto which has posted superior operating margins.
10 - MONTH TANGO - Want to buy a Bullet? Get in the queue!
When photo journalist Punit Paranjpe (34) decided to buy a Royal Enfield Bullet in June, he had not anticipated that he would have to wait for almost a year to get his bike. But he decided to wait the wait.
The showroom in Bandra here adds 20-odd names every day to the waiting list.
“Last year around this time we used to get four to five bookings for the Classic 350 and a couple for the Classic 500. Today we get on average 10 bookings a day for each,“ said a sales representative. “Back then the waiting period was five to six months, now, it is at least 10 months (see box).“
The situation is the same in Kolkata, where businessman Apurva Thirani (33) got his first Classic 350 in November just 100 days after he booked his bike last July. This year when he inquired about the Classic 500, he was informed of the 10-month waiting period.
The popularity of the Bullet picked up after the company abandoned old engine and introduced the Unit Construction Engine (UCE) with standardised gear and brake pedals. “I don't have to worry about having to adjust to the gears on the wrong side. I feel safer with this,“ said Paranjpe.
“With the Bullet, the demand has always far exceeded the supply. The plant, which was imported from the UK, was capacitated to make 30,000 bikes a year. We are making 70,000 this year. Both the plant and the workers are working to their maximum limit six days a week,“ said Venkatesh Padmanabhan, CEO, Royal Enfield. “Once the new plant is completed the supply will improve and the waiting period will be nominal.“
The new plant is expected to be functional by early 2013.
TVS’s Indonesian arm reduces loss on buoyant sales
With increasing sales of its two wheelers, TVS Motor Company’s Indonesian subsidiary has significantly reduced its losses in financial year 2010-11. The subsidiary hopes for a stronger performance during the current financial year with expanded reach both in Indonesia and markets outside that country.
The Indonesian arm, PT.TVS Motor Company increased its turnover to Rs 85 crore in 2010-11 from Rs 68 crore in the previous year on the back of 32 per cent growth in two wheeler sales. It sold around 20,000 units compared to around 15,000 sold in the earlier year.
With increased margin and cost control measures, the company reduced its operating loss level to Rs 39.84 crore, from Rs 64.23 crore in the previous year, according to latest annual report of TVS Motor Company
PT.TVS ramped up its dealer network and has about 160 dealerships across 16 provinces in the country. It has sold over 50,000 two wheelers in Indonesia so far. In 2010-11, the subsidiary launched new re-styled versions of TVS Neo and TVS RockZ, besides a double disc version of Apache to boost sales. PT.TVS also offers lending through tie-ups with financial institutions in Indonesia.
In the fiscal that ended on March 31, 2011, TVS Motor Company made an additional investment about Rs 60 crore in PT.TVS.
During the first quarter of the current financial year 2011-12, the company’s sales stood at about 7,000 units when compared with 5,700 units in the Q1 of previous fiscal. The company bets on its new 150 cc hi-technology bebek TVS Tormax motorcycle, which was launched in May 2011, for additional sales in the coming months.
The subsidiary will target markets outside Indonesia and will also increase its presence in more provinces, thereby increasing its network to 240 outlets by March 2012. In the previous fiscal, it exported about 4,700 units to various countries.
With improved sales network and product portfolio, PT.TVS is expected to end the fiscal 2011-12 with much better performance.
The Indonesian arm, PT.TVS Motor Company increased its turnover to Rs 85 crore in 2010-11 from Rs 68 crore in the previous year on the back of 32 per cent growth in two wheeler sales. It sold around 20,000 units compared to around 15,000 sold in the earlier year.
With increased margin and cost control measures, the company reduced its operating loss level to Rs 39.84 crore, from Rs 64.23 crore in the previous year, according to latest annual report of TVS Motor Company
PT.TVS ramped up its dealer network and has about 160 dealerships across 16 provinces in the country. It has sold over 50,000 two wheelers in Indonesia so far. In 2010-11, the subsidiary launched new re-styled versions of TVS Neo and TVS RockZ, besides a double disc version of Apache to boost sales. PT.TVS also offers lending through tie-ups with financial institutions in Indonesia.
In the fiscal that ended on March 31, 2011, TVS Motor Company made an additional investment about Rs 60 crore in PT.TVS.
During the first quarter of the current financial year 2011-12, the company’s sales stood at about 7,000 units when compared with 5,700 units in the Q1 of previous fiscal. The company bets on its new 150 cc hi-technology bebek TVS Tormax motorcycle, which was launched in May 2011, for additional sales in the coming months.
The subsidiary will target markets outside Indonesia and will also increase its presence in more provinces, thereby increasing its network to 240 outlets by March 2012. In the previous fiscal, it exported about 4,700 units to various countries.
With improved sales network and product portfolio, PT.TVS is expected to end the fiscal 2011-12 with much better performance.
Can Hero Live Up to Its Name
Now standing on one foot, Hero MotoCorp has to decide if it wants to play offence or defence.
The venue was East London’s most famous “gig-land” — the O2 Arena. The host for the day’s major corporate event was the world’s largest two-wheeler maker Hero MotoCorp. Sunil Kant Munjal, joint managing director, took to the stage and squinted through the glaring arch lights at the massive crowd in front of him. With a hint of a smile on his face, he opened his speech with a very ominous statement. “It’s dark out there.”
He meant it literally. But for some in the crowd, it sounded like an admission of a very challenging future the group was looking at. Over the past nearly three decades, Hero had risen to be the world’s largest two-wheeler maker with the state of the art research and development support from Japan’s Honda. In December 2010 that had come to an end. Hero would be on its own ready to face the question that had haunted it all along - can it make it on its own?
Even the drummers from India, Scotland and England who filled the arena with deafening sound could not quieten this whispering, nevertheless gnawing question.
THE 10-10-10 PLAN
The two wheeler market in India, unlike in most developed markets outside, has one distinct characteristic to it. It is a commodity business that also has a brand-driven side to it. The Munjals are ready to spend Rs 4,500 crore in building capacity over the next five years. The target is 10 million bikes in sales a year by 2016. The monetised target is to take sales to $10 billion by this same year and ensure 10 per cent of this comes from outside India.
Building capacity and flooding the market is not going to help by itself. R&D spend and rebranding will be the make-or-break factors in the company’s future. The Munjals realised this as early as December, if not earlier, when the break up with Honda was announced.
The company wasted little time in calling London-based branding experts Wolff Olins to help with a complete makeover. After a brief courtship, Wolff Olins started work on the rebranding challenge in February this year.
Charles Wright, director and head of Asia practice for Wolff Olins, says Pawan Munjal, MD at Hero, was present at the very first meeting. Wright who has been doing this for over 25 years now, says this in itself was unique and a welcome gesture. “The earlier the top management comes in, the better it is,” he says.
The big three questions that faced Wolff Olins and Hero were: What to call it, how would it fit with other Hero products and how would it mesh with the motorcycle brands that the company already had. In short, this was a challenge of fixing the brand architecture.
“What would Hero be without Honda? Due to the nature of the joint venture with Honda, Hero was restricted to India. The conundrum facing the family was how it will work in global markets,” says Wright. Hero has already identified some 30 global market it wishes to see its bikes in.
