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. 

Market Share Trends in the Indian Passenger Vehicles Market

After much prevarication and procrastination I have completed this magnum opus of a post, even if I do say so myself, and am publishing it just in time before the December sales become finalized and hence the November 2016 data becomes obsolete.

It is difficult to develop an understanding of the evolution of the purchase considerations of the Indian consumers in the face of the changing economic scenarios, the whimsical regulatory actions (odd-even anyone?) and the new consideration sets of product offerings made through new entry, brand extensions, category launches etc. Since consumer behaviour drives demand, in conjunction with supply factors it will decide the sales of products and hence the market share of companies. In any case, there is going to be a considerable “path dependency” in the way the supply factors affecting market shares evolve, since many corporate actions such as new launches, category entry or exits, windups, entry or exit of multinationals etc. are likely to be unforeseen. These are all normal perils in equity research, and the done thing probably is to project historical trends into the future and provide sensitivity analysis to help understand the valuation implications of various factors. But it doesn’t hurt to have a few insights to vary the forecasts with, so I will invest some time in reading up on the factors listed above that impact the forecasts and hence the valuation.

Rather than the normal way of approaching the purchase decision through sequential steps like need recognition, information search and so on, I will proceed in a slightly haywire manner because my idea is not to help with the marketing of any products, but merely to understand the market share trends in the sector.

The purchase criteria for each category are, of course, different. Two wheelers and passenger vehicles do have an element of social status associated with them, hence they are not merely utilitarian devices. For instance, the perceived failure of the Tata Nano has been blamed on its positioning as the world’s cheapest car, while it was targeted at families looking to switch from using a two wheeler. However, they may have wanted not merely the comforts of a car, but the sense of prestige associated with car ownership as well. The growth of the SUV and crossover markets is also attributed to the status symbol role of these vehicles. To preserve the status symbol quality, OEMs have occasionally steered away from sales to taxi fleet operators, although fledging sales may lead them to resort to this tactic as well. Hence the passenger car product positioning strategy does have some fluidity to it.

On the other hand, three wheelers and commercial vehicles may focus more on fuel efficiency, durability, ease of maintenance and other such practical considerations that help save costs and keep drivers, who are mostly employees, happy and productive. Hence for one of their three wheeler products, Bajaj Auto lists driver friendly features such as service brakes, shorter turning radius, driver cabin and spacious seating prominently alongside the performance features such as carrying capacity, power and low maintenance. Similarly, driver satisfaction is both aimed at and pointed out as a source of competitive advantage by logistics operators, the main purchasers of heavy commercial vehicles, since there exists a shortage of truck drivers in India. For instance, BharatBenz, a player in the Indian trucks and buses market, highlights driver friendly features such as “‘distance-to-empty’ indicators, green band, unique and industry-first safety features such ‘engine-brake’, retractable seat-belts and a high-strength passenger cell” in their website. Volvo trucks feature I-Shift technology that is supposed to select the right gear and helps retain drivers.

Trends in the Passenger Vehicle Segment

I prefer to have a top down approach that works from the market share trends observed and try to correlate that (qualitatively) to the demand conditions such as the changing demographics, increasing purchasing power and the evolving consumer taste, and the supply conditions such as the changing technology, entry of companies or brands and new product introductions. The following graphic elements sum up the recent market share trends in the passenger markets.

Maruti Suzuki Market Share Trends

Maruti Suzuki has been consistently gaining market share in the past three years, the only one in the top five by market share to do so. Most recently, it captured a 52% share of the market in the month of November 2016, making it larger than the rest of the market combined. There are quite a few factors believed to be responsible for these gains over the last three years. According to one expert, the major contributor to a company’s sales are its new launches. Its new premium models sold through its Nexa outlets, Vitara Brezza, Baleno, Ciaz and S-Cross have done well. Improving existing models through face-lifts, new features and safety elements is believed to have energized the sales of older products. The company also has an enviable distributor network, with 1750 showrooms, 680 more than the nearest competitor. This is attributed to its early mover advantage which also gives it a stronger brand value reflected in better resale prices for its cars. This may also have helped in the economic downturn phase where consumers become risk averse and stick to familiar brands.

