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CHAPTER-1 Introduction

The document discusses the financial position and two-wheeler industry in India. It notes that a company's financial position is measured by its cash flow statement, profit and loss statement, and balance sheet. The two-wheeler industry in India has grown significantly due to rising incomes, urbanization, and new models. Key segments include scooters, motorcycles, and mopeds. The domestic market for two-wheelers is large due to India's young population and favorable demographics.
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0% found this document useful (0 votes)
27 views10 pages

CHAPTER-1 Introduction

The document discusses the financial position and two-wheeler industry in India. It notes that a company's financial position is measured by its cash flow statement, profit and loss statement, and balance sheet. The two-wheeler industry in India has grown significantly due to rising incomes, urbanization, and new models. Key segments include scooters, motorcycles, and mopeds. The domestic market for two-wheelers is large due to India's young population and favorable demographics.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAPTER- 1

INTRODUCTION
Introduction
Financial position, defined as the status of financial well-being regarding a company, is
important to every single business. The status of the assets, liabilities, and owner’s
equity (and their interrelationship) of an organization, as reflected in its financial
statement.
The Financial Position of a company is measured by the performance it takes in
company financial statement:
▪ A positive and growing cash flow statement
▪ Growing profits in the profit & loss statement
▪ A balance of assets, liabilities & owner’s equity in the balance sheet
It explained as the leverage, solvency, and cash standing of a company which ultimately
leads to the ability of the business to survive, is an important factor in large and small
businesses alike. Overall, financial position summary forms the most basic aspects of
accounting Assets, Liabilities, and owner’s equity. These three factors sum the essence
of the financial position of any business.
This is so important that a statement of financial position has become one of the most
Important reports in a business. When it comes to assets, companies have a lot to
balance. They must maintain proper amount of cash, equipment, and more. When it
comes to liabilities, a company does not want to outpace itself. Owner’s equity is an
investment that made by owners in a company or Organization. The structure of the
statement of financial position is like the basic accounting equation.
For a corporation the format will be:
Assets = Liabilities + Stakeholder’s Equity

Two-Wheeler industry
The Indian two-wheeler industry has got tremendous market potential. With the
growth of population and change in their pattern of lifestyle because of urbanization,
there has been rapid increase in the demand for Indian two wheelers. The three main
product segments in the two-wheeler category are scooters, motorcycles, and mopeds.
However, the response to evolving demographics and various other factors, other sub-
segments have emerged, namely, scooterettes, gearless scooters and four-stroke
scooters. While the first two emerged as a response to demographic changes, the
introduction of four stroke scooters has followed the imposition of stringent pollution
control norms in early 2000. Besides these prominent sub-segments, product groups
within these sub segments have gained importance in the recent years such as 125cc
motorcycles, 100- 125cc, gearless scooters with the two-wheeler market, especially the
motorcycle market has become extremely competitive and life cycle of products getting
shorter, the ability to offer new models to meet fast changing customer preferences has
become imperative. They have also concentrated on three main areas: fuel economy,
environment compliance and performance. The Indian automobile industry consists of
four segments: passenger vehicles, commercial vehicles, three-wheelers and two
wheelers. In the automobile industry, the two wheelers segment possesses a high
domestic market share.
India became the fourth largest auto market in 2019 displacing Germany with about
3.99 million units sold in the passenger and commercial vehicles categories. India is
expected to displace Japan as the third largest auto market by 2021.
The two wheelers segment dominates the market in terms of volume owing to a
growing middle class and a young population. Moreover, the growing interest of the
companies in exploring the rural markets further aided the growth of the sector.
India is also a prominent auto exporter and has strong export growth expectations for
the near future. In addition, several initiatives by the Government of India and major
automobile players in the Indian market is expected to make India a leader in the two-
wheeler and four-wheeler market in the world by 2020.
The Indian automotive industry consists of five segments: commercial vehicles; multi-
utility vehicles & passenger cars; two-wheelers; three-wheelers; and tractors. With
7,822,963 units sold in the domestic market and 753,591 units exported during the
first nine months of FY2007, the industry (excluding tractors) marked a growth of 43%
over the corresponding previous. The two-wheeler sales have witnessed a spectacular
growth trend since the mid-nineties. India is the second largest producer and
manufacturer of two-wheelers in the world. Indian two-wheeler industry has got
spectacular growth in the last few years. Indian two-wheeler pg. 9 industry had a small
beginning in the early 50's. The Automobile Products of India (API) started
manufacturing scooters in the country. Bikes are a major segment of Indian two-
wheeler industry, the other two being scooters and mopeds. Indian companies are
among the largest two-wheeler manufacturers in the world. Hero MotoCorp and Bajaj
Auto are two of the Indian companies that top the list of world companies
manufacturing twowheelers. The two-wheeler market was opened to foreign
companies in the mid-1980s. The openness of Indian market to foreign companies lead
to the arrival of new models of two-wheelers into India. Easy availability of loans from
the banks, relatively low rate of interest and the discount of prices offered by the
dealers and manufacturers lead to the increasing demand for two-wheeler vehicles in
India. This led to the strong growth of Indian automobile industry.
Two-wheeler segment posts healthy growth as both scooter and motorcycle segments
grow in double-digits. The two-wheeler industry performance has been strong during
FY2018, reporting YoY growth of 14.5% during 11m FY2018. The year was
characterized by periodic swings in growth rate caused by a confluence of factors, e.g.,
channel filling by OEMs during April 2017 (post BS IV) and July 2017 (post GST rollout),
pre festive season dealer stocking during August-September 2017. During the latter
half of the fiscal, the growth gained pace, supported by strong double-digit growth
during November 2017-February 2018 partly driven by low base of previous fiscal and
partially benefitting from positive demand sentiments, especially from the rural
market. During 2018, both the major products segments of scooters and motorcycles
contributed to growth, expanding by healthy double digits over the corresponding
previous. While scooters have reported a growth of 21.2%, the motorcycle segment
also reported double-digit growth of 12.7% during the same period, being the first
instance of double-digit growth of the motorcycle segment since FY2012. Although the
moped segment had reported healthy growth of 23% during FY2017, the volumes
decreased by 4.8% during 11m FY2018, in absence of new model launches and shift of
consumer preference towards lower displacement motorcycles.

