Autos run into drawback pothole

The government has slashed the duty drawback rates on certain vehicles, including two- and three-wheelers, and medium and heavy commercial vehicles (M&HCVs), making it harder for automakers at a time when the industry is struggling to boost exports.

Under duty drawback, exporters are allowed to offset part of the duties paid by them on import of inputs at the time of export.

The duty drawback rate on motorcycles, three-wheelers and M&HCVs has been reduced to 2% from 5.5% earlier, and for light commercial vehicles, to 2% from 4%, a revenue department notification said.

For cars, the rate has been kept unchanged at 3%, while for auto components, the rates have been reduced from 3-5% earlier to around 2.4-4%.

The new rates will take effect from October 10, according to the notification.

The reduction in duty drawback rates, per se, is expected to have a limited impact.

“Our exports are not at a high level. We will have a limited impact of the reduction in rates,” saidPraveen Shah, chief executive, automotive division, Mahindra & Mahindra, which has sizeable exports to neighbouring countries, Latin America and Africa.

Shah, however, questioned the timing of the move. “The decision comes at a very wrong time. With rupee also appreciating, the exporters are losing money. In times like these, when the rupee is getting strong and exports are struggling, the country needs forex inflow.”

According to the Society of Indian Automobile Manufacturers, overall automobile exports registered a negative growth of -5.56% during April-August, 2012.

According to analysts, companies having higher exposure to exports will take a big hit.

Bajaj Auto managing director, Rajiv Bajaj told a business news channel that the company has no choice but to pass on the reduction. Though the impact will be limited, its Chinese competitors will have a cost advantage, he said.

But analysts feel it won’t be easy for the players to take price hikes.

“Within our coverage universe, Bajaj Auto, Ashok Leyland, TVS and Bharat Forge will be most affected by this cut in duty drawback rates. The impact on FY14F EPS of these companies will be between 2-10%. Our calculation assumes that there is no change in pricing. Given current macro economic conditions, companies will find it difficult to take the price hikes, in our view,” Kapil Singh and Nishit Jalan, analysts with Nomura Equity Research, said in a note.

Last fiscal, Bajaj Auto exported 1,579,824 vehicles, up 31% over the previous fiscal, and accounting for 35% of its net sales.

Splendor "Discovers" a bajaj ahead of it !

  In what can be a tipping point in the Indian motorcycle industry, the news that the Bajaj Discover brand is the world's largest selling motorcycle means that the reign of the Hero Splendor has just showed a dramatic blip on what was for so long a runaway record!

    Not many would have seen this coming but the fact that it was sentiment coupled to a honest to goodness package that had delivered meaningfully to the aam janta for over two decades was however getting a bit long in the tooth. Propped up by millions of satisfied customers as its best brand ambassadors, this ongoing legacy helped keep the Splendor volumes high aided no doubt by Hero MotoCorp's fine promotions and advertising strategy.

    On the other side though was the fact that arch rival Bajaj Auto, for long known to play the volume game in the Rahul Bajaj scootering days had changed tack almost completely to a profit-oriented game. There's a thin line some said to this aspect but given that Bajaj Auto's profitability is probably the best among any in the global automotive sphere, it was only a matter of time before the strong back-end of the Akurdi, Pune-based firm would also get its products in the high volume commuter class to shine bright on the front end.

    For quite a long time Bajaj Auto's motorcycling ambitions to confront Hero have been strong but unsustainable but ever since the advent of the Discover platform came into being, this has been the spearhead of the firm's commuter segment offering. Borrowing the same cues as the sporty Pulsar range but delivering top essence to everyday two-wheeled commuting, the path adopted by the firm's Stars Ahead R & D now encompasses a rich product portfolio where performance delivery, style and stance, top notch engineering and build are all leagues above other products on the market. If that is not all, the Discover is now acknowledged as the most fuel efficient motorcycle on the Indian market but this gets even more credence because the efficiency doesn't come at the expense of a pleasurefilled ride or one which lacks on the performance front.