The options that were considered were a standalone Hero, Hero X (X being a new name attachment to replace Honda) or a completely new name. The last option was a bit too much at this stage. “Hero has a lot of equity,” he says. It has to be a story of confidence and the company simply could not afford to abandon this confidence.
“It was a commercial and an emotional decision. The story was one of delicate balance between continuity and change,” says Wright.
Thus the new name - Hero MotoCorp.
The colour scheme was a relatively easier decision, since the company decided to stick to its red colour. The ‘H’ in the new logo was deliberately kept angular to provide an “engineering” feel to it. This was Hero’s way of telling its critics that it not only has the best sales team but was backed by a strong engineering side to it.
Public posturing is one, but the real game changer is going to be its investment in R&D and new products. The Munjals are committing to take their engineering team to several hundreds in the coming months and years and is even willing to join hands or buy technology companies that will fit in right.
The strap line was changing from Desh Ki Dhadkan to Hum Mein Hai Hero with a corporate anthem composed by A R Rahman. The message is loud and clear. This was the beginning of the making of a global company with a global brand and global manufacturing/assembly footprint. Hence a global brand specialist like Wolff Olins. Teams from New York, London and Dubai worked on the Hero account. “It was mixture of blue eyes and brown eyes,” says Wright. The confidence came from its successes in India-like markets such as Brazil.
A history of success does not guarantee any such in the future. “The key to success is in understanding (the market and customers). The day they lose, it will be the beginning of the end,” warns Wright.
Perhaps the wisest words came from group patriarch Brijmohan Lal Munjal. “Changing name is easier than changing products. These are times of change. Hero MotoCorp will be as successful and even more than Hero Honda,” says the founder of the group.
Hope? Aspiration? Or plain day dreaming? Time always has the answer.
The venue was East London’s most famous “gig-land” — the O2 Arena. The host for the day’s major corporate event was the world’s largest two-wheeler maker Hero MotoCorp. Sunil Kant Munjal, joint managing director, took to the stage and squinted through the glaring arch lights at the massive crowd in front of him. With a hint of a smile on his face, he opened his speech with a very ominous statement. “It’s dark out there.”
He meant it literally. But for some in the crowd, it sounded like an admission of a very challenging future the group was looking at. Over the past nearly three decades, Hero had risen to be the world’s largest two-wheeler maker with the state of the art research and development support from Japan’s Honda. In December 2010 that had come to an end. Hero would be on its own ready to face the question that had haunted it all along - can it make it on its own?
Even the drummers from India, Scotland and England who filled the arena with deafening sound could not quieten this whispering, nevertheless gnawing question.
THE 10-10-10 PLAN
The two wheeler market in India, unlike in most developed markets outside, has one distinct characteristic to it. It is a commodity business that also has a brand-driven side to it. The Munjals are ready to spend Rs 4,500 crore in building capacity over the next five years. The target is 10 million bikes in sales a year by 2016. The monetised target is to take sales to $10 billion by this same year and ensure 10 per cent of this comes from outside India.
Building capacity and flooding the market is not going to help by itself. R&D spend and rebranding will be the make-or-break factors in the company’s future. The Munjals realised this as early as December, if not earlier, when the break up with Honda was announced.
The company wasted little time in calling London-based branding experts Wolff Olins to help with a complete makeover. After a brief courtship, Wolff Olins started work on the rebranding challenge in February this year.
Charles Wright, director and head of Asia practice for Wolff Olins, says Pawan Munjal, MD at Hero, was present at the very first meeting. Wright who has been doing this for over 25 years now, says this in itself was unique and a welcome gesture. “The earlier the top management comes in, the better it is,” he says.
The big three questions that faced Wolff Olins and Hero were: What to call it, how would it fit with other Hero products and how would it mesh with the motorcycle brands that the company already had. In short, this was a challenge of fixing the brand architecture.
“What would Hero be without Honda? Due to the nature of the joint venture with Honda, Hero was restricted to India. The conundrum facing the family was how it will work in global markets,” says Wright. Hero has already identified some 30 global market it wishes to see its bikes in.
The options that were considered were a standalone Hero, Hero X (X being a new name attachment to replace Honda) or a completely new name. The last option was a bit too much at this stage. “Hero has a lot of equity,” he says. It has to be a story of confidence and the company simply could not afford to abandon this confidence.
“It was a commercial and an emotional decision. The story was one of delicate balance between continuity and change,” says Wright.
Thus the new name - Hero MotoCorp.
The colour scheme was a relatively easier decision, since the company decided to stick to its red colour. The ‘H’ in the new logo was deliberately kept angular to provide an “engineering” feel to it. This was Hero’s way of telling its critics that it not only has the best sales team but was backed by a strong engineering side to it.
Public posturing is one, but the real game changer is going to be its investment in R&D and new products. The Munjals are committing to take their engineering team to several hundreds in the coming months and years and is even willing to join hands or buy technology companies that will fit in right.
The strap line was changing from Desh Ki Dhadkan to Hum Mein Hai Hero with a corporate anthem composed by A R Rahman. The message is loud and clear. This was the beginning of the making of a global company with a global brand and global manufacturing/assembly footprint. Hence a global brand specialist like Wolff Olins. Teams from New York, London and Dubai worked on the Hero account. “It was mixture of blue eyes and brown eyes,” says Wright. The confidence came from its successes in India-like markets such as Brazil.
A history of success does not guarantee any such in the future. “The key to success is in understanding (the market and customers). The day they lose, it will be the beginning of the end,” warns Wright.
Perhaps the wisest words came from group patriarch Brijmohan Lal Munjal. “Changing name is easier than changing products. These are times of change. Hero MotoCorp will be as successful and even more than Hero Honda,” says the founder of the group.
Hope? Aspiration? Or plain day dreaming? Time always has the answer.
Secret to productivity found at busy auto plant
Where do productivity gains come from? Economists have known for decades that the broadest measure of efficiency— known as total factor productivity— drives long-term income growth and prosperity. Progress occurs as firms figure out how to boost output without having to hire more workers or install more capital.
If total factor productivity sounds like something of a black box—a quasi-magical ingredient that creates output out of seemingly nothing—well, it sort of is. Sure, economists have some ideas about its sources: adoption of new technologies, better management practices, and improvements in production chains. But a more detailed understanding is emerging.
In a recent study, we focused on a major automobile assembly plant and the evolution of its production-defect rate in the course of a year. We reviewed production records for almost 200,000 vehicles. That inquiry allowed us to dig deep into an oft-cited source of productivity growth: learning by doing.
As the name implies, learning by doing is achieved through production itself. Workers figure out how to do their jobs better, managers allocate capital more efficiently, and so on. Previous research focused on measuring how fast learning-related productivity improves. Thanks to extraordinarily detailed data, our study moves beyond showing that learning happens, and instead explores the specific mechanisms through which it takes place.
Production snarls
For each car, we observed what sorts of production problems, if any, occurred. We examined each of the several hundred operations involved in assembly. We don’t reveal the plant’s owner or location for confidentiality reasons.
We found clear evidence of learning by doing at the plant: average defects per car fell more than 80% during the production year. (The next time you buy a car, consider in which part of the production year it was made.) This pattern is consistent with earlier research documenting big productivity gains from learning.
