Go Back   Team-BHP > BHP India > The Indian Car Scene


Reply
 
Thread Tools Search this Thread
Old 30th May 2016, 16:04   #1
Distinguished - BHPian
 
RavenAvi's Avatar
 
Join Date: Jun 2011
Location: Flying Around
Posts: 5,357
Thanked: 28,179 Times
Default Selling two-wheelers is more profitable than selling cars!

Audited financial results from the past 10 years were taken from 7 big-wig four-wheeler auto majors - Maruti Suzuki India Limited, Tata Motors, Mahindra & Mahindra, Hyundai Motors India Limited, Honda Cars India Limited, Toyota Kirloskar Motors and Ford India, and financial results for the same period were collected from 5 major two-wheeler companies - Hero MotoCorp, Bajaj Auto, TVS Motors, Eicher Motors (Royal Enfield) and Honda Motorcycle & Scooters India.

Other MNCs in these sectors were not considered since their data for the entire duration of the past 10 years were not available.

For comparison purposes, each company's standalone finances were considered in this study to show their domestic business positions.

The results?

Apparently, the operating margins in the two-wheeler industry have consistently been higher than those in the four-wheeler industry for all of the past decade, with this operating margin widening to nearly double of the average operating margins of the top passenger vehicle makers in the past financial year!

For the FY 2014-15, the 5 two-wheeler majors mentioned above had a combined debt of Rs 1,082 crores noted, which is down by almost 50% over the past 5 years, and which stands at less than 5% of their total net worth.

Whereas, most four-wheeler PV manufacturers saw their debt folders raised to a whopping Rs 40,300 crores, which is almost 60% in the past one year itself and is equivalent to almost 60% of their combined net worth. In addition, these four-wheeler companies had to raise their debt quotas to invest heavily in product research, development & production/company expansion as well.

The only exception in the 4-wheeler car company list is Maruti-Suzuki India Limited, who has remained debt-free through the highlighted period and is also sitting pretty on Rs 12,600 crores cash reserve at the end of 2015-16.

Name:  14642930305744.jpg
Views: 12556
Size:  44.4 KB

Quote:
In 2014-15 two-wheeler firms in our sample reported combined revenues and net profit of Rs 81,500 crore, including other income, and Rs 6,900 crore, respectively. In comparison, four-wheeler makers reported combined revenues and net profit of Rs 1.95 lakh crore and Rs 3,440 crore, respectively.

Two-wheeler makers have also grown faster. In the past five years, the combined revenues of the top five two-wheeler firms grew at a compounded annual rate of 17 per cent, outpacing the 11 per cent growth in the combined revenues of the country's top six four-wheeler makers.

"Historically, two-wheeler demand is aligned to consumer demand, while four-wheeler demand is correlated to industrial growth. As the former has been robust in the past six-seven years, two-wheeler makers have done better than other segments of the automotive industry," said G Chokkalingam, founder and chief executive officer, Equinomics Research & Advisory.

"It takes far more capital to set up a passenger car business than two-wheeler manufacturing. New product development is also more expensive in the four-wheeler industry than in the two-wheeler industry," says Navin Matta, analyst at HDFC Securities. This affects the profitability and cash flows of passenger car makers.

Four-wheeler companies have together invested around Rs 71,000 crore in capacity expansion and new product development in the past five years. During the same period, two-wheeler makers' capex was around Rs 13,000 crore.
Business Standard

Last edited by RavenAvi : 30th May 2016 at 18:46.
RavenAvi is offline   (19) Thanks Reply With Quote
Old 31st May 2016, 06:33   #2
Team-BHP Support
 
.anshuman's Avatar
 
Join Date: Dec 2004
Location: Good-Gaon
Posts: 7,708
Thanked: 8,928 Times
Default re: Selling two-wheelers is more profitable than selling cars!

Note from Moderator: Thread moved here from Assembly line. Thanks for sharing
.anshuman is offline   (1) Thanks Reply With Quote
Old 31st May 2016, 11:03   #3
Distinguished - BHPian
 
smartcat's Avatar
 
Join Date: Jun 2007
Location: Bangalore
Posts: 2,968
Thanked: 11,898 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

1) There are 5 or 6 brands of mainstream two wheeler manufacturers in India, while the number is something like 15 for car manufacturers.

2) Cars are heavily taxed while two wheelers have something like 8% excise duty.

3) There are lot more people who can afford a bike than a car. Bike/Scooter volumes are huge when compared to cars.