    The other aspect to Bajaj Auto's Discover as also of course its entire product portfolio was and remains to keep each unit profitable and the Discover returns mightily for both consumer and manufacturer to profit from the experience.

    So when the sales figures for September 2012 came into the public domain, it was a huge fall for the Hero Splendor, so much so that the consistent sales performance of the Bajaj Discover suddenly saw it propelled to the best selling motorcycle in the world for the month at 122,968 units. Of course, a single swallow doesn't a summer make so while the first dent in the Splendor's hitherto impregnable reputation is fact, it will be up to the Discover to keep the ante high so that it develops a taste for leadership. Also to be truthful, the Splendor had been steadily losing traction for the better part of the last six months and where it was earlier all about the pull from the market garnering sales, in these last few months it was all about Hero MotoCorp pushing the brand to sustain it in the market.

    I have always maintained that the first cracks in the Splendor's record were surely going to appear around 2014-15 but for it to have come so soon are surprising. What is even more of concern is the fact that its erstwhile former partner Honda is gunning for the same glorious patch that the Splendor played and thrived on. Honda's Dream Yuga commuter is again simplistically made but beautifully engineered and the fight will now be, in my opinion, between this bike and the Discover unless Hero MotoCorp can pull something out of its barren magician's hat.

    Further on, the Bajaj Discover, in its latest 125 ST avatar is an all-new platform from which many new spin-offs have already been pencilled in for production. A 100-110cc version is almost production ready and this should again hit the high spots on the fuel efficiency front as well as be in the value priced segment of the market. What has been a fight between lipstick and makeup jobs on a model getting on in age against a young punchy new model is now where the market is veering to. Just like one fine day in the 1990s, the bottom fell off the Chetak and Super, I can see the same for the Splendor but can't foretell the exact timeline for the same. The market as they say will speak and tell!

Hyosung shifts to a higher gear

The last time the Hyosung 250cc Comet landed in India, in 2004, it sold like hot cakes. Eager customers flocked to Kinetic Motors outlets to buy the bike, available in limited numbers. At that time, Hyosung hardly faced any competition.

But, eight years can make a lot of difference. The Comet has returned — it was launched here a few months ago. This time around, the field is bristling with competition from some of the biggest names in motorcycling from around the world, and some fiercely competitive local ones as well. The Rs 1.57-lakh CBR 250R from Honda is the largest-selling bike in its class and undercuts the Hyosung Comet by almost Rs 1.33 lakh, which is a huge margin.

Despite the Rs 2.90-lakh (ex-showroom, Mumbai) price tab for the 250cc Hyosung, around 350 bookings have been made for the Comet since its July-end launch, and its Pune-based assembler, DSK Motowheels, is confident of selling another 1,650 units by March-end.

Pricing the bike this high seems an almost bizarre tactic for a lesser-known company.

The problem is none of its bikes is manufactured here — something necessary for a company to be price- competitive. The Hyosung Comet and three other models (GT650, GT650N and ST7) are all assembled in India at a small facility in Wai, Maharashtra. As much as 80-90 per cent of the components for the Comet are sourced locally by DSK to keep the costs low, but that’s not sufficient for a significant price drop.
Made in India
However, moving forward, models up to 250cc may now be completely built in India, engines included, resulting in an almost 50 per cent reduction in their selling price. Components like batteries and tyres for bigger bikes will also be sourced locally.

“My target is to bring down the price of the GT250R (Comet) to Rs 1.5-1.6 lakh. It may not be a premium compared to the Honda CBR250 after two years,” says Shirish Kulkarni, director of DSK Motowheels.
However, the move towards full manufacturing in India will not be possible at Wai, due to limited land availability and tighter regulations. So, the company is pumping an additional Rs 300-400 crore into a new plant located close to Pune that can churn out 100,000 units annually, in the next 18 months.

“We are facing a lot of production constraints now and we have to make sure that we eliminate those first. We already have 250 pending bookings for the GT250. We can produce only 10 bikes per day at that plant,” adds Kulkarni.

