The growth story

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Domestic consumption and global ambitions feed the two-wheeler industry.

The Indian two-wheeler segment is growing and the production is expected to double in the next five years. Led by a huge demand in the domestic market and massive dose of high-technology, the production, which stands at 0.8 crore units currently, is expected to touch the 1.78 crore mark by 2011-12.

The surge will be led by the huge untapped rural market (52 per cent of the current market) that will force the players to undertake capacity expansions, and is also expected to absorb some new entrants in the market.

While the existing players have already hiked their production capacities, the expected entry of new Chinese and Italian manufacturers may change the face of the Indian two-wheeler industry.

The American cult brand, Harley-Davidson is also poised to enter the Indian market in 2007, and will add class and style rather than any significant numbers to the Indian two- wheeler market.

The Society of Indian Automobile Manufacturers (SIAM) projects a massive overhaul in the next five years.

"Most global tw- wheeler players have set up shop in India or are expected to be here shortly and will invest in huge production capacities. The total investment is expected to be in excess of Rs 10,000 crore, which will add 10 million capacity during this period," says a senior SIAM official.

The SIAM production data for the calendar year 2006 reveals that vehicle production by the automobile industry in India crossed the 1 crore mark for the first time to touch 10,031,886 units. Serving as major transport need for the masses, over 77 per cent of the vehicles were two-wheelers.

According to SIAM, 77.41 lakh two-wheelers were produced this year, as compared to 66.87 lakh during the same period last year, reflecting a growth of 15.77 per cent. Motorcycles and step-throughs led the growth with an increase in production of 19.96 per cent.

Aiming global

After capturing the domestic market, Indian two-wheeler manufacturers are hunting overseas in a big way as they aspire to become global players.

The Munjal group's flagship company, Hero Honda is not only the domestic market leader but also the largest producer of two-wheelers in the world. After churning out over 0.3 crore units annually, it is all set to foray into the emerging markets of South America, Africa and Egypt.

Bajaj Auto Ltd, on the strength of its own R&D, has already established itself in South-east Asia. It has set up a joint venture company in Indonesia to assemble and sell three-wheelers and high-end motorcycles.

The new company, Pte Bajaj Auto Indonesia, has invested $12.5 million to set up the unit with a capacity of 10,000 three wheelers and 1 lakh motorcycles.The company successfully launched its premium product Pulsar DTS-i this month.

Following close is the third largest domestic producer, TVS Motors, that has set up a manufacturing base in Indonesia, with a capacity of 3 lakh motorcycles a year. It will invest up to $100 million over the next three years.

Tax havens

Mounting production costs and the cut-throat competition have forced Indian two-wheeler manufacturers to set up greenfield projects in tax-free zones.

First it was Pant Nagar in Uttaranchal, where Bajaj announced the setting up of a facility of 4 lakh units per annum, with an investment of Rs 500-600 crore.

Hero Honda is setting up a 5 lakh unit facility at Haridwar, also in Uttranchal, after investing Rs 800 crore.

TVS Motors is going ahead with a manufacturing base at Baddi in Himachal Pradesh with an investment of Rs 100 crore to annually produce around 1.5 lakh units.

Increasing competition and the rising costs of core input materials like steel and aluminium are forcing two- wheeler manufacturers to opt for locations that offer huge tax benefits.

New modern plants are expected to set global standard of productivity with the companies adopting lean production structures as well as concepts like core process orientation and integrated supply chain network.

To control costs, these companies are also moving in with their key vendors, and have set up their facilities around their own plants.

"We want all our vendors to enjoy tax benefits so that the entire product chain benefits, and we have cost effective production," says Pawan Munjal, managing director, Hero Honda.