Corporate Internship Report Internship Report submitted as a partial requirement for the award of the two year Master of Business Administration Programme MBA 2010-12 Name: Nitin Chandra Gupta (Honda Siel Cars India, Greater Noida) Corporate Internship Supervisor Name: Mr. Arun Sharma JBS-Faculty Supervisor: Mrs. Sujata Kapoor Start Date for Internship: 1sr June 2011 End Date for Internship: 13th July 2011 Report Date: 8th July 2011 Self Certification by the Intern
I hereby certify that I, Nitin Chandra Gupta have successfully completed my internship with “Honda Siel Cars India” in the month of July 2011 (from 1st June 2011 to 13th July 2011). This is also to certify that this report is an original product and no unfair means like copying etc. have been used for its completion. Name: Nitin Chandra Gupta Signature: Date: 2 Certificate from the Corporate Internship Providing Organization This is to certify that Mr. Nitin Chandra Gupta has successfully completed his internship with us in the month of July 2011 from (1st June 2011 and 13th July 2011). We wish him all the best for all his future endeavors.
Name of the Supervisor: Mr. Arun Sharma Signature: Date: 3 ACKNOWLEDGEMENT I take pleasure to thank all those who have helped & supported me for completion of this Internship at Honda Siel Cars India Ltd. First of all I would like to thank Mrs. Sujata Kapoor for the encouragement & guidance that he gave, under whose guidance I was able to successfully complete the report. I would, with profound pleasure and proud privilege; I take this opportunity to express my deep sense of gratitude and indebtedness to the Honda Siel Cars India Ltd, Greater Noida for giving me opportunity to undertake this training. 4
COMPANY PROFILE Honda Siel Cars India Ltd. , (HSCI) was incorporated in December 1995 as a joint venture between Honda Motor Co. Ltd. , Japan and Siel Limited, a Siddharth Shriram Group company, with a commitment to providing Honda’s latest passenger car models and technologies, to the Indian customers. The total investment made by the company in India till date is Rs 1620 crores in Greater Noida plant and Rs 784 crores in Tapukara plant. HSCI’s first state-of-the-art manufacturing unit was set up at Greater Noida, U. P in 1997. The green-field project is spread across 150 acres of land (over 6,00,000 sq. m. . The annual capacity of this facility is 100,000 units. The company’s second manufacturing facility is in Tapukara, Rajasthan. This facility is spread over 600 acres and will have an initial production capacity of 60,000 units per annum, with an investment of about Rs 1,000 crore. The first phase of this facility was inaugurated in September 2008. The company’s product range includes Honda Jazz, Honda City, Honda Civic and Honda Accord which are produced at the Greater Noida facility with an indigenization level of 77%, 76%, 74% and 28% respectively. The CR-V is imported from Japan as Completely Built Units.
Honda’s models are strongly associated with advanced design and technology, apart from its established qualities of durability, reliability and fuel-efficiency. Honda Jazz Honda Jazz is the company’s first offering in the premium compact car segment. The Jazz is a segment-defining car that has won accolades and adoration all over the world. Widely acclaimed for its dynamic styling, spacious interiors, versatile utility and remarkable performance, the Honda Jazz brings added fun and excitement to the driving experience. The Jazz’s dynamic performance is achieved by a newly developed four-cylinder 1. liter i-VTEC engine, featuring Programmed Fuel Injection that delivers maximum output of 90 PS (66 kW) @ 6,200 rpm and Torque of 110 Nm (11. 2 kg-m) @ 4800 rpm while giving impressive fuel economy of 16. 1 km/l, as per ARAI test data. Safety of passengers and pedestrians is a top priority for Honda and all safety equipment is standard across all variants. The Jazz practicality has been enhanced with three-mode “Magic Seat” configuration to achieve multiple seating and cargo-carrying configurations for long or 5 tall objects in addition to the standard five-passenger mode.
The Honda Jazz is available in three variants – Honda Jazz, Jazz Select and Jazz X. The Honda Jazz X looks sporty with the new blue black interiors and this sporty look is further accentuated with the addition of Alloy wheels. In line with the preferences of the customers, the audio system of the new Jazz now comes equipped with a USB port. The Honda Jazz X additionally features a Rear Parcel Shelf for added customer convenience & safety of the luggage and Front & Rear mud guards. It also includes Fog lamps for enhanced styling and better visibility and Driver seat height adjuster for a comfortable and smooth drive. Honda City
Honda’s all-new Third Generation Honda City was launched in September 2008. It comes with a completely new design, new engine, spacious cabin and equipped with various active and passive safety features. The company has also launched the 1. 5 V MT & AT version of the City in September 2009. The new Honda City is available as SMT, VMT and VAT. Additionally, all the variants is available in 2 attractive types – Elegance and Inspire. The all new Honda City achieved milestone sales with 50,000 units sold within one year of its launch. Since its launch in the country in 1998, Honda City has been a best seller in the premium car segment.
