Analysis of the Automobile Ancillary and Spare Parts Market in India

The automobile ancillary and spare parts market relates to those components which appear as a part of the automobiles, after either assembly (ancillary) or repair (spare parts). The following graph illustrates the growth and forecasts for the Indian automobile ancillary and spare parts market size. Data taken from reports available online.

It can be seen that the market is poised to grow from under 500 crores presently to over twice that much in the five year period from 2016 to 2021. So this presents a great opportunity for ancillary companies like Bosch as well as the automobile OEMs to grow their revenue through sale of ancillaries and spare parts. Now I explore the trends in the sale of ancillaries and spare parts by Bosch and various automobile OEMs.

Bosch India Automotive Sales Trends 

Bosch classifies its independent auto parts sales under its mobility solutions division. Automotive sales constituted 87% of Bosch's sales in FY16, so it is the most important market for the company to play in. The graphic below shows that while Bosch has been steadily increasing its sales, this increase is not keeping pace with the burgeoning market size and hence the market share is reducing.

Various factors have been pointed out by the management as leading to the sales increase in FY16. In the diesel systems category, in which the company was reported to have a 70% market share in 2015, growth has been led by new generation technologies such as common rail systems and distributor pumps. The growth of this division in FY15 was attributed to the company's localisation approach. In the gasoline segment, increased market share in the domestic passenger car segment drove growth for the company in FY16. In the previous year, there had also been an expansion of the sales network through the addition of 300 new distributors.

But why is the overall market expected to increase so drastically that Bosch's market share estimated based on projected 2016 figure drops so much? Although the growing automobile market is cited as one of the reasons for the burgeoning ancillary market, Bosch seems to have outpaced this growth. Hence it has to be reasons other than this. One of them could be the fact that global OEMs are increasingly sourcing from India, meaning that other global OEMs start encroaching into Bosch's turf in India. 

Automobile OEM Spare Parts Sales Trends                         

The sales trends for automobile OEMs spare parts sales shows that all the OEMs considered except Tata have been growing their spare parts sales at a healthy rate. This could be because Tata Motors' market share in both the passenger and commercial vehicles have declined in the past two years. It stands to reason that the more of your vehicles are on the road, the more spare parts are also demanded for their repair. Although this seems to have affected M&M less, because it can seen to have increased its spare parts sales despite having lost market share in all the sub-segments it competes in that I have explored in my earlier posts, except the commercial vehicles sub-segment. 

Bajaj Auto, while holding its market share in the two wheeler market just about steady, has been gaining in the three wheeler market, hence its spare parts sales ought to increase. Hero has been showing a good growth in spare parts sales despite losing market share in the two wheeler market, which could be because its large number of vehicles on the road demand significant spare parts, since it has over a 35% market share in the two wheeler sub-segment. Maruti too has lots of vehicles on the road, so with a roughly 50% market share in the passenger vehicles sub-segment it too would be expected to grow its spare sales significantly, which it can be seen to have done.

Eicher Motors reports spares and services sales in a consolidated manner while following a calendar year convention (until recently) in some years, so it has been represented separately below. Since Royal Enfield has been increasing its market share, it stands to reason that their spares sales too would increase, which can be seen to be the case.

It's of course not that simple since pricing too adds to the sales. All OEMs seek to opportunistically charge a higher price for their spares, and this too would add to sales. I may explore this aspect in more detail while covering the companies individually.  

Summary   

To sum this article up:

1. The automobile ancillary and spare parts market has seen high growth in the past few years and is expected grow much faster going ahead. 
2. Bosch is a significant player in the market, which has grown its sales significantly, but has been seeing a decrease in its market share due to the far higher market growth rate.
3. Almost all auto OEMs are growing their spare parts sales as well, with the exception of Tata Motors.

Market Share Analysis of the Two-Wheeler Market in India

After having covered the market share trends in the three-wheeler, passenger and commercial vehicles industries in India, I now turn my attention to the two wheeler industry. While I have discussed the segmentation of two-wheelers in my broad post on the Indian automobile industry, in the graphic comparison of market share over the past three years shown below, the previous years' trends are shown only for the segment as a whole. Where not explicitly mentioned, the reference is to the two-wheeler market as a whole and not to scooters or motorcycles. 

