An Analysis On Value Chain In TVS Group

Automobile is one of the largest industries in global market. Being the leader in product and process technologies in the manufacturing sector, it has been recognized as one of the drivers of economic growth. During the last decade, well directed efforts have been made to provide a new look to the automobile policy for realizing the sector's full potential for the economy.

Aggressive marketing by the auto finance companies have also played a significant role in boosting automobile demand, especially from the population in the middle income group. Two-wheeler segment is one of the most important components of the automobile sector that has undergone significant changes due to shift in policy environment. The two-wheeler industry has been in existence in the country since 1955. It consists of three segments viz. scooters, motorcycles and mopeds. In India there are some MNC’s and Indian company dealing in automobile sector.

The main key players who are dealing in this sector are Hero Honda, Bajaj, Yamaha, Honda, and TVS.

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Global two-wheeler market

• Two-wheelers to remain the preferred option over Cars
• The ownership and maintenance cost of a car is 4 times of a two wheeler
• Two wheelers deliver a superior mileage of 70kmpl as compared to 12kmpl of the cars.
• Mileage is a key factor influencing buying behavior.

Size of the total market: 43 million numbers

Two-wheelers Purchase Trend

• India is on every major global automobile player's roadmap and it isn't hard to see why
• India is the 2nd largest two-wheeler market in the world,
• The largest commercial vehicle market in the world
• 11th largest passenger car market in the world and is expected to become the 7th largest by 2016.

Two-wheelers on a roll

The demand drivers for the two-wheeler industry are

• High growth in service sector
• Favorable demographics – a young population, rising house-hold incomes, increasing literacy levels
• Faster introduction of new models
• Increasing replacement demand (from 6 to 3 years)
• Absence of effective public transport.
• Increased availability of low cost retail finance (more than 1500 locations)

The key factors emerging are:

• Target audience for two-wheelers is huge.
• 140 mn people will be added to the working population in the next 5 years time.
• Two-wheelers to remain the preferred option over Cars
• The ownership and maintenance cost of a car is 4 times of a two wheeler
• Two wheelers deliver a superior mileage of 70kmpl as compared to 12kmpl of the cars
• Mileage is a key factor influencing buying behavior.

Introduction of TV Sundaram Iyengar and Sons Limited (TVSs) TVS Motors is the second largest company in the two-wheeler industry with a market share of 16%. Infect, it is the only Indian company without a foreign collaboration in the two-wheeler industry. When the company opted out of the collaboration with Suzuki in 2002, many believed that TVS was headed towards extinction. But the company proved the doomsayers wrong and came out with a very successful `TVS Victor'. TVS Motors Ltd. was originally incorporated in 1982 to manufacture two-wheelers in collaboration with Suzuki Motors of Japan, TVS was one of the leaders in two-wheeler industry.

It is the holding company for the TVS Group of companies engaged in the manufacturing of various automotive components, two wheelers and a few other industrial products. They are also into the financial services sector. The turnover of the entire group was close to $2 billion in 2003. TVS was founded by T. V. Sundaram Iyengar in 1911. It is the only automotive manufacturer in India to get the prestigious Deming Prize. One of its subsidiaries Sundaram Clayton was the first company in India to receive the Deming followed by Sundaram Brake Linings also getting the Deming Prize.

This prize is "given to organizations or divisions of organizations that have achieved distinctive performance improvement through the application of TQM in a designated year. " Sundaram Clayton went on to be awarded the Japan Quality Medal. The TVS group of companies is mainly situated in Padi, Tamil Nadu, in the outskirts of Chennai (formerly Madras).

TVS Motor Company has its origin in SUndaram Clayton Limited, Moped Division, started in 1980. The factory was started in Hosur, Tamil Nadu in southern India. The first product launched was a 50 cc moped, which appealed to the asses because of its capability to carry two people. In the same location, the same promoters started another company in 1984, in collaboration with Suzuki Motor Corporation of Japan, for the manufacture of 100 cc motorcycles under the brand name of Ind-Suzuki Motorcycles. Subsequently in the moped division was bought by Ind Suzuki Motorcycles in 1987 and the company changed its name to TVS Suzuki Ltd. Even though the company started producing all kinds of two wheelers like mopeds, scooters and motorcycles, the collaboration with Suzuki continued for the motorcycles only.