Market Capture
Many foreign companies have been investing in the Indian automobile market in
various ways such as technology transfers, joint ventures, strategic alliances, exports
and financial collaborations. The auto market in India can boast of attractive finance
schemes, increasing purchase power and launch of latest products.
Some vital statistics regarding the automobile market in India has been mentioned
below:
▪ India ranks 2nd in the global two-wheeler market.
▪ India is the 4th biggest commercial vehicle market in the world.
▪ India ranks 11th in the international passenger car market.
▪ India ranks 5th pertaining to the number of bus and truck sold in the world.
Between passenger vehicles and two wheelers, the market share of the two-wheeler
segment (76%) more than doubled its share of the passenger vehicles (16.25%) and
commercial vehicles and three wheelers stood lower at 4.36 per cent and 3.39 per cent,
respectively. This shift, which continues, has been prompted by two major factors:
innovative models and technological advancements. The Indian two-wheeler industry
has witnessed a strong volume growth over the last two years, having grown by 25 per
cent in 2009-2010 and 27 per cent in 2010-11 to reach million units. This strong
double-digit growth has been driven by multiple factors. The prime reason is statistical
as this period of high double-digit growth has showed up after a rather sedate previous
two years, when the two-wheeler industry volumes had shrunk by 5 per cent in 2007-
08 and had grown by a mere 5 per cent in 2008-09. In addition to the contribution of
pent- up demand, the two-wheeler industry growth over the last few years has been
supported strongly by various underlying factors including India’s rising per capita
GDP, increasing rural demand, growing urbanization, swelling replacement demand,
increasing proportion of cash sales and the less measurable metric of improved
consumer sentiments.