It can be seen that the two wheeler market as a whole is an oligopoly with the top four players having 90% of the market between them. Further, the top two players have over 60% of the market between them. Market dominance is even more concentrated when we start looking at the scooters and the motorcycles segments. In both of these, the market leader sells more units than all the others combined. While in scooters, Honda has dominance, the leader in the motorcycles segment is Hero. Coming to the market sizing for motorcycles and scooters, in CY 2015, while 48,80,117 scooters were sold in India, the motorcycle sales was 1,05,23,909, i.e., over twice the scooter sales. Hence, having leadership in the motorcycle segment gives Hero the edge in the segment as a whole, where it enjoys a 36% market share, as opposed to Honda which has only a 27% market share. 

TVS and Bajaj are the other major players in the industry. While TVS has only a 14% market share in scooters and less than 8% in the motorcycles, it edges out Bajaj to claim third place with a 14% market share in the two wheelers segment. This is despite Bajaj having third place in the motorcycles industry with an 18% market share, since it does not compete in the scooters market.      

Hero Motocorp Market Share Trends 

Hero has been steadily losing market share in the past three years as can be seen from the market share trend graphic. While it was above 40% in CY14, it decreased to below 37% in Apr-Nov 2016. A variety of factors are blamed for this drop. In FY 2015, the drop in rural incomes due to low agricultural output and a decrease in Government income schemes was blamed for the drop in Hero's sales volume, given that rural demand was a major source of Hero's sales. This is partly because Hero competes predominantly in the smaller commuter bike segments whose buyers are skewed more towards the rural areas. Hero has also missed out on the growth of the premium bike segment, and despite having seven products in the above 150 cc category, had a market share of only 6% in that category as of March 2015. 

On the product front, technology has been called the "chink in the armour" of Hero. Its products have apparently undergone only minor changes since they were launched. It is well aware of this and has tried in many ways to improve in this regard. It invested ₹ 850 crores in an R&D facility in Jaipur that was inaugurated in 2016 to develop "consumer oriented and market relevant products". The former head of BMW Motorcycles has been roped in to make the brand and the vehicles more "modern and contemporary". Earlier, it had bought a 49.2% stake in an U.S. based R&D firm Erik Buell Racing (EBR) with the aim to have EBR develop a series of bikes and technologies for Hero. This, however, backfired as EBR went bankrupt leaving Hero with an impairment loss of ₹ 155 crore.

Honda India Market Share Trends 

Honda Motorcycles and Scooters India (HMSI) has been steadily gaining market share in the period represented in the graphical analysis. Its growth is facilitated by the market leadership position it enjoys in the scooter segment, which has been showing a high growth rate, for instance it grew by 20% in Apr-Nov 2016 on a year on year basis. This leadership is facilitated by its evergreen and blockbuster product, the Activa.  According to analysts, Honda plugged the gap in the scooter market created due to the exit of Bajaj Auto. Its dependence on the scooter market can be gauged from the fact that in early 2016, it opened the largest scooter only factory. 

Its growth has also been aided by the sales of its 125 cc motorcycle CB Shine, which crossed  the one lakh sales milestone within nine months of its launch, and was the best-selling non-Hero motorcycle in November 2016. Another successful launch in 2016 was the Navi, a small bike with an automatic transmission that can be called a crossover between a scooter and a bike, which sold over 50,000 units in six months since launch.

TVS Motor Market Share Trends

Like Honda, TVS too can be seen to be stronger in scooters. It has a nearly 14% market share in scooter whereas its share in the motorcycle market is only roughly half that much. In November 2016, it had two scooters in the top ten best-selling scooters with its Jupiter being the second best-selling model, whereas in the motorcycle segment, its best-selling model the Apache was only the tenth best-selling. However, its best-selling model is neither a scooter nor a motorcycle, but a moped, the XL Super, which was the fourth best-selling two-wheeler in November 2016.

The company expects increasing demand for its scooter Jupiter and motorcycle Victor to drive market share growth to 15% in FY17, and increase it to 18% in two years. It also wants to enter the 125 cc category of scooters in the first few months of CY17. 