Hyundai Motor India Market Share Trends

Hyundai too has increased its market share. Almost all the increase seems to have come in 2015 over 2014, arguably due to the performance of the models Creta, Elite i20 and Grand i10. The first of these is a crossover SUV launched in July 2015 which has been called a game changer for the company by bringing in good volumes. Its continued growth in 2016 could have been capped by the blizzard of new premium launches by Maruti Suzuki. It was counting on changing the order of priority for the consumer from mileage, features and comfort to the reverse of that. Either Maruti has beat Hyundai to this or the consumer has acquiesced to the prevailing economic gloom and chosen the original order of preference. Hyundai apparently had hoped to leverage their global portfolio to make their cars more refined, sophisticated and sporty like its offerings in other markets in order to take on Maruti. However, in doing so they may have positioned themselves in direct competition with the look and design strong Kwid, Renault’s breakout model that pushed the Elite i20 one place lower on a year on year basis in the August 2016 sales. Although the Grand i10 is going strong despite the assault by Kwid, unlike the Maruti Alto which is seeing sales decrease, Hyundai has only two cars in the top ten selling cars whereas Maruti occupies the remaining six slots in this table. Hence it can manage to worry less about the impact of the Kwid alone, unlike Hyundai who need to ensure that its two top selling models remain competitive against the Kwid and other new entrants in the market. It can take heart in this regard from the November sales data that showed the Kwid drop to 10^th position in the table, behind the two competing Hyundai models. However, this data also shows Hyundai’s position vis-a-vis Maruti deteriorating on a year on year basis, and also compared to August 2016. Hence its market share was only 14.3% in November 2016, as opposed to the 16.9% from April to November period.

Mahindra and Mahindra Market Share Trends

Let us consider the market share changes of M&M. Despite the rapid growth of the SUV segment, where the company has market leadership, the erosion of its market share in that segment has led to a decrease in market share for the brand in the past two years. The SUV segment is said to have registered a 32% growth in financial year 2015-16, whereas the passenger vehicles segment as a whole grew only a little over 7%. While the company’s market share in the utility vehicle segment has been eroding, falling from over 55% in FY 12 to under 38% in FY 16, and to under 30% in the first four months of FY 17, this has been enough to ensure an increase in sales that helped it finish third in the latest market share tally shown in the pie chart.

Let us explore the reasons for the spurt in the growth of the utility vehicle market and the decrease in M&M’s market share in the segment. As noted earlier, the SUVs are considered a higher status symbol than the hatchbacks. Hence, with increasing disposable incomes, many younger people have begun to buy SUVs earlier in their life, reflected in the decrease of the average age of the buyer from 39 to 31. The launch of the compact SUV or crossover sub-segment, which is more affordable than the SUVs, has helped grow volumes. The number of yearly launches in this hotly contested and crowded segment run into the double digits, which creates more choice for the consumer and possibly boosts segment sales. This can also be identified as the major reason for the decrease in M&M’s market share as it can safely be called a laggard in identifying the possibilities of the crossover segment and being complacent with new launches, relying on its established products, the Bolero and the Scorpio that thrived in a less intense competitive scenario where the other competitors such as Maruti and Tata Motors focused more on the car segments.

The Bolero is taking much flak for less than expected sales, occasionally attributed to weak rural demand, when in fact the ground may have moved from under its feet as the more manoeuvrable and stylish crossovers may have encroached on the lower end SUV’s turf. The new launches it has undertaken are reported to not have the same impact as these earlier success stories for the company. For instance, one of these, TUV 300, is rumoured to be priced significantly higher than the comparable competitors.

To stem the tide in the market share, M&M has decided to launch two new products. One of them is based on a brand new platform, unlike the TUV 300 which is a compact SUV based on the Scorpio platform. It is expected to be launched by H2 FY 18. Another based on the Tivoli platform (which M&M acquired through its purchase of the Korean car maker Ssangyong) is expected to be launched by H2 FY 19. It remains to be seen where the erosion in market share will end, if at all, for M&M in the SUV segment, and how it will impact its recent market share gains in the passenger vehicle segment.

Tata Motors India Market Share Trends

While Tata Motors had lost its third place to M&M long back, it can be seen losing a bit of it’s market share in the past two years as well, struggling to stay above the 5% market share threshold. While circa 2012 its challenges were dwindling sales of its trusty Indica and Indigo models, coupled with the lukewarm performance of its Aria hatchback and the micro-car Nano, more recently the issue was the poor market reception to its launches the Bolt and the Zest, which were expected to move its hatchback and compact sedan play to a more premium positioning, as opposed to the earlier products which found considerable traction among taxi operators due to the low total cost of ownership. Other factors such as poor service, dealer relations and brand perception, alongside frequent leadership changes are also blamed for the poor performance. The current strategy seems like a rehash of its strategy in the past years, i.e., hopes pinned on new launches. Margins are also apparently being compromised to chase market share. New products in the pipeline include a compact sedan code named Kite-5, an SUV called Hexa and a compact utility vehicle called Nexon. To help create a premium brand positioning, footballer Lionel Messi was roped in as the brand ambassador, which has run in to its own set of problems as the player courted a few controversies recently. However, this strategy has been described as effective in driving new sales.