The collaboration with Suzuki Motor Corporation ended in 2001 and since then the name of the company changed to TVS Motor Company. The company now develops all types of two-wheelers through its own in house R&D facility and manufactures in three locations in India, Hosur in Tamil Nadu, Mysore in Karnataka and Baddi in Himachal Pradesh. It has recently started a new manufacturing plant in Indonesia to cater to the South East Asian market. The Chairman and Managing Director of the Company is Mr. Venu Srinivasan who is the grandson of TV Sundaram Iyengar.

Operations review

Quality The Company has significantly improved the quality performance of all its products through a systematic task force approach. The fact that the Company came out with Industry first five year extended warranty program on Star brand is a testimony to its manufacturing quality. TQM The Company continues to benefit from 100% participation of employees in TQM activities. The employees have completed more than 1,200 projects through QC Circles and Cross Functional Teams. The average number of suggestions implemented per employee was 69 during 2007-08.

Cost management

The Company continues its rigorous focus on costs through an effective deployment system. Value engineering and aggressive global sourcing projects are being pursued to reduce material costs and also to partially neutralize input material cost increase. TPM is practiced in all the plants to ensure significant improvement in productivity and reduction in manufacturing cost. During 2007-08, the Hosur and Mysore plants were awarded the TPM excellence certificate by the Japanese Institute of Plant Management (JIPM). Going forward- Going forward, the road for TVS appears to be bumpy.

Automobile industry is the most competitive industry with competition on all fronts viz. pricing, innovations, supply chain, efficiency etc. The situation is further aggravated by rise in raw materials like steel, rubber, plastics etc, as the company is not able to increase the selling price in proportion, thereby affecting the net profit growth. This is evident from the fact that though in FY04 sales grew by 4%, operating profit fell by 1%. Though the raw material prices have cooled off from their peaks, we expect margins to remain under pressure in near future.

Riding on significant growth in the two-wheeler segment over the years, coupled with strong cash position and expectation of buoyant economy, two wheeler companies have been planning capacity expansions. Hero Honda has embarked on a green field expansion plan (initial investment of Rs 2. 5 bn). Bajaj Auto (BJAT. BO, news) is expected to increase its capacity by 33% by June 2005. Similarly Honda Motors and Scooters (SCOO. BO, news) India Ltd, 100% subsidiary of Honda Motors Japan is expected to double its capacity in FY06.

These developments are likely to create a significant increase in supply of two wheelers, changing the demand supply scenario and thus putting pressure on margins. As compared to TVS, its competitors are sitting with on a huge pile of cash. Hero Honda generated close to Rs 9 bn from operations, where as Bajaj Auto generated Rs 15 bn from operation in FY04, thereby are in a better position to execute expansion plans. TVS generated Rs 2 bn from operations in FY04. National Council for Applied and Economic Research (NCAER), in its report has projected that the demand for motorcycles will be almost 10 times of that of the scooters by 2011-12.

TVS, traditionally is considered to be a regional player with a strong hold in Southern region. As per NCAER report, major demand for Scooters is expected to come from northern region, which will account for 50% of the total demand. Similarly the major demand for motorcycle is expected to be from Western region, which will account for 40% of the total demand. Thus it will require considerable effort on part of the management to significantly improve their presence in these regions. This may have an adverse impact on profits due to additional expenditure on account of advertising and publicity.