What’s more interesting is how learning happened. For example, this quality improvement didn’t come from addressing just the most defect-prone processes, even though the most troublesome 20% of processes accounted for 90% of all defects. Instead, such rates fell about equally across the board.
When the plant increased production of a new model variant, the learning process started anew. This happened three times a year, as the plant annually built a series of models on a common chassis, staggering the start of each.
Negative spillovers
Initial defect rates on a new model were well above those on the designs already being produced. Quality improvements occurred on new models at the same rate as for the earlier ones, but some negative spillovers were involved. Defect rates on vehicles already being produced rose temporarily during the increase in production of new models, ramp-up, as resources were redirected toward solving problems associated with the later brands.
One of the clearest patterns in the data was that that most “know-how capital” brought by learning wasn’t not bottled up in the plant’s individual workers, but rather incorporated into its physical or organisational capital. Two key pieces of evidence point to this. When the plant’s second shift started several weeks after the first one had begun, the second-shift defect rates were no higher than those being experienced on the first shift, even though most second-shift workers hadn’t yet been on the line that year.
Similarly, while worker absences slightly raised defect rates, their impact was, practically speaking, very small. Something bigger than each worker’s experience was at play. Broader changes, such as altering the layout of tools at the workstations and regrouping the sequence of operations, made the difference. Individual workers” suggestions quickly turned into new institutional practices. Total factor productivity rose as the plant adopted fresh ways of doing things.
It is important to recognise that our results reflect the learning process at one plant, in one industry, at one time. Some aspects of learning may work differently in other settings. Nevertheless, we believe managers can draw insights from our work and extend them to other production settings.
In business, swifter development and process improvements represent key drivers of success. Opening the black box of productivity growth to understand the sources of learning by doing, rather than just assuming that learning happens by itself, provides managers with guidance on ways to gain operational efficiencies earlier when production is increased, in the ramp-up process and offers insights into the underlying sources of economic growth.
If total factor productivity sounds like something of a black box—a quasi-magical ingredient that creates output out of seemingly nothing—well, it sort of is. Sure, economists have some ideas about its sources: adoption of new technologies, better management practices, and improvements in production chains. But a more detailed understanding is emerging.
In a recent study, we focused on a major automobile assembly plant and the evolution of its production-defect rate in the course of a year. We reviewed production records for almost 200,000 vehicles. That inquiry allowed us to dig deep into an oft-cited source of productivity growth: learning by doing.
As the name implies, learning by doing is achieved through production itself. Workers figure out how to do their jobs better, managers allocate capital more efficiently, and so on. Previous research focused on measuring how fast learning-related productivity improves. Thanks to extraordinarily detailed data, our study moves beyond showing that learning happens, and instead explores the specific mechanisms through which it takes place.
Production snarls
For each car, we observed what sorts of production problems, if any, occurred. We examined each of the several hundred operations involved in assembly. We don’t reveal the plant’s owner or location for confidentiality reasons.
We found clear evidence of learning by doing at the plant: average defects per car fell more than 80% during the production year. (The next time you buy a car, consider in which part of the production year it was made.) This pattern is consistent with earlier research documenting big productivity gains from learning.
What’s more interesting is how learning happened. For example, this quality improvement didn’t come from addressing just the most defect-prone processes, even though the most troublesome 20% of processes accounted for 90% of all defects. Instead, such rates fell about equally across the board.
When the plant increased production of a new model variant, the learning process started anew. This happened three times a year, as the plant annually built a series of models on a common chassis, staggering the start of each.
Negative spillovers
Initial defect rates on a new model were well above those on the designs already being produced. Quality improvements occurred on new models at the same rate as for the earlier ones, but some negative spillovers were involved. Defect rates on vehicles already being produced rose temporarily during the increase in production of new models, ramp-up, as resources were redirected toward solving problems associated with the later brands.
One of the clearest patterns in the data was that that most “know-how capital” brought by learning wasn’t not bottled up in the plant’s individual workers, but rather incorporated into its physical or organisational capital. Two key pieces of evidence point to this. When the plant’s second shift started several weeks after the first one had begun, the second-shift defect rates were no higher than those being experienced on the first shift, even though most second-shift workers hadn’t yet been on the line that year.
Similarly, while worker absences slightly raised defect rates, their impact was, practically speaking, very small. Something bigger than each worker’s experience was at play. Broader changes, such as altering the layout of tools at the workstations and regrouping the sequence of operations, made the difference. Individual workers” suggestions quickly turned into new institutional practices. Total factor productivity rose as the plant adopted fresh ways of doing things.
It is important to recognise that our results reflect the learning process at one plant, in one industry, at one time. Some aspects of learning may work differently in other settings. Nevertheless, we believe managers can draw insights from our work and extend them to other production settings.
In business, swifter development and process improvements represent key drivers of success. Opening the black box of productivity growth to understand the sources of learning by doing, rather than just assuming that learning happens by itself, provides managers with guidance on ways to gain operational efficiencies earlier when production is increased, in the ramp-up process and offers insights into the underlying sources of economic growth.
Electric vehicles have a long way to go in India: Deloitte study
A study on the prospects of Electric Vehicles conducted by Deloitte Touche Tohmatsu Ltd has estimated the current potential of the Indian market at 4 per cent of the annual car sales in the country (or about 100,000 vehicles).
The study finds that the Indian customer does not want to pay a premium for an electric vehicle.
“Overwhelmingly, respondents disagreed with the notion of paying a premium for the technology that is clean and can mean energy independence….about 20 per cent of the customers would be willing to pay about 10 per cent more as premium,” the study says.
The survey responses for India indicate that if prices of fuel went beyond Rs 85 a litre, 71 per cent of the respondents were likely to consider an EV, it says.
“As such, India is a mere Rs 12 away for fuel to become expensive enough for customers to consider alternative power technologies,” it says.
Similarly, if cars that run on conventional engines deliver as much as 32 km a litre, almost 74 per cent of the respondents “are less likely to consider an EV”.
This, the survey says, is pretty much the same in most countries.
Indians also expect their batteries to be charged fully in two hours and expect a per charge travel in the range of 4-6 times the average distance they travel daily – which comes to about 320 km.
“This indicates a gap in expectations versus current EV range capabilities in India,” the report says.
Releasing the report to journalists here, Mr Kumar Kandaswami, Senior Director, Deloitte, noted that Mahindra Reva is working on bringing out a car that can run 200 km after one full charge.
(The vehicle, coded ‘NXG' was showcased last year at an expo in Frankfurt. Mr Chetan Maini, Chief of Technology and Strategy, Mahindra Reva, told Business Line today that the vehicle is still “under development”.)
The Deloitte report, however, has nothing to say about the impact of improvements in public transport systems – which ought to help EVs because the vehicles would be used to cover shorter distances.
Nor does the report say anything about how things might pan out when hybrid or solar-supported electric vehicles hit the market.
What also came up in discussions with Mr Kandaswami was that the life of battery, generally about 5 years after which it would need to be changed. The cost of the battery could be about 30 per cent of the cost of the vehicle itself.
Today, the least-cost vehicle from Mahindra Reva costs around Rs 3.5 lakh.
The study finds that the Indian customer does not want to pay a premium for an electric vehicle.
“Overwhelmingly, respondents disagreed with the notion of paying a premium for the technology that is clean and can mean energy independence….about 20 per cent of the customers would be willing to pay about 10 per cent more as premium,” the study says.