Indian Domestic Market for Two Wheelers


India has the youngest population in the world with 70 per cent under 35 years. This
implies a huge demand for two wheelers in the domestic market. The demands driving
for the two-wheeler industry are:
(i) High growth in the service sector
(ii) Favourable demographics - a young population, rising household incomes,
increasing literacy levels.
(iii) Faster introduction of new models.
(iv) Increasing replacement demand.
(v) Increasing availability of low-cost retail finance
The modern automobile market in India has been considering key issues in the process
of growth:
(i) Customer care, and not just service
(ii) Searing through cut-throat competition
(iii) Anti-pollution norms
(iv) Domestic as well as multi-national investments
(v) Used vehicle trade.
(vi) Co-ordination with government to enable advancement.
(vii) Road safety
Domestic automobiles production increased at 2.36% CAGR between FY16-20 with
26.36 million vehicles being manufactured in the country in FY20. Overall, domestic
automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million
vehicles being sold in FY20.
Premium motorbike sales in India recorded seven-fold jump in domestic sales,
reaching 13,982 units during April-September 2019. The sale of luxury cars stood
between 15,000 to 17,000 in the first six months of 2019.
Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest
manufacturer of two – wheelers, based in India. In 2001, the Company achieved the
coveted position of being the largest two-wheeler manufacturing Company in India
and, the ‘World No.1’ two-wheeler Company in terms of unit volume sales in a calendar
year. Hero MotoCorp Ltd. continues to maintain this position till date.

Two-Wheeler competition in India


India is the second biggest maker and maker of bikes on the planet. It remains next just
to Japan and China regarding the quantity of bikes created and homegrown deals
separately. This differentiation was accomplished because of assortment of reasons
like prohibitive arrangement followed by the Government of India towards the
traveller vehicle industry, rising interest for individual vehicle, failure in the public
transportation framework and so on. The Indian bike industry made a little start in the
mid-50s when Automobile Products of India (API) began fabricating bikes in the
nation. Until 1958, API and Enfield were the sole makers.
In 1948, Bajaj Auto started exchanging imported Vespa bikes and three-wheelers. At
long last, in 1960, it set up a shop to make them in specialized cooperation with Piaggio
of Italy. The arrangement lapsed in 1971.
In the underlying stages, the bike fragment was overwhelmed by API, it was later
surpassed by Bajaj Auto. Albeit different government and private undertakings entered
the conflict for bikes, the main new player that has endured till today is LML.
Under the directed system, unfamiliar organizations were not permitted to work in
India. It was a finished dealer market with the sitting tight period for getting a bike
from Bajaj Auto being as high as 12 years.
The bikes fragment was the same, with just three producers viz Enfield, Ideal Jawa and
Escorts. While Enfield slug was a four-stroke bicycle, Jawa and the Rajdoot were two-
stroke bicycles. The bike portion was at first overwhelmed by Enfield 350cc bicycles
and Escorts 175cc bicycle.
The bike market was opened to unfamiliar rivalry during the 80s. Also, the then market
pioneers - Escorts and Enfield - were gotten unconscious by the attack of the 100cc
bicycles of the four Indo-Japanese joint endeavors. With the accessibility of eco-
friendly low force bicycles, request expand, bringing about Hero Honda - at that point
the main maker of four stroke bicycles (100cc class), increasing a top space.
The principal Japanese bikes were presented in the mid-eighties. TVS Suzuki and Hero
Honda acquired the initial two-stroke and four-phase motor bikes separately. These
two players at first began with gathering of CKD packs, and later advanced to
indigenous assembling. During the 90s the significant development for cruiser
fragment was acquired by Japanese bikes, which developed at a pace of almost 25%
CAGR over the most recent five years.
The passage of Kinetic Honda in mid-eighties with a variometric bike helped in giving
usability to the bike proprietors. This aided in instigating youths and working ladies,
towards purchasing bikes, who were prior slanted towards sulked buys. During the
90s, this pattern was turned around with the presentation of scooterettes. In
accordance with this, the bike portion has reliably lost its aspect of the piece of the pie
in the bike market.
India is one of the not many nations fabricating three-wheelers on the planet. It is the
world's biggest producer and dealer of three-wheelers. Bajaj Auto orders an imposing
business model in the homegrown market with a piece of the pie of above 80%, the rest
is shared by Bajaj Tempo, Greaves Ltd and Scooters India.
The all-out number of enlisted bikes and three-wheelers on street in India, as on March
31, 1998 was 27.9mn and 1.7mn separately. The bike populace has nearly multiplied
in 1996 from a base of 12.6mn in 1990.
India turned into the fifth biggest auto market in 2019 with deals coming to 3.81
million units. It was the seventh biggest maker of business vehicles in 2019. The bikes
portion overwhelm the market as far as volume attributable to a developing working
class and a youthful populace. Also, the developing enthusiasm of the organizations in
investigating the rustic business sectors further helped the development of the area.
India is likewise a noticeable auto exporter and has solid fare development desires for
the not-so-distant future. What's more, a few activities by the Government of India and
significant vehicle major parts in the Indian market is relied upon to make India a
pioneer in the bike and four-wheeler market on the planet by 2020.