Bajaj Auto Market Share Trends

Bajaj Auto has not had a significant change in its market share, having lost some and gained it back, in the period depicted in the graphics. The relevant market share for it is only in the motorcycle segment where it competes with a market share of around 18%. It had three brands in the top ten best-selling motorcycles list for November 2016, the sports bike Pulsar and the entry level commuter category bikes Platina and CT, both of which have around 100 cc engine capacity. It is in the 125 cc category that Bajaj is under-performing with its Discover brand sales in that category not up to scratch. 

The commuter segment is an important segment which contributes to 80% of the units sold in the motorcycle market. Above it lie the value segment which are the more powerful commuter bikes and entry level sports bikes and beyond them the premium sports bikes. In the premium category, Bajaj had an enviable 47% market share around mid-2016, due to the good sales of their Avenger brand. With the good reception that its new value segment 150 cc bike V has received, and with the big expectation surrounding its premium 373 cc bike the Dominar, which they hope will sell 2 lakh units a year going ahead, the company hopes to garner 22-23% market share in the motorcyles segment in FY17. 

Yamaha India Market Share Trends  

Yamaha Motor India Limited has seen a healthy increase in its market share, to the tune of one percentage point, in the period shown in the graphics. It currently has a little under a 5% market share. AS of mid-2016, there was an even split between motorcycles and scooters when it came to Yamaha's sales. It had a 7% market share in scooters at that time and was looking to increase it to 10% by end of FY17. It aims to target both the style conscious and the utility conscious customers with multiple offerings within the scooter segment. Its focus is on urban consumers, and products tailored to them will be offered to rural consumers as well, since the company believes that urban tastes dictate success in both urban as well as rural markets. While in the premium motorcycle category, it has the R15 and in the sports category the FZ series, its commuter range was augmented with the Saluto RX, which was hoped to be saleable in rural pockets as well. It targets sales of one million units of two wheelers in CY 2017 , and wants to increase market share to 10% in 2017-18.

Royal Enfield Market Share Trends

Royal Enfield has seen the best market share gains among all the players in the graphical analysis, at around 1.5 percentage point market share gain in the time period under consideration. The more relevant metric is, however, the 80% market share it has among motorcycles priced between one and two lakh rupees, a niche that is expected to sell one million units in CY17. This is believed to be on account of the management's right decision to remain in a niche segment and cultivate that segment through marketing. In early 2016, it overtook Yamaha's motorcycle sales to become the fifth largest motorcycle seller in India. It has been refreshing its portfolio through launch of new models as well as colour options.

Suzuki India Market Share Trends

Suzuki India has experienced marginal reductions in market share over the course of the time period analysed. The highlight of 2016 for the company was that it turned profitable for the first time since the start of its operations ten years ago. Going ahead, it wants to launch one product per year in the country in the premium space. 

Mahindra Market Share Trends

Mahindra Two Wheelers Limited can be seen to have a market share of 0.33% in the Apr-Nov 2016 period. It can also be seen to be losing market share in the period depicted in the graphics. Various factors have been blamed for the company's under-performance, such as a lack of focus on cost-reduction and weakness in marketing.

The remaining small players don't command any significant market share between them and can be ignored. I now proceed to the summary of this blog post.

Summary

To sum up:

1. There are clear-cut leaders with a large margin of dominance in both the scooter and the motorcycle segments. While in the former it is Honda, in the latter it is Hero.
2. Hero, however, has been losing market share, which is blamed on its inability to excel in R&D on its own, without Honda, its erstwhile technology partner. Various steps have been taken by Hero to alleviate this and their results are awaited.
3. Honda, on the other hand, is gaining market share on the strength of its existing products in the scooter segment, where it is strong, and new launches in the motorcycle segment, where it is yet finding its footing post demerger with Hero.
4. TVS, whose best-selling two wheeler is a moped, is hoping that its new launches in the motorcycle and scooter segments will help it continue the increase in its market share.
5. Bajaj's market share gains have been capped by its weakness in the 125 cc commuter category where its Discover range has under-performed.  It's betting on its new offerings in the value segment and the premium segment to help it race ahead in the times ahead.
6. Among the smaller players, Yamaha and Royal Enfield have been growing their market shares well, through performing well in the non-commuter categories that they inhabit. Both have introduced promising new offerings in 2016.
7. Suzuki and Mahindra have been struggling to find their footing amidst the entrenched competitors and the hyper-competition. Both claimed to have made improvements recently and are optimistic about the future.