The survey responses for India indicate that if prices of fuel went beyond Rs 85 a litre, 71 per cent of the respondents were likely to consider an EV, it says.
“As such, India is a mere Rs 12 away for fuel to become expensive enough for customers to consider alternative power technologies,” it says.
Similarly, if cars that run on conventional engines deliver as much as 32 km a litre, almost 74 per cent of the respondents “are less likely to consider an EV”.
This, the survey says, is pretty much the same in most countries.
Indians also expect their batteries to be charged fully in two hours and expect a per charge travel in the range of 4-6 times the average distance they travel daily – which comes to about 320 km.
“This indicates a gap in expectations versus current EV range capabilities in India,” the report says.
Releasing the report to journalists here, Mr Kumar Kandaswami, Senior Director, Deloitte, noted that Mahindra Reva is working on bringing out a car that can run 200 km after one full charge.
(The vehicle, coded ‘NXG' was showcased last year at an expo in Frankfurt. Mr Chetan Maini, Chief of Technology and Strategy, Mahindra Reva, told Business Line today that the vehicle is still “under development”.)
The Deloitte report, however, has nothing to say about the impact of improvements in public transport systems – which ought to help EVs because the vehicles would be used to cover shorter distances.
Nor does the report say anything about how things might pan out when hybrid or solar-supported electric vehicles hit the market.
What also came up in discussions with Mr Kandaswami was that the life of battery, generally about 5 years after which it would need to be changed. The cost of the battery could be about 30 per cent of the cost of the vehicle itself.
Today, the least-cost vehicle from Mahindra Reva costs around Rs 3.5 lakh.
Corporates have more cash and greater financial resources than ever
Anand Mahindra, vice- chairman, Mahindra & Mahindra Ltd, in an interview speaks on the group's brand positioning and ideas plat- form. Edited excerpts: What are you making of what's happening right now and from a corporate standpoint what do you make of the headwinds you see around?
What happened in 2008 was very different, in the sense we got ambushed. People were not ready for this. People did not imagine that there would be such a precipitous decline in the economy and, therefore, the response became extreme- ly slow and people didn't have the tools to deal with this.
The learning we have accu- mulated over the past three- four years is going to be de- ployed. There are new head- winds of the kind we would not have been able to describe be- fore.
I think this means the will- ingness and the alertness to deal with them is of different order. So, do I expect a similar prolonged recession? No. Do I expect headwinds? Yes.
Is corporate India more ready for this rundown?
Absolutely. Frankly, the cri- sis in America is not about cor- porates. They have more cash and greater financial resources than ever and so do most Indian companies.
You were on an acquisition spree from the previous slowdown to now. Are you looking at the pres ent economic situation as an op portunity?
We don't engage in inorgan- ic activities just for the sake of doing it. We do it because it enhances the strategic reach of the 10 sectors we are in. So it is up to the presidents of those sectors, if they say I have a ter- rific opportunity to acquire something, whether it is busi- ness or a competency or a technology which is going to give me greater momentum to- wards my strategic objectives.
We are not going to suddenly sound the trumpet and say we are going to buy everything in sight. That would be suicidal.
You have given your brand posi tioning campaign “Rise“ a whole new context by pegging it to the “Spark the rise“ platform.
We had made some promis- es when we unveiled the “Rise“ movement last time. What we promised was that “Rise“ was not simply an advertising slo- gan. This was a moment of transformation of Mahindra and also a transformation in how we are connected to com- munities and our consumers because we believe in version 2.0 of brand evolution, and brand building is not by simply talking to people, it's by in- volving them. ... Media interactivity, reality shows are telling that people want to reach out and shape their own destinies. They want to have a hand in making the news, they want to have a hand in helping to determine direc- tions of companies through feedback or criticism of your products. So we said why can't we harness that. It is very im- portant for us that if we were going to say that we are going to enable you to shape your destiny how do you manifest that promise.
You leverage technology like everyone else has been doing and you allow people to come and side your company and actually shape your destiny first and then, through the platform you provide, shape their own.
The choice of areas where you pick up ideas from is very interesting.
You have pretty much all the ide as--technologies, energy, agricul ture, rural development. Are these identified on the basis of the groups' larger interest, or do you think somewhere these are the fu ture areas where you will see inno vation rise?
No, we will elaborate on how they came across to decide on these areas, which they did in a very methodical manner, but from my point of view, I will use the opportunity to confirm and clarify that this is not a website for Mahindra partners, private equities to find ideas on the cheap. This is not about mirroring the areas and simply using this as an innovation lab.
Many industrialists are trying to give a legup to the next genera tion of entrepreneurs, because you all benefited from this great sur gery and because you are looking at the next leg of growth. For a corporate like yours, does the sus tainability platform of getting new ideas become that much more im portant because that's also a busi ness need today, to get innovation going?
It is, but we have got many initiatives in the group to spark innovation. Many internal ones, many where we crowd- source, many where we invite the public to give ideas. I have to emphasize this is not about that. This is not in a very nar- row way, advancing Mahin- dra's innovation needs or in- novation agenda.
This is genuinely about re- communicating to the world, who we are and saying, “look we are in this together, this is a journey where we expect you to become a stakeholder in our company“.
Because that's the only kind of company in the 21st century which will breed trust in con- sumers and in society. There is a trust gap we know that. It started in the US, even before 2008, when this agency came to us and held up a mirror to us and said, “I think you are a remarkable company because your people are always looking for higher objectives. I talked to your tractor people and they said, no we are not selling trac- tors, we are fermenting the next green revolution.“...
That was nice to hear but he said you have to walk the talk and that's what we are doing.
This is really about redefining and recommunicating who we are. This is about creating, hopefully, one of the new tem- plates for organising the 21st century and building a new re- lationship with consumers that helps our perform and shape their destinies.
We are in an era of wild move ments, right? We have Facebook, we have Twitter...
It is going to be difficult.
There is obviously going to be cynicism, credibility gap initially. But if we can prove our credentials and remain con- sistent with what we are doing and if people can sense hones- ty in what we are trying to do, why shouldn't they use this platform.
We have seen many in the last 6-7 months. Many move- ments arise in India... In a de- mocracy such movements are not to overthrow a govern- ment. But in a democracy you can suffer sometimes when people feel they are not in- cluded in the process of shap- ing the country and hence their own destinies.
So, instead of looking at so- cial media, the only things which cause controversies or movements which raise heat and noise, why can't some- body in India Inc. create a platform which allows people to enhance the democratic ex- perience and participation in- herent in a democracy. That's a really lofty idea but why not.
What happened in 2008 was very different, in the sense we got ambushed. People were not ready for this. People did not imagine that there would be such a precipitous decline in the economy and, therefore, the response became extreme- ly slow and people didn't have the tools to deal with this.
The learning we have accu- mulated over the past three- four years is going to be de- ployed. There are new head- winds of the kind we would not have been able to describe be- fore.
I think this means the will- ingness and the alertness to deal with them is of different order. So, do I expect a similar prolonged recession? No. Do I expect headwinds? Yes.
Is corporate India more ready for this rundown?
Absolutely. Frankly, the cri- sis in America is not about cor- porates. They have more cash and greater financial resources than ever and so do most Indian companies.