Suzuki sees TVS Motor as the main competitor

SUZUKI MOTOR Corporation (SMC) and Venu Srinivasan-led TVS Group may have parted company. But the separation seems to be still working on the mind of the erstwhile foreign partner in the former joint venture TVS Suzuki Ltd. (now TVS Motor). SMC, which is now entering the Indian two-wheeler segment independently, has sort of identified TVS Motor as its principal competitor. In a chat with the visiting Indian newspersons at Hamamatsu in Japan, Shinzo Nakanishi, Managing Director, had on more than one occasion indicated that their target would be TVS Motor. Suzuki would aim to match the production and sales of TVS. Otherwise, there is no meaning for the divorce,'' he asserted. Suzuki is currently waiting for the `cooling off' period post-separation to end to launch head-on into the Indian two-wheeler market.

The cooling-off period ends in April 2004. Mr. Nakanishi indicated that the SMC joint venture with Integra Group would go on stream in the autumn of 2005. While declining to divulge the capacity of the proposed plant, he said the initial Suzuki investment in the venture would be around $10 million. To a question, he said, the joint venture would focus on producing products in the growing segments (100cc to 150cc four-stroke vehicles).

Suzuki had picked the plant location in Haryana in view of the fact that Maruti Udyog had already established a large vendor base around that place. Mr. Nakanishi said Integra would function only as a facilitator for Suzuki to get into the two-wheeler business. "It will be a gate for us. We will buy them out over a period,'' he added. Asked to comment on TVS Motor's proposal to enter the Southeast Asian market, Mr. Nakanishi was guarded but did not mince words. "We will fight them out there as well,'' he asserted. The market in Southeast Asia was competitive, he said.

And, Suzuki had presence in countries like Indonesia, Thailand and Vietnam. Indian two wheeler market

Competitive Scenario

India is now the second largest two-wheeler market in the world

TVS Motor Company Mission

We are committed to being a highly profitable, socially responsible, and leading manufacturer of high value for money, environmentally friendly, lifetime personal transportation products under the TVS brand, for customers predominantly in Asian markets and to provide fulfilment and prosperity for employees, dealers and suppliers.

Vision Statement TVS Motor

Driven by the customer TVS Motor will be responsive to customer requirements consonant with its core competence and profitability. TVS Motor will provide total customer satisfaction by giving the customer the right product, at the right price, at the right time.

TVS Motor

The Industry Leader TVS Motor will be one among the top two two-wheeler manufacturers in India and one among the top five two-wheeler manufacturers in Asia.

TVS Motor Company is the third largest two-wheeler manufacturer in India and one among the top ten in the world, with annual turnover of more than USD 1 billion in 2007-2008, and is the flagship company of the USD 4 billion TVS Group.

TVSM – Strategy for growth

• Secure product leadership by
• Introducing brands that break compromises for customers.
• Offering the most innovative ‘package’ of product, access and finance.
• Faster introduction of Refresh upgrades Forge TVSM into an organization that is ‘fit for growth’ by
• Delivering best-in-class durability & reliability
• Building a lean and flexible manufacturing with faster ramp-up capability.
• Aggressive global sourcing – Sweating assets to the maximum

The company continued to post growth in sales for the eighth consecutive month, registering a cumulative growth of 8% with sales of 989,353 units in the current financial year up to November 2009 against 917,439 units in the same period last year. Domestic sales of the company witnessed a quantum increase in sales positing growth of 38% recording 106,836 units in November 2009 as against 77,491 in the corresponding period of the previous year. The company's scooter sales grew by 38% posting 25,115 units when compared to 18,210 units in the corresponding period of the previous year.

Total motorcycle sales of the company stood at 45,080 units in November 2009 when compared to 45,276 units recorded in November 2008. Exports recorded sales of 14,008 units of two wheelers in November 2009 as against 60,911 units in the corresponding period of the previous year. During the month, the company unveiled two novel products, 110 cc motorcycle TVS Jive and 110 cc automatic scooter, TVS WEGO. TVS Jive features innovative T-Matic technology with rotary gear technology coupled with an automatic clutch.