Market Share Analysis of Three Wheeler Market in India

After having covered the market share trends in the passenger and commercial vehicles industries in India, I now turn my attention to the three wheeler industry.  The three wheeler industry can be divided in to the passenger and the goods segment. In FY15, the passenger three wheeler market was 80% of the total three wheeler market and the goods market was obviously the remaining 20%. The former had grown by a little over 8% in the previous decade while the latter had declined by a little over 4% during the same period. The growth of the passenger category can be attributed to a multitude of factors including increasing need for last-mile connectivity with the advent of metro rail in various cities, increasing urbanisation and associated mobility needs, entry of app based aggregators in to the market and decreasing price and increasing adoption of CNG as a fuel. The following graphical elements sum up the market share trends in the April to February time periods of FY15 and FY16. Data taken from an article available online.

As can be seen clearly from the pie chart, the top three players dominate the industry with a whopping 87% market shared between them. Bajaj Auto is the clear leader with a dominating 47% market share with it. Piaggio provides decent competition with a 30% market share and M&M has a lot of ground to cover if it wants to provide serious competition to the two ahead of it. Now I seek to understand the OEM-wise reasons for the market share patterns.

Bajaj Auto Market Share Trends

The graphic below shows the change in the market share of Bajaj Auto in the domestic three wheeler market in the past three financial years. The numbers have been taken from Bajaj Auto's FY16 annual report.

It can be seen that the industry has been growing and that Bajaj Auto has increased its market share in it. In FY16, release of three-wheeler permits in several states helped grow the company's sales. The company had a market share of 90% in the petrol and alternate fuel driven three wheelers. In the small diesel market too it dominated with a 65% market share. In the large diesel category, however, it was a laggard with only 20% market share. After entering the cargo segment in FY 2016, Bajaj has clocked double digit market share in that segment, further growing its presence in the three wheeler segment.     

Piaggio Market Share Trends

Towards the end of FY14, Piaggio Vehicles Private Limited (PVPL) wanted to achieve a market share of 40% in another three years, which then was a t 31%. As of FY16, it had not grown its market share by much at all, staying close to 30%. At one point, Piaggio had snatched the leadership position from Bajaj in the three wheeler segment by making strong gains in the cargo segment, but Bajaj has reclaimed its leadership position through competing offerings. However, in the goods sub-segment of three wheelers, Piaggio sold more than all others combined, even as late as Q1 2015. In the passenger segment, they had launched a new product the Ape Xtra Dlx which had some new features to make it look stylish and modern. However, year on year market share changes show a decline despite these efforts. 

Other Players Market Share Trends

Between Bajaj and Piaggio, we have covered three-fourth of the industry. The rest can be discussed together. M&M has a market share of 10% in the segment, marginally lower than the share the year before. It has historically tried innovative things like making an electric three wheeler in 2002 and a hydrogen powered three wheeler in 2012. As of now, however, competency in diesel, petrol and CNG rules the roost, if market share trends are to be explained. 

Atul Auto has been growing its market faster than all the others, if you adjust for the fact that it has the smallest market share of all the players with a greater than 5% share. In 2014, it was using its debt free balance sheet to drive expansion of production and aiming to achieve a steady 20% increase in sales year on year. It has been opined that competitive pricing is the key to Atul Auto's expansion when compared to the other players.

TVS entered the three wheeler segment around a decade back. Its weak competitive positioning is reflected in the fact that while sales in December fell by 8.5% year on year, for the company overall, three wheeler sales fell 32.8%. In the graphics in this post, it can also be seen losing market share in the the previous years. The management has brushed aside this under-performance saying that it is not a core business for the company

Scooters India manufactures exclusively three-wheelers. It can be seen to be the biggest loser of market share when the small base or denominator effect is adjusted for. It is a Government enterprise and due to the poor performance, its sale is being considered.