You were on an acquisition spree from the previous slowdown to now. Are you looking at the pres ent economic situation as an op portunity?
We don't engage in inorgan- ic activities just for the sake of doing it. We do it because it enhances the strategic reach of the 10 sectors we are in. So it is up to the presidents of those sectors, if they say I have a ter- rific opportunity to acquire something, whether it is busi- ness or a competency or a technology which is going to give me greater momentum to- wards my strategic objectives.
We are not going to suddenly sound the trumpet and say we are going to buy everything in sight. That would be suicidal.
You have given your brand posi tioning campaign “Rise“ a whole new context by pegging it to the “Spark the rise“ platform.
We had made some promis- es when we unveiled the “Rise“ movement last time. What we promised was that “Rise“ was not simply an advertising slo- gan. This was a moment of transformation of Mahindra and also a transformation in how we are connected to com- munities and our consumers because we believe in version 2.0 of brand evolution, and brand building is not by simply talking to people, it's by in- volving them. ... Media interactivity, reality shows are telling that people want to reach out and shape their own destinies. They want to have a hand in making the news, they want to have a hand in helping to determine direc- tions of companies through feedback or criticism of your products. So we said why can't we harness that. It is very im- portant for us that if we were going to say that we are going to enable you to shape your destiny how do you manifest that promise.
You leverage technology like everyone else has been doing and you allow people to come and side your company and actually shape your destiny first and then, through the platform you provide, shape their own.
The choice of areas where you pick up ideas from is very interesting.
You have pretty much all the ide as--technologies, energy, agricul ture, rural development. Are these identified on the basis of the groups' larger interest, or do you think somewhere these are the fu ture areas where you will see inno vation rise?
No, we will elaborate on how they came across to decide on these areas, which they did in a very methodical manner, but from my point of view, I will use the opportunity to confirm and clarify that this is not a website for Mahindra partners, private equities to find ideas on the cheap. This is not about mirroring the areas and simply using this as an innovation lab.
Many industrialists are trying to give a legup to the next genera tion of entrepreneurs, because you all benefited from this great sur gery and because you are looking at the next leg of growth. For a corporate like yours, does the sus tainability platform of getting new ideas become that much more im portant because that's also a busi ness need today, to get innovation going?
It is, but we have got many initiatives in the group to spark innovation. Many internal ones, many where we crowd- source, many where we invite the public to give ideas. I have to emphasize this is not about that. This is not in a very nar- row way, advancing Mahin- dra's innovation needs or in- novation agenda.
This is genuinely about re- communicating to the world, who we are and saying, “look we are in this together, this is a journey where we expect you to become a stakeholder in our company“.
Because that's the only kind of company in the 21st century which will breed trust in con- sumers and in society. There is a trust gap we know that. It started in the US, even before 2008, when this agency came to us and held up a mirror to us and said, “I think you are a remarkable company because your people are always looking for higher objectives. I talked to your tractor people and they said, no we are not selling trac- tors, we are fermenting the next green revolution.“...
That was nice to hear but he said you have to walk the talk and that's what we are doing.
This is really about redefining and recommunicating who we are. This is about creating, hopefully, one of the new tem- plates for organising the 21st century and building a new re- lationship with consumers that helps our perform and shape their destinies.
We are in an era of wild move ments, right? We have Facebook, we have Twitter...
It is going to be difficult.
There is obviously going to be cynicism, credibility gap initially. But if we can prove our credentials and remain con- sistent with what we are doing and if people can sense hones- ty in what we are trying to do, why shouldn't they use this platform.
We have seen many in the last 6-7 months. Many move- ments arise in India... In a de- mocracy such movements are not to overthrow a govern- ment. But in a democracy you can suffer sometimes when people feel they are not in- cluded in the process of shap- ing the country and hence their own destinies.
So, instead of looking at so- cial media, the only things which cause controversies or movements which raise heat and noise, why can't some- body in India Inc. create a platform which allows people to enhance the democratic ex- perience and participation in- herent in a democracy. That's a really lofty idea but why not.
Triumph Motorcycles to Enter Indian Market
Triumph Motorcycles is the latest manufacturer looking to set up shop in the burgeoning Indian motorcycle market. India continues to establish itself as a motorcycling hotbed as Triumph Motorcycles announced its intentions to enter the Indian market. Ducati was one of the first to realize its potential, developing showrooms in Delhi and Mumbai in 2009 as the Italian marque established an agreement with Precision Motor India Private Limited and Radiant Motorcycles to distribute there. Not to be left out of the party, Harley-Davidson soon followed suit and is on course to begin offering 12 models in the country this month after establishing authorized dealers in New Delhi, Mumbai, Chandigarh and Hyderabad. The current H-D bikes sold in the Indian market come as completely assembled motorcycles built in the U.S. and then shipped overseas, but Harley has established an assembly plant in the Indian state of Haryana where certain models will be built from U.S-supplied kits in an effort to circumvent the high tariff fees.
Below is the official announcement from Triumph. - ed
Iconic British motorcycle manufacturer Triumph has announced its intention to enter the Indian market.
First established in 1902 and now based in Hinckley, Leicestershire, UK, Triumph Motorcycles has in recent years been the fastest growing motorcycle brand in the world. For many years Triumph has produced a wide range of bikes which perfectly blend design, character, charisma and performance. At the heart of Triumph’s philosophy is a commitment to developing truly unique motorcycles that offer a blend of distinctive design, intuitive handling and performance.
The innovation and engineering passion that gave birth to the iconic Bonneville of the 1960s has today created a broad range of bikes suited to all motorcycle riders, including the striking 2.3 liter Rocket III, the unmistakable Speed Triple, the award-winning Daytona 675 supersport machine and the recently launched Tiger 800. Remaining true to their heritage, Triumph combines the very latest design and manufacturing facilities with the character and design flair that has always been associated with the famous swooping badge.
Triumph has appointed Ashish Joshi as its Managing Director for India. Prior to joining Triumph, Ashish was heading the European operations for Royal Enfield and established the company’s business in Europe. He has over 16 years of experience in Asia and Europe.
Commenting on Triumph’s entry to the Indian market, Nick Bloor, CEO of Triumph Motorcycles, UK said “India is a very important motorcycle market and Triumph has assessed it carefully before deciding to step in. We see it as the next step in our global business model. The appointment of Ashish Joshi is a signal of our seriousness about success in India. I wish him the best and look forward to comprehensive growth from the Indian market.”
HMSI charts aggressive plan for growth
Honda Motorcycle & Scooter India (HMSI), the 100% subsidiary of Honda Motor Company, is betting big on India. Having surpassed the 8-million sales mark recently, the company plans to have an annual production capacity of 40 lakh units against 21 lakh units per annum by the end of 2011-12.
“We have acquired 8 million happy customers in a short span of 11 years; with the recent 8th million achieved in last seven months,” said NK Rattan, vice-president (sales & marketing). Faster introduction of models with the launch of new global road-sport machine CBR 250R and refreshed version of CB Twister till date will continue throughout FY11.
“With accelerated growth with stability in production, HMSI aims to touch 21 lakh units sales in FY12 from its two facilities in Manesar (Haryana) and Tapukara (Rajasthan). Meeting varied customer expectations from Honda are our 13 high quality reliable products in all major two wheeler segments (three scooters, seven motorcycles and three fun bikes),” he said.