Pricing Strategies in The Automobile Industry


Indian Two-wheeler Pricing Trend Analysis is an exclusive Analysis of Indian Passenger
Vehicle. Pricing is one of the most important criteria for Indian buyers. Each segment
is having different user, dynamics, expectation, and Outlook and product position. Our
latest report gives an in-depth analysis of Vehicle pricing, how it curved with product
and market parameters and other key detail.
Effective pricing strategies shall help a company sell its products in a competitive
market to witness a profit. So, it is a way or literally an approach to find the competitive
price of service or a product in that market. This strategy is one of the other marketing
strategies followed in the system of every management. It is indeed a known fact that
a company's goal is to maximize their turnover. To maximize the profit, one must
choose the right strategy for price setting.
There are different strategies one can depend on in the process of price setting. A few
significant factors are given below:
▪ Penetration & psychological pricing strategies
To gain a great market share, many companies embrace the penetration pricing
strategy. The company aims to set up a customer-based price in the market. This is
primarily achieved by providing a free to low price for their products or services to a
limited period. This later, with a revised version comes into the market as a premium
product with a little raise in the price. This strategy is implied to meet the expectation
that consumers will hop on to new brands when they're priced low. On the other hand,
a psychological pricing strategy is a method that embraces a consumer's emotional
response rather than considering their rational one. Here consumer ignores the quality
of a service/ product but sticks on to the costing price.
▪ Product line & economy pricing strategies
The product line pricing strategy is nothing but, providing service with an option to
upgrade upon choosing higher value packs. Consumers are pushed to compare the
packages and choose a wise plus cost-effective product or service. The other purpose
of the product line strategy is to bring a product or service to the spotlight which had
low visibility or recognition earlier. Whereas economy pricing strategy embraces no to
the low marketing cost in product or service promotion. It's more like the budget
pricing of a product or service. A great example would be promoting only a certain
range of products or services that shall gain specific and quick attention among people.
▪ Customer value-based pricing strategy
This is the most effective method that is followed by many successful companies. Value-
based pricing is a nothing but, price setting strategy that exclusively focuses on
consumer perceived value of a service or product. This is entirely based on how
consumers value the product or service and how they find it worth buying. Many
companies that offer unique and high-value products choose this strategy in setting the
price. The value-based pricing embraces customer's abilities to buy a product by
considering the unparalleled experience upon buying a particular service or a product.
Many luxury automakers find customer-value based pricing strategy an effective
method of approach. A value-based strategy will enable manufacturing companies to
extend the life cycle of existing products and will help to establish a great bond with
value-added suppliers.
▪ Pricing analytics
Manufacturers and service providers predict the future well enough to carry out a price
optimization system. They evaluate the past performance with a specific set of market
conditions and suggest the state of conditions for the probability of profit for your
product or service in the market. This will help the automotive industry to gain an
insight into pricing strategy. Pricing analytics include the process of finding the
underperformers of a particular industry. It's highly crucial to analyse why certain
product lines become your cause of down economy. We develop reports exclusively
after researching the probabilities and will let you understand the customer value
definition with facts and figures.
▪ Customer satisfaction
When a pricing system includes detailed pricing analytics, it will boost the customers'
satisfaction. The system of achieving maximum profit with minimum wasted effort
shall only be obtained upon consulting the business consultants. ACG shall help you
find not only the best pricing strategy for your company but also identify the substitute
product or service that might better fit in a customers' budget. This will help your sales
team create a budget-based service or product that shall come with a package deal to
the customers which in turn allows you to enhance customer's ability to purchase.
Almost everything in business aims for justification for the value of a specific price.
Customers do not buy a product or service by just seeing the price tag; they
meticulously research before buying it. With much of comparisons, they find the right
choice that will fit in their budget and lifestyle. Our business consulting services shall
help you understand how customers understand the value of a service or product. We
consider a lot of factors, impacts on buying decisions with that of other parameters
before drawing the conclusion.