Summary

To sum up,

1. Bajaj Auto has the market leadership position and is one of only two players increasing their market share. Its only weakness is the large diesel segment, where it is looking to expand.
2. Piaggio has had fluctuating fortunes and has failed to live up to its expectations, but does well in the cargo diesel segment.
3. Atul Auto is expanding aggressively and can be called the dark horse in the race. It is the other player apart from Bajaj Auto which has increased its market share in the period under consideration.
4. M&M is also a large player and has been holding on to its market share. However, its novel alternate fuel products have not found much traction in the market.
5. TVS' three wheeler division and Scooters India are in trouble and what happens to them remains to be seen.

Market Share Trends in The Indian Commercial Vehicles Market

In my previous post I looked at the market share trends in the Indian passenger vehicles market and the factors affecting the market share of each OEM. I continue in this vein for the present post and explore the market share trends of the commercial vehicles market. As in the previous post, I first explore the trends graphically as given below, and then seek explanations of what has created the trends displayed thereof, OEM by OEM.

Tata Motors Market Share Trends

While Tata Motors had a formidable market share of 43% in the Apr-Nov 2016 period, this is a far cry from its once mighty leadership position with 58% in 2010-11. The Apr-Nov 2016 market share can also be seen to be around 4% lower than the CY 2015 figure. The reason for this reduction is said to be the chipping away of its market share by the newer and smaller players such as Volvo and Isuzu, although more intense competition by the larger players such as Ashok Leyland and M&M are also cited.

Tata Motors’ market share is highly unevenly distributed between the two segments under the commercial vehicles sub-sector It has a 50% share of the Medium and Heavy Commercial Vehicles (M&HCV) sub-segment while having only a 3% share of the Light Commercial Vehicle (LCV) category. Competition in different sub-segments have also come from different competitors. In the M&HCV sub-segment, it was Ashok Leyland who grew at the expense of Tata Motors. While the former gained 3.45% market share in the sub-segment in 2015-16, the latter saw its share decrease by 2.22%. In the goods LCV category, M&M is believed to have snatched market share from Tata Motors, while in the passenger LCV category, it is Force Motors whose advance has been to the detriment of Tata. As can be seen from the following graphic, market share losses for the company has occurred in in all the categories. Data has been taken from an article in Business Standard, available online.

  

Mahindra and Mahindra (M&M) Market Share Trends

Mahindra and Mahindra dominates the LCV segment with a more than 50% market share in the load carrying LCV segment. Whilst this category was dominated by Tata Motors in the past, M&M has reduced it to having only a 37% share, through the wide array of products it offers across the load capacity spectrum within the category. However, when it comes to the passenger carrying LCVs, Tata Motors has an 85% market share. But the dominance of load or cargo over passenger in the LCV segment means that even for the LCV segment as a whole, Mahindra has a 49% market share.

Where it has immense room for growth is the M&HCV sub-segment. It had around a 2.15% market share in the goods carrying M&HCV category in the April 2015 to January 2016 time period. The market in this category was then dominated by Tata Motors with a 55% market share and Ashok Leyland with a 30% market share. As of August 2016, M&M still claimed a market share only in the low single digits, while announcing plans to double that in the next two to three years. It is betting on its Blazo range of trucks, the promotion of which involves a first in the industry mileage guarantee, which is supposed to have paid off, although not by much if market share change is considered.

In the commercial vehicles segment as a whole, the company had a market share of 26% in the time period April to November 2016, which was a percentage point less than CY 2015, possible because Tata Motors started reclaiming market share in the LCV segments with new launches around that time. However, prior to this CY 2015 had registered a two percentage point increase in market share over CY 2014.

Ashok Leyland Market Share Trends

As discussed earlier, Ashok Leyland has been growing at the expense of Tata Motors in the M&HCV sub-segment. In the goods M&HCV category it grew its market share further by 1.5 percentage points in the first nine months of FY2016. Good results for the company in terms of sales came in from the tipper product group whose industry volume grew by 45% in the same period and in which Ashok Leyland was able to grow its market share by 5%. As can be seen from the graphics, April to November 2016 period saw a market share increase of 4 percentage points for Ashok Leyland in the commercial vehicles segment. Apart from expanding its sales and distribution network beyond the Southern states where it holds maximum sway, Ashok Leyland’s growth has come also from having long-term contracts in the infrastructure space which has seen good growth.    

