Hero Motor Corp - The Hero Challenge
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Urbanization is increasing globally, with over half the world's population now living in urban areas. By 2050, it is projected that 66% of the global population will be urbanized, with Africa and Asia urbanizing the most rapidly at over 1% per year. Population growth, especially in rural areas, is a major driver of urbanization as more people migrate to cities seeking employment, education, and improved standards of living. This rapid urbanization is creating environmental challenges for cities and putting pressure on infrastructure and resources.
Hero Motor Corp - The Hero Challenge
- 1. Trends in patterns of urbanization in the next 5 years and its impact on vehicle usage and experience (Theme B) Team Zoomvictors MICA, Ahmedabad
- 2. 2 preferences and usage has changed. The preferences of the mass have changed over years owing to changes in lifestyle technology, consumption pattern and disposable income. Even the target audience for categories has made a shift for the better. Thus the future of vehicles poses a great opportunity for companies to decode the trends and market their strategies accordingly. The report gives an overview of the entire vehicle industry with special focus on two wheelers market in India. The overview has been segregated into motorcycles, scooters and electric vehicle along with their trends. Our report aims to study the Indian two- wheeler market from various perspectives. It entails a detailed analysis of the market in terms of segments. Each section sufficiently explains the current and future market trends, and the ongoing developments in the Indian two-wheeler market. Our research also foresees immense opportunities for various international and domestic players in this segment. The report has also considered the preferences by gender, and income levels as part of macro-economic indicators to understand this market of India, which is one of the world's leading two-wheeler exporters. Our report, has comprehensively analyzed the emerging trends, like reviving of scooter segment and shooting demand for executive and premium segment bikes in two wheeler markets, which are expected to prevail in near future. Our proposition in this report is likely to facilitate clients in understanding the present and future outlook of the two wheeler market and developments in the country. Urbanization has been a trend, which defines change itself. It is an ongoing phenomenon, which takes place all around us. In fact, every change in society, to families, to people's life is somewhat related to urbanization. Urbanization changes the way we make choices in our lives and affects our present and future as well. This report highlights how urbanization has changed the way we view the world and our own lives. It highlights major factors of change like population, social life, disposable income, transportation and environmental factors, which highly constitute the phenomenon itself. The shift in population towards the much more advanced and well-equipped areas have been the spearheading contributor to urbanization. The migration has been backed by certain push and pull factors which have been discussed in the report. The report further highlights how with increasing aspiration coupled by global trends have made people change their lifestyle and consumption pattern over the years. The second part of the report talks about effects of urbanization on transport and usage of vehicles. Automobile, being the leader in product and process technologies of the manufacturing sector, has been recognized as one of the major drivers of economic growth. The Indian economy has been growing around 8% for the past few years. This growth has enabled an overall change in the social status of the Indian population. Additionally, every year, many rural areas and Tier-III cities are progressing to a higher status, opening immense growth opportunities for the two- wheeler industry. Commuting has been a necessity for people since ages and thus it is quite evident that with the changes in the pattern of urbanization even the vehicle Executive Summary
- 3. 3 Urbanisation is basically the gradual increase in the population of people living in the urban areas and the way each society adapts to the changes. It is predominantly the process by which towns and cities are formed and become larger as more people begin living and working in central areas.It is predicted that by 2050 about 64% of the developing world and 86% of the developed world will be urbanized. That is equivalent to approximately 3 billion urbanites by 2050, much of which will occur in Africa and Asia. Notably, the United Nations has also recently projected that nearly all global population growth from 2015 to 2030 will be absorbed by cities, about 1.1 new urbanites over the next 15 years. There are two factors which make urbanisation possible. They are: A) Pull Factors- The attractiveness of city lifestyle and infrastructure make people to move from one part of the place to the other part. Employment opportunities, higher incomes, joining other rural refugees, freedom from oppressive lifestyle, access to better health care and education are the main factors why people go from rural to urban. B) Push Factors- The poverty, unemployment make people move from rural set up to urban setup to fulfil their financial status. Earning of living impossible, land deterioration, lack of adequate land, unequal land distribution, droughts, storms, floods, and clean water shortages are some of the other factors which make people to shift from one city to other. The factors which have a direct effect on Urbanisation are as follows: The word civilisation, civil, citizen were all