Further, DSK will also launch its cruiser range next month with the introduction of the GV650 and follow it up with the launch of GV250 (Aquila) around March. Both products, though assembled in India, are expected to be priced upwards of Rs 2.5 lakh. The Aquila will be the country’s cheapest cruiser, priced far below the cheapest Harley Davidson motorcycle here.

After two failed marriages in India, this is the third beginning for S&T Motors, Korea — the parent company of Hyosung. Its first venture, with Kinetic, was hobbled by the fact that customers had to wait for spares to arrive all the way from Korea and received no servicing option here. Kinetic eventually sold its business assets to Mahindra & Mahindra.

The Garwares, its second partner, were looking for increased sales, and, when that didn’t happen, they sold their two-wheeler business to Pune’s real estate giant, the DSK group, which was subsequently renamed DSK Motowheels.

Volume dreams

This time around, Hyosung thinks it has the right strategy. Apart from the premium segment, it has also trained its sights on the big prize, the volume motorcycle segment — which includes bikes up to 150cc — as it constitutes over 90 per cent of total domestic volumes. These 125cc and 150cc models will be designed and developed in India and suited to local tastes and preferences.

Clearly, the strategy adopted in India by Hyosung is top-down, just like most other premium auto makers, such as Volkswagen, Skoda and Nissan. “We are looking at the 125-150cc to come in also by the end of 2014. The most important thing now is to have the brand established. Once that is done, there will be no looking back,” adds Kulkarni.

Though DSK, as a brand, is known within the boundaries of Maharashtra, both Hyosung and it suffer from a lack of brand exposure outside the state. Therefore, securing new dealerships and service centres could become a challenge in the short term. The company’s dealer strength now is 18 and it hopes to take that to 30 by March.

DSK owns Toyota’s largest dealership in the state, with a turnover exceeding Rs 500 crore. To promote the sales of Hyosung further, Kulkarni has kept his option of talking to his existing Toyota customers open but has declined to use the infrastructure of the car brand.

With Bajaj-KTM, Hero MotoCorp and Royal Enfield upping the ante on the premium segment, and Harley Davidson and Kawasaki dominating the heavyweight segment of motorcycles, Hyosung will need to pull out all the stops to make an impact here.

Auto sales skid in Sept, post sharpest fall in nearly four years

Car sales registered steepest monthly fall in nearly four years at 9.43% in September. However, the industry feels new launches in the next few weeks, such as the new Maruti Alto 800 and Chevrolet Sail, may boost sales.

Data released by the Society of Indian Automobile Manufacturers (Siam) on Wednesday showed that domestic car sales in September decreased by 5.36% while sales in the two-wheeler segment dipped 18.85%, the sharpest decline in three years and nine months.

The total sale of vehicles across categories registered a dip of 9.43% to 1,418,134 units last month against 1,565,757 units in September 2011. The rate of fall is the steepest since December 2008, when sales had declined by 18.25%.

With such a drastic decline in automobile sales, the auto industry body, Siam, on Wednesday revised downwards the sales growth outlook for the year to 1-3%.

"The overall economic situation of the country, low sentiments, high petrol prices and interest rates are among the factors that are hurting the overall sales of the auto industry," Siam president S Sandilya said.
During the month, domestic car sales declined to 157,536 units from 166,464 units in the same month last year.

"New model launches at attractive price points in the utility vehicle segments have also been a factor in low sales," Sandilya said.

Market leader Maruti Suzuki's sales rose by 3.43% to 68,957 units. Rival Hyundai Motor India's sales, however, decreased by 13.88% to 30,795 units. Homegrown auto major Tata Motors' car sales were down by 18.46% at 17,133 units.

Total sales of commercial vehicles in September rose marginally to 70,683 units from 70,658 units in the year-ago period, Siam said.

"Moderating agricultural growth, sustained slowdown in industrial activities and lower replacement volumes are leading to deceleration in demand of heavy commercial vehicles, mainly in the goods segment," Sandilya said.