Honda Cars India Market Share Trends

Honda has been perhaps the biggest market share loser in 2016, as can be seen from the market share trends. The sales of its best selling sedan City, has suffered due to competition from Maruti Suzuki’s Ciaz, supposedly partly because consumer preference shifted to the petrol variants after a regulatory action that was adverse for diesel cars above 2L engine capacity, and the company was not able to shift its inventory fast enough. Its new offering in the crossover space, the BR-V has not been successful in bringing in the numbers. However, analysts are not satisfied with Honda’s rationale regarding sales dipping due to low diesel vehicle sales, since the Maruti Suzuki Vitara Brezza is supposed to be selling well despite having only a diesel variant. Additionally, the only novelty expected from Honda’s stable for India in 2017 is apparently a facelift for its City. This paints a pessimistic picture as far as Honda’s growth prospects in India are concerned, since the company does not seem to have a game-plan to recover from its market share losses.

Toyota India Market Share Trends

Toyota Kirloskar Motor Pvt Ltd has seen marginal annual reductions in its market share over the past two years. While it is a giant globally, lack of small cars, i.e., hatchbacks while sell like hotcakes in India and is the mainstay of the market leaders sales, although recently giving way to crossovers and compact sedans in a small way, has come in the way of Toyota growing in a big way in the country. Whilst its offerings in the sedan and the hatchback space, the Etios and the Liva respectively, did well upon launch in 2010, sales have since become lacklustre. To take another shot at the market, it aims to bring some of its global offerings to India, viz., a sub-compact car called Yaris and a sub-compact sedan called Vios. However, the management seems to be taking a longer term view, betting on the pollution control standards BS-IV coming into the fray in 2020, and launch of the Japanese Daihatsu brand, owned by Toyota but with smaller offerings than the latter globally, in India in the next three to four years. While market share has stagnated, operational metrics have been improves upon recently, turning a loss in 2013-14 into a net profit a year later and winning awards for its customer service, which leaves the company stronger to compete with more fervour in the future.

Renault India Market Share Trends

Renault entered the Indian market over half a decade ago with its Fluence sedan and Koleos SUV. They were not able to bring in enough volumes to drive market share growth for the company, so they are being discontinued. It is believed they failed because the lack of local sourcing of components made the offerings costly because of the import duty incurred. Hence for their latest model, the hatchback Kwid, they went with about 98% components sourced locally, making the product price competitive. There were other innovations on the cost front as well, such as using only a single windscreen wiper, using 3 nuts instead of four in the wheels and doing away with fasteners with use of welding, which helped reduce the weight by around 5 to 6 kilograms and improve the mileage. Customer appeal was augmented by having navigation and entertainment features generally not seen in its class, coupled with design elements that resemble crossovers more than hatchbacks. This led it become a blockbuster product for the company. Together with the compact SUV Duster, for which Renault aims to increase localization from around 70% to 80%, the Kwid has driven market share gains for the company, taking it close to a 5% market share in the April to November 2016 period, more than twice what it had in CY 2015. It now seeks to achieve that 5% threshold by end 2017, possibly because of limits to growth encountered because of segment volume constraints. To grow market share further, it plans to introduce one new model every year, targeted at segments where it is not present. It also plans to increase its sales outlets from 270 presently to 325 in 2017.

Ford India Market Share Trends

Ford’s market share went from 4% in 2011 to under 3% in 2015. The reason has been attributed to a lack of blockbuster products. While its hatchback Figo and its compact SUV Ecosport did well during launch, they could not keep the momentum up. The company is also believed to be making losses in India, and in the absence of a clearly articulated strategy being made public, the outlook for the company seems pessimistic as far as domestic market share is concerned.

Nissan India Market Share Trends

Although Nissan lost around half a percentage point of market share in CY 2015 over CY 2014, comparison between CY 2015 and April to November 2016 shows that it has gained back around that much to leave its market share roughly unchanged over the period described in the graphical analysis in this report. In India, Nissan has pinned its hopes on the lower priced Datsun brand, the change in whose fortunes has led to the see-sawing market share performance in the past two years. Its earlier strategy of playing in the market with Nissan branded vehicles such as the hatchback Micra, the sedan Sunny and the MUV Evalia had not gone well, arguably because many aspects of the customer experience such as dealer network and brand marketing were perceived as being deficient. Additionally, they were said to be priced too high for the Indian market. For instance, Datsun’s Go hatchback is supposed to be 25% cheaper than the cheapest offering from Nissan. Meanwhile, Datsun’s challenges were identified by analysts to be the lack of brand recall and the small sales and service network. In 2016, its market share recovery was driven by the sales of its lower-priced hatchback the Redi-Go, launched in mid-2016. Emboldened by the positive market reception, it has announced plans to take the market share up to 5% by 2020, by launching 8 new products.