4) Till recently, remember that both TVS Motors and Royal Enfield were making losses.
smartcat is online now   (3) Thanks Reply With Quote
Old 31st May 2016, 11:07   #4
Distinguished - BHPian
 
Join Date: Mar 2011
Location: Back to Chndgrh
Posts: 2,202
Thanked: 2,922 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

I believe this holds true for Dealership as well. Some reason's I can think of are - low investments , regular sales and fixed margins- no discounts like Cars. Last time someone wanted to buy a Honda Scooter in office and I saw the Proforma , there were so many extras's and zero discounts, now multiply this with some 5 figure numbers. Also, I think there are only limited manufacturers in this field, unlike Cars where we have too many players & models.
Turbanator is online now   (3) Thanks Reply With Quote
Old 31st May 2016, 13:05   #5
Senior - BHPian
 
Join Date: Aug 2010
Location: Madras
Posts: 1,117
Thanked: 740 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

Quote:
Originally Posted by smartcat View Post
There are lot more people who can afford a bike than a car. Bike/Scooter volumes are huge when compared to cars.
Not to forget, factors like:

- Multiple bike/scooters in the family.
- Much more use/abuse -> wear and tear resulting in maintenance and faster replacement cycle than one would do with cars in a family.
- Heart motivated purchases.
- Gulf in pricing would mean, you wouldn't think much on a bike that on a car on a relative scale.

Note that we are just talking about commuter bikes vs cars here, which is what the original comparison is made on.
narayans80 is online now   (4) Thanks Reply With Quote
Old 1st June 2016, 15:45   #6
GTO
Team-BHP Support
 
GTO's Avatar
 
Join Date: Feb 2004
Location: Bombay
Posts: 47,706
Thanked: 89,038 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

It's also about the volumes & inherent economies of scale. The Honda Activa alone sells as much as all cars combined. Even the no.2 Hero Splendor sold a whopping 2.24 lakh units in April 2016.

Then, there's the technology requirements or rather, lack of. Case in point = Hero Motor's flogging the old, but durable + efficient Honda engine. Indian bikes still use carburettors .
GTO is offline   (4) Thanks Reply With Quote
Old 1st June 2016, 15:50   #7
Distinguished - BHPian
 
smartcat's Avatar
 
Join Date: Jun 2007
Location: Bangalore
Posts: 2,968
Thanked: 11,898 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

Quote:
Originally Posted by GTO View Post

Then, there's the technology requirements or rather, lack of. Case in point = Hero Motor's flogging the old, but durable + efficient Honda engine. Indian bikes still use carburettors .
What? Even something like a Pulsar? And they manage to get past pollution norms?
smartcat is online now   Reply With Quote
Old 1st June 2016, 15:54   #8
BHPian
 
hothatchaway's Avatar
 
Join Date: Aug 2012
Location: Bangalore
Posts: 526
Thanked: 531 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

Quote:
Originally Posted by smartcat View Post
What? Even something like a Pulsar? And they manage to get past pollution norms?
Very few motorcycles in India conform to BS IV norms still, thats one of the reasons why the Himalayan was initially refused registration in New Delhi since it uses a carbueretor and hence cannot meet existing emission norms.
hothatchaway is offline   (3) Thanks Reply With Quote
Old 1st June 2016, 16:04   #9
Senior - BHPian
 
Gansan's Avatar
 
Join Date: May 2009
Location: Chennai
Posts: 3,426
Thanked: 875 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

Makes sense! I already suspected this when my car dealer (ABT Maruti Ltd) opened a separate division (ABT Two wheelers Ltd) for Suzuki bikes/scooters a few years ago. Doing good business too, though Suzuki two wheelers are light weights in Indian market.
Gansan is offline   Reply With Quote
Old 1st June 2016, 16:05   #10
Distinguished - BHPian
 
Join Date: Jul 2010
Location: Bangalore
Posts: 1,916
Thanked: 3,299 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

Quote:
Originally Posted by smartcat View Post
What? Even something like a Pulsar? And they manage to get past pollution norms?
If you start counting Fuel Injected Indian bikes, you'll run out of bikes before you run out of fingers, ON ONE HAND
Chetan_Rao is online now   (5) Thanks Reply With Quote
Old 1st June 2016, 16:05   #11
Distinguished - BHPian
 
Rajeevraj's Avatar
 
Join Date: Aug 2011
Location: Bangalore
Posts: 3,250
Thanked: 7,934 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

Quote:
Originally Posted by smartcat View Post
What? Even something like a Pulsar? And they manage to get past pollution norms?
Yes. I have a Pulsar 200NS, which was kind of Bajaj's Flagship Motorcycle when launched. It uses a carb.
Rajeevraj is offline   (1) Thanks Reply With Quote
Old 1st June 2016, 17:49   #12
Newbie
 
Join Date: Jul 2007
Location: noida
Posts: 11
Thanked: 8 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

I think this is because most of the car market sales come from lower end cars, while most of the sales of two wheelers come from middle range vehicles.