derived from word city. The ethos of city has full potential to be driving force of change and is capable of finding new patterns of civilizations that are economically and ecologically sustainable. The growth driver of this change is what we call the “ Urbanisation”. Urbanisation is the process by which rural communities grow to form cities or urban centres and by extension, the growth and expansion of the cities. Urbanisation began in ancient Mesapotamia in the Uruk period (4300-3100 BCE) where a village from other villages was very prosperous so there was lot of movement of people from one village to the other. The movement of people gave rise to the densely populated areas where trading and other economic activities took place and it gave birth to cities. First city that was formed during this period, Uruk was mainly due to the environmental issues. The earliest cities that were formed during this period were Uruk, Ur and Eridu. The fundamental reason of formation was new cities was that the cities had a good infrastructure and it provided more security which attracted people to move and set their living in a urban centre. The temple of Ur where all social gatherings take place is where the trading between two cities started. The first phrase of Urbanisation in India is started with Indus valley civilization. Since 600 BC onwards, cities and towns started developing with either an Ariyan association or Dravidan association with them. Varnasi, Mathura, Madurai, Uraiyur were the cities that grew during this period. Urbanisation and Trends
- 4. 4 worldwide lived in rural settlements and less than one-third (30 per cent) in urban settlements. In 2014, 54 per cent of the world’s population is urban. The urban population is expected to continue to grow, so that by 2050, the world will be one third rural (34 per cent) and two- thirds urban (66 per cent), roughly the reverse of the global rural-urban population distribution of the mid- twentieth century. Population and its effect on Urbanisation: Population growth is one of the primary reasons of urbanisation. In rural areas, In rural areas natural increase is not high. In 1950 there were only 30% of the population living in urban centres/ cities. Globally there are more than half the population (54%) living in cities and urban centres today and is expected that more than 66% of the population will be living in cities and urban centres. the most urbanized regions include Northern America (82 per cent living in urban areas in 2014), Latin America and the Caribbean (80 per cent), and Europe (73 per cent). In contrast, Africa and Asia remain mostly rural, with 40 and 48 per cent of their respective populations living in urban areas. All regions are expected to urbanize further over the coming decades. Africa and Asia are urbanizing faster than the other regions and are projected to become 56 and 64 per cent urban, respectively, by 2050. The rural population of the world has grown slowly since 1950 and is expected to reach its peak in a few years. The global rural population is now close to 3.4 billion and is expected to decline to 3.2 billion by 2050. Africa and Asia are home to nearly 90 per cent of the world’s rural population. India has the largest rural population (857 million), followed by China (635 million). Globally, more people live in urban areas than in rural areas. In 2007, for the first time in history, the global urban population exceeded the global rural population, and the world population has remained predominantly urban thereafter (figure 2). The planet has gone through a process of rapid urbanization over the past six decades. In 1950, more than twothirds (70 per cent) of people Africa and Asia are urbanizing more rapidly than other regions of the world. The rate of urbanization, measured as the average annual rate of change of the percentage urban, is highest in Asia and Africa, where currently the proportion urban is increasing by 1.5 and 1.1 per cent per annum, respectively. Regions that already have relatively high levels of urbanization are urbanizing at a slower pace, at less than 0.4 per cent annually (figure 4). In general, the pace of urbanization tends to slow down as a population becomes more urbanized. Lifestyle and Social Impact: In 1950's it was the creation of towns and districts Global Urban Population Growth (1950-2050) Source: World Economic Forum
- 5. 5 In 2015, Network cities were formed Probably most of the major environmental problems of the next century will result from the continuation and sharpening of existing problems that currently do not receive enough political attention. The problems are not necessarily noticed in many countries or then nothing is done even the situation has been detected In recent years, the urban environment has become a major subject of concern. The process of rapid urbanisation poses serious challenges to towns and cities, which are struggling to provide and maintain the already inadequate level of urban services. Among the major environmental problems faced by urban areas are air, water, and soil pollution and growing volume of wastes including hazardous waste. The metropolitan cities are experiencing critical environmental degradation and pushing to the limit their ability to sustain human life. Although the entire urban population is affected, the urban poor are the most vulnerable. It is poor performance of local governments in the delivery of basic urban services that lead to environmental degradation and lower quality of life in urban areas. The drinking water problem in Gujarat has accentuated over the past four decades. Conflicts over drinking water between the people and the industry, between the people and government, and between urban and rural areas have become