VECV Market Share Trends

VE Commercial Vehicles (VECV) is a 50:50 joint venture between Volvo and Eicher to produce commercial vehicles in the M&HCV sub-segment as well as distribute Volvo’s trucks in India. Sales for Eicher branded products and Volvo branded products are reported separately. As can be seen from the graphic, VECV Volvo sales is a negligible part of the market whereas VECV (Eicher) is more significant. VECV (Eicher) can be seen to have had a 7% market share in the Apr-Nov 2016 period, which was 100 basis points better than the CY 2015 market share. The increase has come because of the improvement in market shares in both the heavy commercial vehicles space through sales to mining and construction which picked up in a big way in 2016, and also improvement in the sales of school buses. Its school buses come with the option of AC and GPS. This has translated to a market share of 18% for the company in the Intermediate Commercial Vehicle (ICV) Bus market in India in FY16. Its buses in the M&HCV segment have won orders from the state transport organizations of Gujarat, Kerala and Andhra Pradesh, helping to more than double sales year on year in FY16. Coming to the non-passenger side, introduction of new products to make its presence felt in all the segments of the heavy duty truck market have helped it increase sales by 26% in the first half of FY17.

Force Motors Market Share Trends

Force Motors has been maintaining a market share of a little under 3.5% throughout the time periods depicted in the graphics. It overtook the passenger LCV leadership position from Tata Motors in FY2015 and is holding on to it. Its use of the monocoque design, not usually seen in LCVs but which gives better performance and comfort, is said to be the cause of its popularity. On a year on year basis, it increased its sales by around 10% in the first half of FY17. It is limited to this market share possibly due to its inability to diversify successfully in to the M&HCV space, although it has made such efforts, for instance launching an intra-city bus in February 2016 and announcing plans to enter the defense vehicles business.           

SML Isuzu Market Share Trends

SML Isuzu gained around half a percentage point of market share in Apr-Nov 2016 over CY 2015, possibly due to improvement in cargo vehicles sales. It hopes to increase its market share through increase in the sales of school buses as new schools get set up away from the city centers, and also through sales of buses for corporate and individual tours.  

Other OEMs Market Share Trends

The remaining OEMs are small enough to be discussed together. Piaggio specializes in three wheelers where it is the second largest player. It plays in the commercial vehicles space with it Porter brand of LCVs. As can be seen from the graphics, its market share was miniscule in CY15, and decreased by about half in the Apr-Nov 2016 period. Similarly, Maruti Suzuki entered the LCV sub-segment in 2016, but has a negligible market share as of now in the commercial vehicles segment. AMW Motors was a significant player in some categories of trucks in the past, reaching a high of 10,000 units in 2011-12, but fell upon hard times and was sold off to the Russian company Kamaz. It too has a negligible share of the commercial vehicles market in India, as can be seen from the graphics.

Summary            

To sum up:

•  Market leader Tata Motors faces stiff competition mainly from its established competitors, who are chipping away at its huge share of the market.
• M&M is the second biggest player in the commercial vehicles segment, and has taken the market leadership in the goods LCV segment away from Tata Motors, arguably due to timely and innovative product introductions spread across the entire category.
• Ashok Leyland, the third biggest player in the commercial vehicles segment, has been taking market share away from Tata Motors in the M&HCV sub-segment, due to gains from the growth of the tipper category, long-term contracts in the infrastructure space and expansion outside its turf of the Southern states.
•  Force Motors, whilst a considerably smaller player, has been eating away market share from Tata Motors in the passenger LCV sub-segment, although being unable to expand to the other sub-segments prevents its market share growth in the commercial vehicles segment.
• SML Isuzu and VECV (Eicher) are the dark horses in the fray, both having increased their market shares by about a quarter when the Apr-Nov 2016 period market share is compared to the CY 2015 market share.