Medium and Heavy Commercial Vehicle sal es declined 14.80% to 26,471 units during the month, as against 31,068 units in September last year.

According to Siam, light commercial vehicle sales grew 11.67% to 44,212 units in September 2012 from 39,590 units in September 2011.

In the two-wheeler segment, total sales in September 2012 decreased by 12.92% to 1,069,069 units from 1,227,662 in September 2011.

Motorcycle sales last month fell by 18.85% to 7,53,693 units, from 9,28,716 units in the same month previous year. The sharpest decrease earlier was 23% in December 2008.

"There is a fall in sales for motorcycles due to weak rural demand and sustained cautious urban sentiments," Sandilya said.

In the motorcycle segment, market leader Hero MotoCorp posted 30.59% fall in sales to 344,512 units in September. Rival Bajaj Auto's sales went down by 19.37% to 206,248 units.

Honda Motorcycle & Scooter India (HMSI) posted 77.44% increase in sales to 107,406 units while TVS Motor moved 49,061 units, 30.51% less than the same month of the previous year.

The scooter segment's overall sales grew 10.17% to 2,54,321 units, from 2,30,838 units.

HMSI's scooter sales grew by 15.51% to 1,24,049 units in September, while Hero MotoCorp sold 49,340 units, up 46.25%. TVS Motor's sales saw decline of 26.71% to 39,075 units.

In the three-wheeler category, sales went up marginally to 49,576 units, from 49,271 units in the same month last year.

Luxury car maker Mercedes-Benz India, however, gave some respite to buyers of the premium segment cars with its announcement of starting sports utility vehicle M-Class assembling at its Chakan facility near Pune. The move will make the SUV cheaper by over R10 lakh in the country.

CLSA puts a sell on Bajaj Auto as company's market share shrinks

The stock fell to Rs 1,720 from its previous close of Rs 1,741.05 after the brokerage cited the company's shrinking market share consequent to weak demand, adverse shifts in demand profile and rising competition mainly from Honda as reasons for the downgrade.

 Two-wheeler maker Bajaj AutoBSE -0.75 % fell more than a percent on the BSE after Asia Pacific-focused broker CLSA downgraded its share to 'Sell' from 'Underperform'.

The stock fell to Rs 1,720 from its previous close of Rs 1,741.05 after the brokerage cited the company's shrinking market share consequent to weak demand, adverse shifts in demand profile and rising competition mainly from Honda as reasons for the downgrade. CLSA also cut Bajaj Auto's earnings per share (EPS) for 2012-13, 2013-14 and 2014-15 by 1-4%.

The share, however, recovered later, closing the day with a gain of 1.09% at Rs 1,760. CLSA's report comes days after Deutsche Bank retained a 'Buy' on the share with a target price of Rs 2,000. Deutsche Bank attributed margin improvement and exports recovery for its decision to continue the positive rating.

Despite a fall in EPS, Bajaj Auto commands a price-to-earnings multiple of 16.72 times its trailing 12 months earnings, above that of its nearest competitors Hero MotocorpBSE -1.64 % (14.84) and TVS Motors (8). The Bajaj stock has risen 9% in the year-to-date compared with a 5% decline in Hero Motocorp's share and a 28% fall in TVS Motors.

"We expect Bajaj's domestic motorcycle market share to shrink from 25.4% in FY12 to 23.6% in FY15, resulting in just 4% volume CAGR in domestic motorcycle sales over FY12-15," CLSA said in its report while setting a target price of Rs 1,610. "Overall, we see Bajaj's earnings growing at 9% CAGR over FY12-15.

For September, Bajaj Auto registered a 14% year-on-year (yoy) decline in sales volume, with exports slipping by 6%. Total two-wheeler sales declined 13% y-o-y, continuing last month's 5% fall, which was led by motorcycle segment, which fell 19%. The scooter segment continued to report growth at 10% y-o-y, though this was at slower pace from a year earlier.