frequent in Gujarat. Such conflicts are arising because of declining availability of water resources on one hand and rising demand of economic activities on the other. • City borders will expand out of suburbs to include daughter cities. The Core City will enclose multiple downtowns. • Multiple Transportation Models will be used and more than 50% will use public transportation. • Most offices moved to the first belt suburbs except non cost sensitive activities: city centres becoming shopping areas (small scale deliveries) for expensive goods and living areas for “double income, no kids” households. • 13/22 Mega cities belong to ASIA PACFIC regions.Migration is a strategy adopted by rural populations to improve household livelihoods and Megacities: Environmental Changes and Urbanization: In 2000 it was the birth of suburbans, ring road • benefit from better services in urban areas.
- 6. 6 turbulence and slow growth, particularly in the first half of the decade. But as we will see, half of the macro trends affect both emerging and advanced economies. Thus, while we embrace the exciting opportunities in emerging markets, we also see opportunities where many commentators see none right now—in the home markets of many of the world’s leading businesses. A shift in global growth. Although we will continue to see pockets of economic Daily turmoil on a global scale is giving business leaders and investors plenty of reasons to stay hunkered down as they confront huge challenges in the here and now. Spreading sovereign debt woes, volatile markets, unstable currencies, political gridlock and stalled growth plague the big developed economies. The Next Billion Consumers Meanwhile, China, India and other rapidly emerging economies are flexing their strength as they adjust to the phenomenal growth that has been the biggest economic story of the past two decades. In the conventional view, the current turbulence portends deep, enduring structural shifts that will set the business agenda for the foreseeable future. We fully expect macroeconomic shocks over the coming decade, with discontinuities that will shape the options companies have to adapt and grow. Europe, Japan and the US certainly face an extended period of economic turbulence, look for the global economy to expand at a 3.6 percent annual rate over the longer term, resulting in world GDP swelling to $90 trillion by 2020—40 percent larger than it is today. By 2020, the advanced economies’ proportion of world GDP will drop to 58 percent, a sizable change over a relatively short period. The growth of world population by 750 million, nearly all of it originating in developing and emerging economies, will account for about one-quarter of the rise in GDP. Increased productivity will generate the rest, as per capita GDP grows by 30 percent over that period.
- 7. 7 country. However, with lower import duties on account of setting up of domestic assembling units by global premium motorcycles manufacturers like Harley Davidson, Kawasaki and Hyosung, the premium motorcycles market in India has witnessed a complete turnaround. The market penetration of premium motorcycles has been witnessing a continuous increase among high net worth individuals in the country. Significant price differential between a Completely Knock Down (CKD) assembled premium motorcycles and Completely Build Unit (CBU) imported motorcycles has led to robust increase in sales of premium motorcycles among Indian consumers. Premium motorcycles market is witnessing intense competition due to competitive pricing strategy being adoption by the leading players coupled with introduction of new variants over the last few years. Until 2011, due to high duty levied on imported premium motorcycles in India, their reach was limited to the affluent class. However, with the entry of multiple international brands such as Harley Davidson, Triumph, Hyosung and many others, India's premium motorcycles market witnessed a major turnaround with rapid increase in demand for premium motorcycles over the last three years. With the trend of launching new Over the last three years, motorcycle segment volumes have grown only at a moderate CAGR of 5% as slowdown in India’s economic growth and persistently high inflation weighed on disposable income of buyers, particularly those who buy entry segment (at price point near Rs. 40,000) and executive segment (in price range of Rs. 45,000-50,000) bikes. Thus, pressure on Household income growth leading to reduction in proportion of first time buyers weighed on demand for motorcycles. However, the recent uptick in sales volumes of motorcycles, reflected in growth of 10.0% YoY in 5m 2014-15, does insinuate improved growth prospects for 2014-15. While motorcycle volumes in 2014-15 may indeed grow faster than the CAGR of last three years, in our view, this would largely be driven by increase in replacement demand and incremental wholesale volume contribution of new models. Trends in Motorcycle Segment in India (Present and Future) Premium Motorcycle Trends Premium motorcycles market in India is forecast to grow at a CAGR of more than 27% CAGR during 2015-20 on account of declining premium motorcycle prices and launch of new premium motorcycle variants. Prior to 2011, premium motorcycles were imported in India as completely built units (CBU’s), which used to result in imposition of heavy custom duty, thereby restricting the demand for premium motorcycles in the India fast growing and relatively productive cities will drive nearly fourfold increase in India’s per capita income between 2008 and 2030. The no of households earning less than 90,000 will decrease below 20% for the first time in history, while the no of middle class households will increase from 32 million to 147 million.