Prospects And Challenges of The Automobile Industry


Challenges in the Industry Of course, like companies in all sectors of manufacturing,
automobile manufacturers face unique challenges that they must address to create
long-lasting success. Here are five that hold special significance for automobile
manufacturers.
1. Overcapacity: Like all industries, automobile manufacturing experiences ups and
downs. Overcapacity is the problem that occurs when a manufacturer has already
invested the resources (such as payroll and materials) into building a certain quantity,
only to discover later that they do not need to produce as much as they had planned
for. The result is an over-expenditure that can damage cash flow and result in waste.
The best way to avoid overcapacity is to invest in increased production floor
responsiveness and better master production scheduling.
2. Sustainability: Consumers are increasingly concerned about sustainability.
Manufacturers, therefore, must strive to create more eco-friendly motorcycle and to be
more efficient in production.
3. Globalization: Increased global competition means lower market prices for many
vehicles: once again, most solutions call for increased efficiency to offset a lower
margin of profit.
4. Attracting talent: As the automobile industry continues changing, manufacturers
will need to continue attracting the best and the brightest talent to adapt to the times.

Key Drivers of Automobile Industry


▪ Economic Conditions: The first key driver is economic conditions. When economic
conditions are favourable, people are more likely to purchase new vehicles giving
momentum to the industry. Slowdown in economic output leads to reduced
consumer and business confidence and levels of vehicle consumption goes down.
Automotive manufacturers need to plan capacity to achieve economies of scale.
Companies plan their capacities based on their sales predictions which are totally
dependent on economic cycles. The capacity issue has a strong influence on
industry economics as vehicle prices are calculated on forecast capacities and
reduced capacity means higher unit costs. Vehicle makers, therefore, get heavily
impacted due to economic conditions.
▪ Consumer Demand and Interests: The second key driver is consumer interest, their
preferences and demand. There is a growing demand for more choice. Volume
production may become like that for motorcycle, with a greater number of vehicles
being made to order on the basis of a multi-option choice. The market for niche
vehicles is growing, as consumers demand more variation of body shape and
styling. This has led to a variety of body shapes being constructed on standard
platforms. There is an increased awareness of occupant and pedestrian safety, and
consumers also look for greater fuel economy, exemplified by the growing rise of
fossil fuel prices. Consumer are becoming more aware of specifications and looking
for inclusion of more on-board electronics and telecommunications systems.
Automobile safety is tremendously important to consumers in all markets and
consumers are willing to pay more for vehicles with safety features.
▪ Globalization: The third key driver is globalization and global industry influences.
Today, the modern global automotive industry operates in a global competitive
marketplace. Globalization of the automotive industry has been greatly accelerated
during the last half of the 1990's due to the construction of important overseas
facilities and establishment of mergers between giant multinational automakers.
The world's largest automobile manufacturers invest into production facilities in
emerging markets in order to reduce production costs. Automakers have merged
with, and in some cases established commercial strategic partnerships with other
automobile manufacturers, enabling them to expand in overseas markets.
Increasing global competition amongst the global manufacturers and positioning
within foreign markets has divided the world's automakers into three tiers, the first
tier being GM, Ford, Toyota, Honda and Volkswagen, and the two remaining tier
manufacturers attempting to consolidate or merge with other lower tier
automakers to compete with the first-tier companies.
▪ Technological Innovations: The fourth key driver influencing automotive industry
significantly is Technology. Automotive companies seek to take advantage of
sophisticated technology to address the competitive pressure and to meet
increased customer expectations on quality and cost. Technological advances help
them add value to their vehicles and offset the squeeze on costs and profit margins.
Technology also helps them meeting the demands of environmental legislation. It
is through technology that manufacturers are able to address consumer demands
for increased safety and sophistication.
▪ Government & Regulations: The fifth key driver of the automotive industry is
government. Legislation is a major driver of the industry; emissions and recycling
legislation have a strong impact both on vehicle technologies and construction. In
many countries, governments have imposed strict environmental regulations
dealing with fuel economy and emissions control on auto manufacturers. These
environmental legislations vary in different countries and define standards that are
compulsory for all vehicles sold in those countries. This has huge impact on global
auto manufacturers as they must keep updating the products, they sell in different
parts of the world to comply with these regulations. This can add significantly to
manufacturing costs.

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