The bike's anti-stall mechanism makes smooth riding possible at low speeds even in high gears, without the engine shutting off. The downward rotary gear system enables the rider to reach neutral straight from top gear. The bike can be started in any gear and is fitted with an electric start for convenience. TVS WEGO is a multi-user, family-friendly and sleek metal bodied scooter that strikes a perfect balance between stability and maneuverability, power and mileage, and sturdiness and ease, making it a delight to ride for any category of users.

The company hopes to add around 15% to 20% to its monthly sales, once these new products are made available in the market. Scooty Pep Plus is a modern 4 stroke 75cc scooty that is ideal for the ladies. Some of the best features of the Scooty Pep Plus are jewel box headlamp, integrated tail lamp, chrome plated exhaust, multi reflector indicators, and the striking pillion grab rail.

Besides these, there are many other features to this scooterette that prove very user-friendly- auto choke, bag hooks, compartmentalized utility box, auto fuel tap, glove box push and pull bag holder among others. The Pep Plus Scooty comes in dual texture colors and arresting graphics. TVS Scooty has always been a good looker. The Pep+ retains the familiar face with its friendly expression but gets a tangy new set of graphics. The grab-rail also now matches its body color. Dual-tone shades spruce up the scooter with a racy chequered look on the front apron and rear panels.

Grips, levers, switchgear and mirrors are top-notch. The only drawback is absence of a rear brake-locking clamp. In a smart move, the key slot itself is florescent, so as to allow grope-free access in the dark. There's also a new cell phone-charging point. Pep+ lights up its lockable under seat storage bay and offers yet another smart feature that would do well on any such scooterette, a spring at the mounting pivot prevents the seat from accidentally closing at a fuel station and crushing unsuspecting fingers. It retains its quality feel in offering alloy rims, both front and rear.

The refreshed force air-cooled Plus motor feels just as buzz-free and convenient in its automatic ways as before, but there is a difference with healthy dozes of supplementary performance begging to be used. The Plus not only feels meaty where it matters most in its low- and midrange punch, but does manage a relatively respectable top speed of 71kph delivered with refinement. Sitting on the Scooty is comfortable for all except the tallest and the heaviest, who will surely feel cramped. The Scooty was always bold offering twin telescopic forks as front suspension.

While the rest of the industry sticks with diminutive and far less effective front dampers, the Pep Plus carries forward this handling-enhancing theme. At the rear, there is a single shock absorber doing duty in conjunction with its hinged engine. The alloy rim-shod Pep Plus is set just right for a ride quality that doesn't wallow overtly, nor feels too firm. It's a well-damped scooterette that offers as much stability as can be expected from any two-wheeler on 10-inch wheels. It steers accurately, turn-in to corners is feather-like and cornering manners satisfactory.

The 110mm drum brakes are adequate kit for this vehicle, and offer fine feedback through their individual levers.

SWOT analysis

Strength/Weakness

• Huge sale network (3500 Dealers).
• Better sale service.
• Not fit for ruler India.
• It has the highest share in automobile sector.
• They have big gap between cubic capacities of its products.
• It has a good brand image.
• Its market share is reducing from last few years.
• It gives better service for customers.
• Spare parts are too costly.
• Best customer preference.
• Debt equity ratio is only 0. 1.
• If they are able to improvise the fuel efficiency of Scooty pep+, it Main threats to TVS are their competitors like: will be a golden opportunity to take over the market. Bajaj Auto Ltd.
• Growing world demand for entry-level motorcycles especially in emerging
• Hero Honda. markets Yamaha Motors India. The cost of the product is very high in comparison to other companies.

Conclusion

• Long term growth prospects for the industry is attractive.
• TVSM poised to grow ahead of market through strong innovation and faster upgrades.
• Exports will be a key thrust area and will contribute to 10% of sales.
• Indonesian project will be an adjacency to current operations and will improve geographical insurance.
• Focused efforts to reduce cost will improve profitability.

References

1. www. google. com
2. www. tvsmotorsltd. com
3. www. tvsmotor. in

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