- 8. New premium motorcycle manufacturers like Benelli and Ducati have realized this high potential, and have entered the Indian market at the right time to capitalize on the same. Whereas, existing brands such as Suzuki, Honda and Yamaha, are continuously bringing in premium products to the country as the segment has witnessed a 40-50 percent growth over the past two years. Most of the sales in the segment account for bikes such as the Royal Enfield Continental GT and the Harley- Davidson Street 750, which cost around Rs. 4-5 lakhs. Experts mention the reason for superbikes not growing in our country as expected to luxury cars because of the biking habit in the country. The reason for the same can be attributed to the price quotient, as many premium motorcycles cost as much, if not more than what a entry-level luxury car costs. As leisure biking takes off in India, the superbike segment too will definitely grow in numbers as well. 8 The Super-bike Segment in India Future trends in two wheeler market in India - Scooters motorcycle models at comparatively lower price tags by leading global players gaining increasing traction, the India premium motorcycles market is expected to grow at a brisk pace through 2020. Premium motorcycles with engine capacities ranging from 500cc to 800cc offer better manoeuvrability in comparison to more than 800cc motorcycles and are therefore more suitable for rough Indian roads. Moreover, low price point of 500cc to 800cc category further increases the consumer interest. This segment offers huge growth potential in the premium motorcycle market in India over the next five years. Major global motorcycle manufacturers are expected to be increasing their focus in this segment to offer products specifically tailored to satisfy customer requirements in 500cc to 800cc category consulting firm. While talking about the Indian superbike market, which comprises of motorcycles of 500cc and above displacement, this segment is expected to grow over the next five years and hit over 20,000 units by the year 2020. The segment is currently topped by the likes of Royal Enfield and Harley-Davidson and has been growing at a 40-50 percent range year-on-year. Other companies in the segment include Triumph, Kawasaki, Yamaha, Honda, Suzuki and DSK Motowheels (which markets both Hyosung and Benelli branded bikes). The superbike segment, which consists of motorcycles above, the 500cc category has grown at an exponential level from just 450 units in the period of 2008-2009 to about 3500 units in 2013-2014. The market is expected to touch 9500 units in 2014-15 and double to about 20,000 units by 2020. Changing customer preferences are driving value migration from motorcycles to scooters in India. In 1HFY14, the share of scooters was 23.5%, up from 12% in FY07. In the economically developed states, the share of scooters is higher at ~34%, and is growing. Around 51% of the dealers we surveyed expect the scooters share to be over 40% by2020.Experts estimate the scooters share at 37% by 2020, implying 20% CAGR in scooter. While the share of scooters is likely to increase, we expect the dominance of motorcycles to continue, driven by increasing penetration in rural markets. Motorcycles fare better in rural areas, where road infrastructure is relatively poor, are more
- 9. 9 Resurgence of scooters led by automatic segment suitable for longer distance travel, and offer higher mileage (an important factor for cost conscious customers).With greater economic development, increasing women participation in the workforce, demand from female customers increased at a healthy rate till FY12.However, post FY12, there is a distinct trend towards large/unisex scooters . Acceptance among males Growth for automatic scooters has accelerated over the last four years, with 26%volume CAGR. Large scooters (>100cc) have been growing faster at ~31% CAGR. This is largely driven by increasing acceptance of automatic scooters among men. Among the reasons for the growing popularity of automatic scooters are: Significant reduction in performance and fuel efficiency gap with motorcycles: The fuel