To meet existing customer expectations, HMSI started production at its second plant at Tapukara (Rajasthan). Currently equipped with initial production capacity 6 lakh units, HMSI is eyeing to double capacity of second plant to 12 lakh units by March 2012.
“In order to realise Honda’s vision to provide good products with speed and affordability and to increase its market share sharply in the two-wheeler segment, HMSI entered into MoU with Karnataka government last month to set up third manufacturing plant in Bengaluru area.
Once operational in first half of 2013, this plant will have an annual production capacity of 12 lakh units. Cumulatively, this will expand our total capacity to 40 lakh units per annum by 2013,” he said.
“Reaching closer to our valued customers, our sales and service network and to expand our network further, the company will add 300 more outlets to take the total number of outlets to 1,500 by the end of this financial year,” he added. According to him, expanding fun culture in India, Honda has engaged over 7,500 biking enthusiasts including women through its various fun activities like Gymkhana, Honda One Make Race and Asia Cup of Road Racing.
“We have acquired 8 million happy customers in a short span of 11 years; with the recent 8th million achieved in last seven months,” said NK Rattan, vice-president (sales & marketing). Faster introduction of models with the launch of new global road-sport machine CBR 250R and refreshed version of CB Twister till date will continue throughout FY11.
“With accelerated growth with stability in production, HMSI aims to touch 21 lakh units sales in FY12 from its two facilities in Manesar (Haryana) and Tapukara (Rajasthan). Meeting varied customer expectations from Honda are our 13 high quality reliable products in all major two wheeler segments (three scooters, seven motorcycles and three fun bikes),” he said.
To meet existing customer expectations, HMSI started production at its second plant at Tapukara (Rajasthan). Currently equipped with initial production capacity 6 lakh units, HMSI is eyeing to double capacity of second plant to 12 lakh units by March 2012.
“In order to realise Honda’s vision to provide good products with speed and affordability and to increase its market share sharply in the two-wheeler segment, HMSI entered into MoU with Karnataka government last month to set up third manufacturing plant in Bengaluru area.
Once operational in first half of 2013, this plant will have an annual production capacity of 12 lakh units. Cumulatively, this will expand our total capacity to 40 lakh units per annum by 2013,” he said.
“Reaching closer to our valued customers, our sales and service network and to expand our network further, the company will add 300 more outlets to take the total number of outlets to 1,500 by the end of this financial year,” he added. According to him, expanding fun culture in India, Honda has engaged over 7,500 biking enthusiasts including women through its various fun activities like Gymkhana, Honda One Make Race and Asia Cup of Road Racing.
Hero MotoCorp Appoints Sunil Kant Munjal as Jt MD
Two-wheeler maker Hero MotoCorp (formerly Hero Honda) on Thursday said it has appointed Sunil Kant Munjal as Joint Managing Director of the company. In a filing to the Bombay Stock Exchange (BSE), the company said Munjal has been appointed to the post for a period of five years with effect from August 17, 2011. The company said its board of directors has appointed Munjal "by way of passing a Resolution by Circulation on August 17, 2011". Last week, the company launched its new brand identity after ending a 26-year-old JV with Honda. In December last year, the B M Munjal family, had agreed to buyout the entire 26% stake of Honda in Hero Honda for . 3,841.83 crore.
Hero decides to drop Honda tag from bikes starting 2012
Co wants to acquire new identity at the earliest instead of waiting till 2012
Soon brands like Karizma and Splendor, the country’s largest selling bikes will come without the Honda tag. Hero MotoCorp will drop Honda brand from its bikes from early 2012. According to the agreement signed between the erstwhile partners, Hero can use the Honda brand till 2014. It is understood that the former now wants to acquire a new identity at the earliest in order to maintain its leadership position.
Brijmohanlal Munjal-owned Hero MotoCorp is currently evaluating the modalities as to how the brand change on its largest selling bikes will impact its sales in both short and the long term.
“As long as the company uses the platform for its large selling bikes and maintain the price point, the brand will not matter for general public,” a company official said.
Bikes that are in the pipeline would be launched under the Hero MotoCorp brand. Last week, the company launched a bike (Impulse) and a scooter (Maestro) in London under the Hero MotoCorp brand.
Analysts believe that it makes sense for the company to drop the Honda brand sooner even if they have time till 2014. “The company has a huge vendor base. The dealership has pan-India penetration. A mere change in brand would not hamper its sales. On top of that the company has invested a lot on the new brand name and will invest substantially on technology building over next few years,” a Mumbai-based analyst said.
Six months after breaking away from the 27-year-old joint-venture, Hero MotoCorp (formerly Hero Honda) last week unveiled its new brand identity with a commitment to set up two new manufacturing units in southern and western parts of the country.
Hero MotoCorp MD Pawan Munjal said that Hero MotoCorp is also going to forge alliances with different global players for design and product development. “The investment in the next five years will be more than what we made in the last 27 years with Honda,” he said. In the last 27 years, Hero Honda has pumped in over $1 billion. He said that the company would raise the funds through internal accruals.
Splendor, Passion are Hero's aces that trump rivals
The rechristening to Hero MotoCorp is of little consequence to rivals keen on grabbing a share of the Munjals' hold in the two-wheeler segment. “Unless a strong alternative to the Splendor and Passion motorcycles emerges soon, there is no way of stopping the Hero juggernaut,” a top auto executive told Business Line.
These two models alone account for monthly sales of around 300,000 units with the momentum as brisk as ever even after the recent split between the Hero group and Honda. It was a clear message that the market perception of these brands was strong enough to weather news of a divorce.
“After the former partners decided to go their own ways, cynics said it was only a matter of time before the Hero group was consigned to the archives. In reality, the leadership dynamics are not going to change in a hurry,” an auto sector official said.
The contenders
To that extent, sources say, Honda will have its task cut out as it begins a new innings in India sans Hero. Its wholly-owned arm, HMSI (Honda Motorcycle & Scooter India) is expected to wrap up this fiscal with 2.2 million units from two plants and even after the commissioning of its third facility in Karnataka, sales by 2013-14 will be around four million units.
Top challenger, Bajaj Auto, hopes to end 2011-12 with sales of over four million two-wheelers and is readying a new platform for its Pulsar and Discover brands which have been the core of its revival strategy. This would be the key to its growth plans in the coming years.
Hero plans big
In contrast, Hero MotoCorp (the erstwhile Hero Honda) has targeted numbers of over six million units this fiscal and made it known in London last week that it was eyeing ten million motorcycles and scooters by 2016. On the face of it, this is a modest objective as it translates into growth of 10 per cent annually.
“It is really up to HMSI or Bajaj to catch the customer's eye with a product that will take his attention away completely from the Splendor and Passion,” an industry veteran said.
Easier said than done even though reports are doing the rounds that Honda is planning to pull out all stops to achieve this goal. The differentiators will have to be in (lower) pricing and (higher) mileage because none of the other parameters will create any visible change from the viewpoint of impacting brand loyalty.
These two models alone account for monthly sales of around 300,000 units with the momentum as brisk as ever even after the recent split between the Hero group and Honda. It was a clear message that the market perception of these brands was strong enough to weather news of a divorce.