Just imagine if Honda starts to sell as many Honda Citys as Maruti sells Alto, profitability will skyrocket for car companies.

One more fun way of thinking is 120kg two wheeler almost all of it metal sells for 60000 Rs. i.e. 500 rs per kg. while 1000 kg car which has a lot of costly fitments sells for 500000 Rs i.e. 500 rs per kg. Clearly margins are better in two wheelers.

Last edited by GTO : 2nd June 2016 at 10:31. Reason: Language
cooolsunny is offline   (1) Thanks Reply With Quote Received Infraction
Old 1st June 2016, 18:41   #13
Distinguished - BHPian
 
Rajeevraj's Avatar
 
Join Date: Aug 2011
Location: Bangalore
Posts: 3,250
Thanked: 7,934 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

Quote:
Originally Posted by cooolsunny View Post
I think this is because most of the car market sales come from lower end cars, while most of the sales of two wheelers come from middle range vehicles.
.
This is not completely accurate. Taking April 2016 Sales as an example (Related Thread)Total Two Wheeler sales for the month was ~1.5 million units. Of this more than 1.2 million units or 80% of the sales were from the entry level 100-125cc models. Even here, more than 40% came from just 2 models- Activa and Splendor.

Most of these big sellers have been around a long time, so I assume manufacturing costs will be as optimized as they can be leading to higher profitability.

Last edited by GTO : 2nd June 2016 at 10:31. Reason: Quoted post edited
Rajeevraj is offline   Reply With Quote
Old 1st June 2016, 18:53   #14
BHPian
 
Join Date: Jul 2015
Location: Coimbatore
Posts: 695
Thanked: 872 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

This is kind of obvious isn't it?
If you remember, when Tata Nano was launched, they launched the car at roughly 1L ex-showroom, while at the same time, very normal bikes were selling at 45-50K ex-showroom.
A car has too many exterior and interior parts, with a lot of additional engine parts, while a bike has none of such things.
We see so many improvements in the cars. But we hardly see any breakthroughs coming our way for bikes. We get cheaper plastics, poor instruments clusters, but price keeps getting increased every year - specifically in the 100-150cc segments. So, they can make more profits each year.
hybridpetrol is offline   Reply With Quote
Old 1st June 2016, 19:09   #15
BHPian
 
Join Date: Oct 2008
Location: Mumbai/Jamshedp
Posts: 319
Thanked: 145 Times
Default Re: Selling two-wheelers is more profitable than selling cars!

My little research and calculations have taught me there is absolutely no possibility of breaking even on a new car dealership.
Leasing, capex, operating expenses, inventory carrying costs are impossible to cover even from service & spares. They are financed mostly by " money" which is not looking for any returns, just safe parking. A little number crunching makes it obvious. Owning a showroom is a status symbol too ( like hotels, sports clubs, f1 team, airline).
Old timers have the benefit of existing set-up (land, building, amount paid to auto firm and security and old customer base)

Two wheelers can be sold with little investment, bare-bones showroom, little inventory cost, non smooth talking staff, and basic service facilities. Fast turnaround and not so much need for a prime location. Customers rarely haggle- free seat covers and key rings keep them happy.

Last edited by vikramvicky1984 : 1st June 2016 at 19:13.
vikramvicky1984 is online now   (5) Thanks Reply With Quote
Reply


Thread Tools Search this Thread
Search this Thread:

Advanced Search


Similar Threads
Thread Thread Starter Forum Replies Last Post
Emission norms for two-wheelers to get more stringent Tushar Motorbikes 4 27th January 2016 21:42
Top 10 selling two-wheelers in October 2015 MunnabhaiMBBS Motorbikes 11 30th November 2015 15:40
The 12 Most Profitable Cars in the World vineethvazhayil The International Automotive Scene 7 23rd February 2013 15:44
Most profitable Long-distance Cruiser (Bus) TheARUN Commercial Vehicles 58 2nd September 2012 08:59
Tata Motors Results : Jaguar Land Rover very profitable, Indian operations not so! GTO The Indian Car Scene 43 9th June 2011 21:57


All times are GMT +5.5. The time now is 17:26.

Copyright 2000 - 2017, Team-BHP.com
Proudly powered by E2E Networks