efficiency gap v/s motorcycles have reduced - 40-45kmpl v/s 60-65kmpl for motorcycles (35-40kmpl for geared scooters) • Universal appeal • Convenience and comfort • Primary family vehicle Targeting the youth Our channel interactions indicate that scooters are gaining acceptance amongst the youth. Brands such as Honda Dio and Yamaha Ray-Z are being bought by young/college going boys. However, they are not yet attractive relative to motorcycles, which still constitute big chunk of the market. Attractiveness amongst youth would be the key inflection point. Sensing this, two-wheeler players have launched several male-specific products Hero Maestro, Honda Aviator, Yamaha Ray-Z, TVS Jupiter. With several recent launches targeting the youth (young boys in the 18-25 years), acceptance amongst youth is also increasing at a rapid pace, especially as the 'network' effect sets in. HMCL is focusing on positioning its Maestro scooters as a 'cool' product for young men. The product is endorsed by Bollywood star and youth icon, Ranbir Kapoor. While traditional geared scooters died down, the growth momentum in non- geared (automatic transmission) scooters continued. Over the last two decades, automatic scooters have grown at 16% CAGR against ~7% CAGR for the overall scooter segment. Automatic scooters offer several advantages over traditional scooters. Attributes such as convenience (self- start, no need to change gears), contemporary looks, and powerful engines are making them popular amongst customers across age categories and gender. The share of automatic scooters continued to increase, driven largely by higher demand from working women, college students (female) and senior citizens. Urban markets could see further increase in the share of scooters, Customer Preference by Category: Urban Women and Students Ungeared scooters, which were predominantly plastic bodied (lighter weight and smaller size), with lower capacity engines (largely sub-100cc), were popular among females. Usage by males was limited, considering the tiny/ feminine looks of the plastic bodied scooters. Companies promoted automatic scooters through high female celebrity endorsement.
- 10. 10 The current market for EVs is very small in India. The EV market is India is between 2.5 to 3 lakh units. The EV market in India has grown at 84 per cent CAGR compared to the petrol Electronic Vehicle (EV) Scenario and Trends Local experience of select developed states indicates higher share of scooters The share of automatic scooters has been rising in the overall two-wheeler industry across states over the last few years. Anecdotal evidence suggests that states with higher economic development and open culture have higher scooter sales penetration. Our analysis of last few years' town-wise two- wheeler sales in Gujarat, Madhya Pradesh, Maharashtra and Chhattisgarh (four states contributing 27% of pan- India market) indicates that scooter penetration is increasing even in smaller towns.Top-6 states (four in the South and The Number of Electric Vehicles Is Growing on Land, in the Water, and in the Air. Some 400,000 electrically powered automobiles are currently on the road worldwide, according to a study by the Centre for Solar Energy and Hydrogen Research Baden-Württemberg (ZSW). This means that the number doubled throughout 2013. The highest demand for such vehicles was in the U.S., Japan and China. In its “BLUE Map Scenario,” the International Energy Agency (IEA) estimates that almost 80 percent of automobiles sold in 2050 will be plug-in hybrids, electrics, or will be powered by fuel cells. There are three types of Electronic 2 Wheelers based on nature of technology: a) electrical cycles and mopeds (ECM), b) electrical scooters (ES), and c) electrical motorcycles (EM). Classification Criterion for E2Ws Vehicle Type Maximum Payload (KG) Top Speed (km/hour) EC mostly less than 80 less than 75 ES more than 80 between 25 and 75 EM more than 150 more than 75 driven by (a) need demand from a wider target audience, and (b) replacement demand from motorcycle users. Global trends in the two wheelers segment Scooters constitute ~55% of