Volkswagen India Market Share Trends

Volkswagen market share has been showing marginal reduction in the past two years and hence has stayed below 2% in the last three years. The sales of Volkswagen in India, however, has decreased drastically in the past few years from over 78,000 in 2011 to just above 43,000 in 2015. However, things seem to be looking up as Volkswagen’s Ameo sedan is supposed to be the most affordable car in its category, and has apparently been selling well, since its launch in July 2016. However, it has been suspected that Ameo’s success has come at the cost of VW’s hatchback Polo, whose sales fell to 1047 units in July 2016 from 2977 units in the month before, while the Ameo sold 2200 units in the month of its launch. In 2013, when its makret share was about 3%, the company wanted to more than double it to 7% by 2018. Those days are, of course, long gone. Perhaps suffering from a once bitten twice shy syndrome, Volkswagen hasn’t publicized any audacious targets for India, despite having found some sort of a footing with the Ameo.

General Motors India Market Share Trends

General Motors market share in the Apr-Nov 2016 period was less than 1%, having seen a decrease of about half a percentage point from CY 2015, which was itself about a percentage point less from CY 2014. Things are not looking up for the company as it has cancelled its plans to invest $1 billion in India due to the adverse market share trend. GM’s failure in India has been attributed to its high cost structure which keeps it from offering low cost products which sell well in India. To add to its woes, apparently many dealers are switching loyalty to other brands. Hence, the outlook on General Motors market share in India also remains bleak, despite ambitious yet vague aim, of significantly increasing market share, articulated by the company.

Other OEMs Market Share Trends

The remaining market share is brought up by the smaller players in the Indian passenger vehicles market whom I will discuss together. Skoda is the biggest of these with a roughly 0.5% market share, following a decreasing trend in the past two years. Its efforts to create a value luxury segment has clearly not paid off. It had to discontinue its compact car Fabia after the low level localization led it to incur losses on the product in a bid to keep the price competitive. Dealership and service issues are believed to have adversely affected the company’s sales as well, which has been acknowledged by the company. Now it wants to leverage its network of 75 dealers across 65 cities to grow its sales by 10% in 2017, by introducing four new models.

Fiat India is another small player which has seen its market share reduce over the last two years. In FY 2016 it had a market share of 0.3%. As per its top management, the strategy of “filling dealers” up with stock and “expanding network ahead of commercial viability” have backfired. It wants to have an empathetic approach to its dealers to rectify this situation. When this fire-fighting will lead to an increase in the market share remains to be seen.

Force Motors is mostly a commercial vehicles manufacturer who tried their hand in the SUV market with a product called the Force One which was a failure and has been discontinued. Hence it will likely not figure in the passenger vehicle data going ahead.

Isuzu motors is a Japan based company and their Indian arm sells some pick up trucks and MUVs in India. It has a nearly minuscule market share in the passenger vehicles market, but it has been growing well. Due to the denominator or small base effect, we can see it has more than doubled and more than tripled its market share in the year before last and the last year respectively. To continue this growth it has created an INR 3000 crore manufacturing plant that can roll out 120,000 vehicles a year at full capacity.

The last of the OEMs was Hindustan Motors which discontinued the production of its iconic Ambassador brand and shut shop, which means it will no longer figure in the list of OEMs, although it was doing contract manufacturing for Isuzu as late as April 2016.

Summary

In summary, the pertinent trends in the Indian passenger vehicle market are:

1. Cost is still king and price rules. Localization is very important in this regard, and cracking the localization has yielded huge market share gains for the Renault–Nissan Alliance, that had eluded the multinationals except Hyundai, until now.
2. Aspects of customer satisfaction such as product innovations including novelty of features and design, quality of service, dealer network and dealer relations, and resale value of the vehicles are important aspects that need to be ensured. The confluence of these factors can be said the be the cause for Maruti having a greater market share than all the other OEMs put together.
3. Non-Indian companies which tried to reverse engineer existing products to fit the Indian markets have failed to gain market share and been incurring losses. This is because they usually price themselves above the domestic companies and in return offer features which don’t connect with the mass market in India. Hence they have not been able to gain market share due to the lax traction among the Indian consumers who focus on more utilitarian traits of the brand and the products.
4. Having made losses over the course of their existence in India, many MNC brands are not able to invest further and don’t have a clear strategy to expand their market share in the domestic market.