Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
The greatest rivalry in the Indian auto space? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 25, 2010

    The greatest rivalry in the Indian auto space?

    Corporate rivalries are always interesting tales. Whether its back home in India or around the world. In this article, we will be focusing on the rivalry between the two heavyweights in the Indian two-wheeler space - Bajaj Auto and Hero Honda.

    Till about a decade ago, Bajaj Auto was the undisputed king of the two-wheeler industry. This, we say, in terms of the total sales volumes. Then came along Hero Honda, the joint venture between the Hero Group and Honda Motors, and changed the game completely in its favour.

    With the launch of motorcycles, the demand for less efficient, less stylish and less powerful - scooters and mopeds - deteriorated substantially over the years. This is what gave Hero Honda an edge over Bajaj Auto, which primarily focused on scooters. Hero Honda, on the other hand was a one segment focused company. That segment was of motorcycles.

    Below we can see a chart of the total two-wheeler sales of both the companies and how things have played out since then. Hero Honda caught up to Bajaj Auto in terms of overall volumes in FY01, and since then there was no looking back for the company.

    Data Source: Companies, Equitymaster Research

    Flash back to 1999 - Bajaj Auto sold nearly 1.2 m two-wheelers during FY98. Of this, motorcycles formed nearly 16% of the volumes. This translates to about 200,000 units. The balance was mainly contributed from scooter sales. During the same year, Hero Honda sold about 530,000 units.

    Below we can see a chart of how motorcycles sales volumes have changed for both the companies. And the scenario thereafter is for you to see.

    Data Source: companies, Equitymaster Research.

    New launches, wide distribution network and a good amount of focus on rural and semi-urban markets is what led Hero Honda to strengthen its position. Not that Bajaj Auto did not launch and offer good vehicles. But since it also focused on two-wheelers other than bikes and whose demand was reducing over the years, it saw a relatively slower increase in sales volumes.

    If we take a look at what has been happening in recent times, the gap in sales volumes between the two companies widened during the year FY08. A key reason for the same was Baja Auto's focus on urban markets. The company launched bikes with more powerful engines and reduced focus on the entry level, which is mainly aimed towards the rural sections of the market.

    On the other hand, Hero Honda continued its rural and semi-urban play. Indeed, a wise move by the company.

    However, realising its lost opportunities as well as the huge scope, Bajaj Auto renewed its focus on the entry level segment in recent times. This helped the company boost sales volumes. FY10 has been a strong year for both the companies, which recorded their highest ever sales.

    Now that we have discussed the key revenues drivers for the two companies, let us have a look at their operating performance.

    Automobile companies increase profitability by selling more units. As number of units sold increases, average cost of selling an incremental unit comes down. This is because the industry does have a substantial fixed cost component. This is the key reason why operating efficiency through increased localization of components and maximizing output per employee is of significance.

    In the following chart, we have shown the operating margins of both the companies over the past decade. As compared to Bajaj Auto's volatile operating margins, Hero Honda's operating performance has been relatively quite stable. One key reason for this could be better management of product mix by Hero Honda and superior economies of scale. Bajaj Auto's margins have come in higher than Hero Honda in FY10 but whether it manages to keep that edge is anybody's guess.

    Data Source: companies, Equitymaster Research.

    On all comparative parameters, Hero Honda seems like a much more stable company. However, with Bajaj Auto's renewed interest in the entry level segment and the huge success of its recent launches, the company has done well to grow its sales volumes in FY10. Motorcycle volumes for the company surged by a massive 40% YoY during FY10! On the other hand, Hero Honda's sales volumes grew by 19% YoY during the year.

    All said and done, for Bajaj Auto to regain its pole position in the two-wheeler sector, it seems though that the company would require more than a miracle.



    Equitymaster requests your view! Post a comment on "The greatest rivalry in the Indian auto space?". Click here!


    More Views on News

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    Bajaj Auto Limited: Recovery in Exports but Domestic Disappoints! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    New Export Markets picking up, Management expects good recovery in domestic Three wheeler market.

    Bajaj Auto Limited: Finishes the Year with Headwinds. Poised for a Recovery Ahead? (Quarterly Results Update - Detailed)

    Jul 6, 2017

    Ends the year on a Flat note. Expects good recovery in the exports market.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 09:12 AM