“After the former partners decided to go their own ways, cynics said it was only a matter of time before the Hero group was consigned to the archives. In reality, the leadership dynamics are not going to change in a hurry,” an auto sector official said.
The contenders
To that extent, sources say, Honda will have its task cut out as it begins a new innings in India sans Hero. Its wholly-owned arm, HMSI (Honda Motorcycle & Scooter India) is expected to wrap up this fiscal with 2.2 million units from two plants and even after the commissioning of its third facility in Karnataka, sales by 2013-14 will be around four million units.
Top challenger, Bajaj Auto, hopes to end 2011-12 with sales of over four million two-wheelers and is readying a new platform for its Pulsar and Discover brands which have been the core of its revival strategy. This would be the key to its growth plans in the coming years.
Hero plans big
In contrast, Hero MotoCorp (the erstwhile Hero Honda) has targeted numbers of over six million units this fiscal and made it known in London last week that it was eyeing ten million motorcycles and scooters by 2016. On the face of it, this is a modest objective as it translates into growth of 10 per cent annually.
“It is really up to HMSI or Bajaj to catch the customer's eye with a product that will take his attention away completely from the Splendor and Passion,” an industry veteran said.
Easier said than done even though reports are doing the rounds that Honda is planning to pull out all stops to achieve this goal. The differentiators will have to be in (lower) pricing and (higher) mileage because none of the other parameters will create any visible change from the viewpoint of impacting brand loyalty.
JOINT VENTURES - Break Point
Who needs joint ventures now? Capital is freer, technology more easily available. Other than in sectors with ownership restrictions, JVs are losing relevance, as evidenced in the increasing number of splits, report Bhanu Pande & Arun Kumar
Last year, it was Mahindra & Mahindra and Renault in cars. Earlier this year, it was the Hero Group and Honda in motorcycles. And now, Godrej and Hershey might reportedly go their separate ways, after just four years, in their foods venture. India Inc is seeing an increasing incidence of joint ventures come apart. No formal numbers are available, but five investment bankers that ET spoke to say the last six years have seen the demise of about 50 prominent JVs, most of them with a lifespan of less than 10 years. The discordant notes stem as much from the intrinsic nature of this business arrangement as from its changing place in the Indian business milieu. “A joint venture is a marriage of convenience, with an exit clause,” says Ravi Sardana, executive vice-president, ICICI Securities. “The partnership begins on a happy note, with either partner gaining access to technology, funds, markets or brands. But soon, the honeymoon is over.” Increasingly, in an open and decontrolled business environment, companies are finding they don’t need a partner to access all that. In the late-90s, BK Modi had 12 JVs: with Xerox, GBC, Continental and Olivetti, among others. Today, he has none. “JVs were necessary for both Indian and foreign companies in a controlled environment, and when technology and funds were scarce,” says Modi, chairman, M Corp Global. “Today, they have no relevance in most cases, except where those three factors still hold.” Take equity holding, the biggest imperative for shared ownership. In 1991, no sector allowed 100% foreign direct investment (FDI).
Today, there are at least 22, including big ones like auto, pharma, FMCG and financial services. “Foreign companies form JVs to test waters,” says Uday Kotak, executive vice-chairman, Kotak Mahindra Bank. “If they like the market, they either buy out the local partner, even if it means paying an exorbitant premium, or sell out at a throwaway price to start afresh under full control.” Kotak had two JVs in financial services, with Goldman Sachs, which lasted 10 years till 2006, when the US investment bank decided to go solo. According to Ramdeo Agarwal, managing director of Motilal Oswal Securities, such tendencies increased in the last decade, with the regulatory framework turning favourable and globalisation seeping into the Indian system.
NEW BUSINESS ENVIRONMENT
As they spend more time in India, foreign companies feel a lesser need to have partners, and share profits and control. This is especially the case when they want to expand faster than their Indian partners. For example, American automation giant Honeywell split from the Tatas in 2004 and went solo in India, as it felt the market had greater potential than the JV was tapping; and going solo would give it greater focus and comfort while investing. “Most JVs are meant to fall apart at some point in time, and the reasons for this are not blinding insights,” says Ashish Singh, chairman, Bain & Company India. “The life of JVs is what they normally call the ‘seven-year itch’, beyond which there are many reasons for conflicts between partners,” says Hemendra Kothari, chairman, DSP Blackrock. Kothari, who was a partner in DSP Merrill Lynch, a JV with Merrill Lynch, exited the venture in 2009, after 14 years. Even Hero Honda, which endured for 27 years, could not escape that inevitability. Company insiders say Honda, the Japanese partner, wanted a greater say in decision-making, particularly in sourcing parts from original equipment manufacturers (OEMs), which the Munjal family wasn’t willing to concede. “Friends and associates of the Munjals control substantial part of Hero Honda’s OEM business,” says an institutional investor who has tracked the company for about two decades. Another point of disagreement was over expansion: the Munjals wanted to expand abroad, but Honda wanted to keep it to India only. “There can’t be two leaders in a company,” says Modi of JVs in general. Both partners felt confident going solo, which they might not have in the past. Honda has had a 100% subsidiary in India since 2000, and agreed to exit Hero Honda at a 50% discount to market price. The Munjals understand the Indian market, and feel they can source technology and build their research team. “Mathematics has not found a way where two people can own 51% each in the same company,” says Kotak.
DIFFERENCE OF OPINION
Most JVs come unhinged due to differences in aspirations and approaches. A case in point is HDFC-Chubb General Insurance. In 2007, the Indian company called off its JV with The Chubb Corporation, the world’s largest non-life insurance company, after five years due to differences on pace of growth. “Chubb had a low appetite for risk in India,” says a person who advised HDFC on the split. “This became a bone of contention between the partners. It became a barrier for the JV’s rapid roll out, especially in the commercial segment.” Singh of Bain says the 2008-09 financial crisis saw a number of foreign companies temporarily reduce their focus on emerging markets. “In some cases, this strained relationships with local partners,” he says. “Sometimes, too little success leads to frustration, impacting the JV’s durability.” Investment banking officials say the Godrej Group is getting impatient with the slow progress of its Rs 450 crore JV with Hershey, at a time when the chocolates category is registering good growth. In its fourth year, the US company has only launched its popular chocolate syrup, while Godrej has contributed a number of brands to the JV under its Nutrine portfolio, they point out. Godrej has a history of broken JVs. In the nineties, Godrej Soaps broke its JV with Procter & Gamble after four years as it felt its brands like Cinthol were getting the short shrift. In the early-2000s, white goods major Godrej & Boyce and GE Appliances parted ways; and a tie up with Pillsbury to market wheat flour was called off. And, more recently, its consumer goods flagship, Godrej Consumer Products, bought Sara Lee’s 51% in Godrej Sara Lee, ending a 15-year JV.