the global two-wheeler market (ex China and Africa). Excluding India, the share of scooters is ~79%. Globally, large evolved two-wheeler markets are largely scooter/step-through markets, with share as high as 100%. Market dynamics in India are similar to other Asian countries, though India is behind its Asian peers in terms of economic evolution. The evolution of the two- wheeler market in India is likely to be on similar lines as in other Asian countries. Indonesia, the third-largest two-wheeler market in the world after China and India, with annual sales of 7m units, is primarily a scooter/step- through market. A similar shift is likely in India, but not as fast and steep, considering the difference in fuel efficiency, aesthetics and road infrastructure (especially in rural areas). two in the West) contribute over 60% of scooter demand. All these states are relatively more developed; hence, the higher scooter penetration. Source: UNEP
- 11. 11 Capital Subsidy on Electronic Vehicles proposed in NEMMP 2020 Barriers to Electric Vehicles Vehicle Category Subsidy Range Limit/ Year (Units Sold) Electronic 2 Wheelers 5000 - 15000 1000000 Electronic 4 Wheelers 25000 - 150000 200000 Electronic Bus 500000 - 3700000 900 vehicle market, which grew at 11 to 13 per cent.x Though there are different types of E2Ws (scooters and bikes), E4Ws (electric cars), and electric buses, the overall share of EVs is negligible. In the 1990s, a couple of Indian firms introduced electric two- and three-wheelers in the market, but these were unsuccessful and were discontinued later. A report by Frost & Sullivan put the EV market in India in 2013 at 125,257 units. It is estimated to reach 1.1 million units by 2021, Global and Indian manufacturers are expected to launch more than 25 EV models by 2021.clocking a CAGR growth of 31.6 per cent. The Indian government is expected to invest around Rs 120 billion for power generation as well as the charging infrastructure. Source: UNEP Source: UNEP
- 12. 11 References • Eugenie L. Birchtch and; Susan M. Wachter (2011). Global Urbanization. University of Pennsylvania Press. • UNEP. UNEP DTU Partnership. (2014, November). Report. PROMOTING LOW CARBON TRANSPORT IN INDIA. Electric Vehicle Scenarios and a Roadmap for India. • Trivedi, Jitendra; Sareen, Himanshu; Dhyani, Mohan (2008). Rapid Urbanization - Its Impact on Mental Health: A South Asian Perspective. Indian Journal of Psychiatry, Vol. 50, No. 3, July-September 2008. • motorbeam.com. (2015, April). Indian Superbike Market Expected To Grow By 50%. Retrieved from http://www.motorbeam.com/2015/04/news/indian-superbike-market- expected-grow-50/ • ETAuto.com. (2014, December). How Indian two wheeler brands are taking on their international counterparts on global turf. Retrieved from http:// auto.economictimes.indiatimes.com/autologue/How-Indian-two-wheeler-brands-are-taking- on-their-international-counterparts-on-global-turf/406 • Sarwant Singh. (2012). New Mega Trends: Implications for Our Future Lives. Plagrave macmillan. • Deloitte. (2015). Report. A new era Accelerating toward 2020 — an automotive industry transformed. • Motilal Oswal. (2013). Report. Automobiles: Thematic. • World Economic Forum. (2015). City Limits: The Risks of Rapid and Unplanned Urbanization in Developing Countries. Retrieved from. http://reports.weforum.org/global- risks-2015/part-2-risks-in-focus/2-3-city-limits-the-risks-of-rapid-and-unplanned- urbanization-in-developing-countries/ • United Nations. (2014). Report. World Urbanization Prospectus. Conclusion • Mega trends are connected and inter-wined which suggests “synergetic” opportunities between them. • It is important to understand the eco- system of the mega-trend and the elements of the value chain which have most profitability. • All these trends are global and have global ramifications thereby offering scalable opportunities. • These forces are changing rapidly and bringing new competencies into play at half the life-cycle speed of the past decade. • Organisations’ need “Mega Trend” champions and teams within their organisation structure to best exploit the opportunities.