CLSA expects overall domestic two-wheeler demand to grow at 4.8% and 9.7% in FY13 and FY14 compared with the earlier forecast of 7.8% and 10.2%. It expects motorcycle exports to grow faster at 11% CAGR, boosting total two-wheeler growth to 6% over this period.

TVS appoints Dentsu Communications to handle Wego ad account

Chennai-based TVS Motor Co today said it has appointed Dentsu Communications to handle the advertising account for its Wego brand of scooters.

Dentsu will work on various campaigns for WEGO and will be responsible for the account’s campaign planning and creative executions across television and print media, the company said in a statement.

Commenting on the development, TVS Motor Co President Marketing H. S. Goindi said: “We are confident that the team at Dentsu Communication with its deep experience and understanding of automobile brands will make their presence felt on Wego future campaigns.”

The Wego account was earlier handled by another agency, BBH.

Dentsu Communications CEO Arijit Ray said the company is looking to carve out a distinctive communication position for the brand.

Wego is a 110 CC scooter targeted at young urban couples. TVS Motor Co’s other scooter brands are TVS Scooty Pep+ and TVS Scooty Streak aimed at female customers.

Keywords: TVS appoints Dentsu Cooumincations, TVS Wego account, Wego brand of scooters, Dentsu Communications CEO Arijit Ray

Honda hopes to continue Dream ride

Honda Motorcycle & Scooter India (HMSI), the second largest two-wheeler firm in India by volumes, is confident of sustaining strong double-digit growth during the current financial year at a time when motorcycle sales have hit speed breakers and two-wheeler growth has fallen to a low single digit.

The company’s entry into the mass segment has also proved successful, as the Japanese two-wheeler major has sold over a lakh units of its first mass segment bike Dream Yuga in three-four months and it intends to treble the volumes by the end of this financial year.

“If we look at the domestic demand in the first half of FY13, the demand for two-wheelers has grown by only three per cent, while HMSI has grown 49 per cent. Honda is seeing its sales expand in both motorcycle (64 per cent growth) and automatic scooters (39 per cent growth),” Y S Guleria, vice-president – sales and marketing, HMSI told Financial Chronicle.

Traditionally, September month is reported to be a lean period for manufacturers. Despite the slowdown, HMSI registered a robust growth of 38 per cent this September. “We have emerged as the fastest growing two-wheeler company in India with the launch of seven new exciting products across all motorcycle & scooter segments including Dream Yuga in mass motorcycle segment, rapid expansion of Honda’s sales & service network outlets and full utilisation of increased production capacity at Tapukara (Rajasthan) plant,” he added.

The company has also made a mark in the challenging mass segment (100-110cc) of motorcycle industry with its first product Dream Yuga. Honda’s first offering in the segment has received very encouraging response. Over 100,000 units have been sold till date and current bookings are around 4,000 units. “Looking at current enquiries and bookings level at our dealerships in both rural and urban areas and last three months sale, we have recently ramped up the daily production of Dream Yuga & are confident of selling three lakh units of Dream Yuga within this financial year,” he said.

According to Siam classification, 75-110cc segment accounted for about 66 per cent of motorcycle volumes during April-August period. “The 100cc segment of bikes could be further classified into three sub-segments based on price Rs 35,000-40,000, Rs 40,000-45,000 and Rs 45,000-50,000 — representative of a wide price range with presence of features (or lack thereof) appealing to a diverse set of customer needs. Hero MotoCorp has been the market leader in this segment, offers 20 variants distributed amongst its three brands — CD Dawn, Splendor and Passion, “ said an Icra report.

Looking at the demographics of this segment, Honda is rapidly increasing its market penetration through adding 500 sales & service outlets in tier I and tier II cities during FY12-13 which will take its network’s total strength close to 2,000 outlets.

With the excellent response to Dream Yuga in the mass motorcycle segment & production expansion, the company aims to maintain the strong growth momentum in the upcoming festive season too.