JV TEMPLATE
Joint ventures are good for a finite period of time, says Adi Godrej, chairman, Godrej Group. “They are not forever and they should not even be,” he says, adding that JVs are forged with a specific objective. “Over a period of time, each partner learns what it set out to do and it’s time to move on.” Godrej, however, still believes that JVs are useful for resources and growth. There will always be reasons to start JVs, but, in the coming years, their need could reduce across many sectors. And so will their numbers. “In sectors where regulation is still extensive, and knowledge of the political and administrative landscape is critical, the need for JVs will remain,” says Singh of Bain. “Also, where special skills/technology is a big issue.” He cites the example of the boiler, turbine and generator segment in the power sector, where almost all players have JVs. Similarly, sectors requiring elaborate sales and distribution networks will continue to see JVs being signed. A template for a successful JV entails three things: the partners are clear about their strategic objectives, they know their respective responsibilities, and they trust each other. “It is obvious that a JV must have a thoughtthrough pre-nuptial plan,” says Singh of Bain. “But what is needed — and sometimes, it is not so obvious — is a certain degree of flexibility, which will be called on at some point to keep the JV intact and successful.”
Bajaj Auto aims to export over 2 mn units in 3-4 years
On the back of its increasing international footprints, Pune-based Bajaj Auto aims to export over 2 million units in the next three to four years.
The company that exported over 1 million units of two- and three-wheelers in the last fiscal is banking on good demand in Latin America, Africa, the Middle-East and the South-East Asian markets.
"... Bajaj Auto has exported more than 1.2 million units (in FY 2011). I look forward to breaching the 2 million mark in the next three to four years," Bajaj Auto Ltd (BAL) Chairman Rahul Bajaj said in the company's Annual Report for 2010-11.
He said the company surpassed the target to 'globalise India' by exporting over 1 million two-and three-wheelers.
BAL said during FY 2011, it exported 12,03,718 vehicles, representing a growth of 35 per cent over the previous year.
Exports accounted for Rs 4,552 crore, which was 28.5 per cent of the company's total net sales in FY 2011. It has increased from Rs 933 crore that contributed 12.5 per cent of total net sales in 2005-06, the company said.
In terms of strategic export markets, BAL said: "Africa remains a key focus area, with increased presence in Nigeria, Uganda, Kenya and Angola."
Sales in South Asia touched a new high. Peace-time Sri Lanka clocked growth of 76 per cent, while Bangladesh grew at 34 per cent in 2010-11, the company's annual report said.
"South East Asia was another bright spot. The company's subsidiary in Indonesia, PT BAI, grew volumes by 81 per cent with sales of 21,586 units, largely the Pulsar range," it said.
During 2010-11, Latin America bounced back, with Colombia and Central America showing major recovery. Overall growth in the region was 47 per cent, it said.
In the ongoing fiscal during the April-July period, BAL has so far exported 4,55,645 units of motorcycles at a growth of 30.22 per cent over the year-ago period. In the three- wheeler segment, it has seen a growth of 43.25 per cent at 1,15,715 units for the same period this fiscal.
The company that exported over 1 million units of two- and three-wheelers in the last fiscal is banking on good demand in Latin America, Africa, the Middle-East and the South-East Asian markets.
"... Bajaj Auto has exported more than 1.2 million units (in FY 2011). I look forward to breaching the 2 million mark in the next three to four years," Bajaj Auto Ltd (BAL) Chairman Rahul Bajaj said in the company's Annual Report for 2010-11.
He said the company surpassed the target to 'globalise India' by exporting over 1 million two-and three-wheelers.
BAL said during FY 2011, it exported 12,03,718 vehicles, representing a growth of 35 per cent over the previous year.
Exports accounted for Rs 4,552 crore, which was 28.5 per cent of the company's total net sales in FY 2011. It has increased from Rs 933 crore that contributed 12.5 per cent of total net sales in 2005-06, the company said.
In terms of strategic export markets, BAL said: "Africa remains a key focus area, with increased presence in Nigeria, Uganda, Kenya and Angola."
Sales in South Asia touched a new high. Peace-time Sri Lanka clocked growth of 76 per cent, while Bangladesh grew at 34 per cent in 2010-11, the company's annual report said.
"South East Asia was another bright spot. The company's subsidiary in Indonesia, PT BAI, grew volumes by 81 per cent with sales of 21,586 units, largely the Pulsar range," it said.
During 2010-11, Latin America bounced back, with Colombia and Central America showing major recovery. Overall growth in the region was 47 per cent, it said.
In the ongoing fiscal during the April-July period, BAL has so far exported 4,55,645 units of motorcycles at a growth of 30.22 per cent over the year-ago period. In the three- wheeler segment, it has seen a growth of 43.25 per cent at 1,15,715 units for the same period this fiscal.
Honda Motor bets on 100-cc bikes for rural push in India
Japan's Honda Motor, the world's largest motorcycle maker, is betting on the small capacity 100-cc economy bikes as it embarks upon a rural push in the world's second biggest two-wheeler market, said people with knowledge of the development. The Tokyo-based firm, which separated from its long-term Indian partner turned competitor Hero MotoCorp, has appointed five management teams across India led by Japanese executives to create a new decentralised marketing structure for consistent sales, people from the industry told ET.
The Japanese two-wheeler maker is working on a new version of the CD platform in the 100-cc segment, where Hero's CD Dawn and CD Deluxe have the highest sales. Honda's new bike based on the 100-cc technology is targeted at India's vast rural hinterland that contributes almost half of the volumes to the nearly 5 million bikes Hero sells every year. The thrust on rural market is a reversal of sales strategy for Honda, which has so far been garnering most of its sales from cities and big towns.
"The company is currently focusing and tweaking bikes relevant for the Indian market to get closer to the customer ," said Abdul Majeed, auto practice leader, PwC. The 100-cc bikes laid foundation for Hero MotoCorp, erstwhile Hero Honda , to emerge as world's largest twowheeler firm in terms of volumes. Last year, Honda sold its 26% stake in Hero Honda to India's Munjal family while the technology agreement between Hero and Honda permits the former to use the joint name in products till 2014.
Honda, which owns the CD brand globally jointly with Hero, is likely to bring in a new improved engine with fresh design cues to attract young and rural India. Hero's claim on the CD brand exists only till 2014, by when Honda wants to emerge as a major player in the Indian circuit. Honda Motor did not reply to an email query from ET about its rural thrust and new marketing strategy. However, the company said it aims to emerge as a major player in India in the next few years as it comes up with strategies to consolidate.
The Japanese two-wheeler maker is working on a new version of the CD platform in the 100-cc segment, where Hero's CD Dawn and CD Deluxe have the highest sales. Honda's new bike based on the 100-cc technology is targeted at India's vast rural hinterland that contributes almost half of the volumes to the nearly 5 million bikes Hero sells every year. The thrust on rural market is a reversal of sales strategy for Honda, which has so far been garnering most of its sales from cities and big towns.
"The company is currently focusing and tweaking bikes relevant for the Indian market to get closer to the customer ," said Abdul Majeed, auto practice leader, PwC. The 100-cc bikes laid foundation for Hero MotoCorp, erstwhile Hero Honda , to emerge as world's largest twowheeler firm in terms of volumes. Last year, Honda sold its 26% stake in Hero Honda to India's Munjal family while the technology agreement between Hero and Honda permits the former to use the joint name in products till 2014.
Honda, which owns the CD brand globally jointly with Hero, is likely to bring in a new improved engine with fresh design cues to attract young and rural India. Hero's claim on the CD brand exists only till 2014, by when Honda wants to emerge as a major player in the Indian circuit. Honda Motor did not reply to an email query from ET about its rural thrust and new marketing strategy. However, the company said it aims to emerge as a major player in India in the next few years as it comes up with strategies to consolidate.