The all new Honda City has bagged several awards including 3 Car of the Year and the prestigious ICOTY (Indian Car of the Year) 2009. The model made a clean sweep in the viewers’ choice category winning all 3 awards announced by NDTV Car India & Bike India Awards, UTVi Autocar Awards and CNBC TV 18 Overdrive Awards. These awards truly exemplify the experts’ as well as the customers’ admiration and trust in the product. Honda Civic The Civic is Honda’s largest selling model globally and is now sold in approximately 160 nations and regions worldwide.
Honda Civic was launched in India in July 2006 which became a runaway success and was also awarded the “Indian Car of the Year” in 2007. The new Civic was launched in September 2009 with more aggressive and sportier look. The new V grade Civic juxtaposes Honda’s advanced technology with striking design. The new Curved 5 Point Metallic Front Grille and restyled Front Sporty Bumper add to a pulsating and aggressive appeal of the car. The introduction of stylized Dark Smokey 6 Headlights & Crystalline Octagonal Tail Lights enhances the contemporary look of the car. New Civic is available in 3 variants – SMT, VMT & VAT.
Honda Accord The Honda Accord was first introduced in India in year 2003. HSCI launched the 8th generation Honda Accord in India in May 2008. The Honda Accord is available in 2. 4L and 3. 5L V6 engine. The 2. 4L comes in three types in both Automatic and Manual transmission ? Accord 2. 4, Accord 2. 4 Elegance and Accord 2. 4 Inspire. The All-new Accord comes with 5-speed Manual Transmission and 5-speed Automatic transmission with Paddle shift, to give the exhilarating experience of F-1 racing. The AT now has Shift Holding System which avoids unnecessary gear shifting on winding roads and helps in hassle free drive.
The Honda Accord V6 3. 5-liter comes with Electric Sunroof and additional luxury features for enhanced exterior styling. The 3. 5L i-VTEC engine features an advanced Variable Cylinder Management (VCM) system that switches between six-, four-, and three-cylinder combustion depending on the driving conditions and thereby delivering maximum power of 275 PS during six cylinder operation and impressive fuel economy in VCM mode while cruising. The new 8th generation Honda Accord has also won the UTVi Autocar Best Luxury Car award in 2009. Honda CR-V
The Honda CR-V is sold as a Completely Built Unit (CBU) import and is available on confirmed order basis for the customers. The Honda CR-V was first introduced in India in July 2003. It went on to become the segment leader since its launch winning several awards for itself. The all new 3rd generation CR-V was introduced in India in November 2006 which offered its customers a distinctive combination of ‘the comfort of a sedan with the thrills of a SUV’. Honda CR-V was adjudged the ‘SUV of the Year’ by NDTV Profit Car & Bike and Overdrive and also won the ‘Best Driver’s Car’ award by CNBC TV-18 Autocar Auto Awards in 2007.
Honda launched a refreshed version of the 3rd generation CR-V in November 2009. The new Honda CR-V offers its customers a distinctive combination of refined styling and high quality. The Honda CR-V is available in 2. 0 L – MT 2WD and 2. 4L MT /AT Real-time 4WD. 7 Sales Network Honda Siel Cars India has a strong sales and distribution network spread across the country. The network includes 125 facilities in 77 cities. HSCI dealerships are based on the “3S Facility” (Sales, Service, Spares) format, offering complete range of services to its customers. INDUSTRY ANALYSIS Overview The Automotive industry in India is one of the largest in the world and one of the fastest growing globally. India manufactures over 17. 5 million vehicles (including 2 wheeled and 4 wheeled) and exports about 2. 33 million every year. It is the world’s second largest manufacturer of motorcycles, with annual sales exceeding 8. 5 million in 2009. India’s passenger car and commercial vehicle manufacturing industry is the seventh largest in the world, with an annual production of more than 3. 7 million units in 2010.
According to recent reports, India is set to overtake Brazil to become the sixth largest passenger vehicle producer in the world, growing 16-18 per cent to sell around three million units in the course of 2011-12. In 2009, India emerged as Asia’s fourth largest exporter of passenger cars, behind Japan, South Korea, and Thailand. As of 2010, India is home to 40 million passenger vehicles and more than 3. 7 million automotive vehicles were produced in India in 2010 (an increase of 33. 9%), making the country the second fastest growing automobile market in the world.
According to the Society of Indian Automobile Manufacturers, annual car sales are projected to increase up to 5 million vehicles by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation’s roads. A chunk of India’s car manufacturing industry is based in and around Chennai, also known as the “Detroit of India” with the India operations of Ford, Hyundai, Renault and Nissan headquartered in the city and BMW having an assembly plant on the outskirts. Chennai accounts for 60 per cent of the country’s automotive exports.
Gurgaon and Manesar in Haryana are hubs where all of the Maruti Suzuki cars in India are manufactured. The Chakan corridor near Pune, Maharashtra is another vehicular production hub with companies like General Motors, Volkswagen, Skoda, Mahindra and Mahindra, Tata Motors, Mercedes Benz, Land Rover, Fiat and Force Motors having 9 assembly plants in the area. Ahmedabad with the Tata Nano plant, Halol again with General Motors, Aurangabad with Audi, Kolkata with Hindustan Motors, Noida with Honda and Bangalore with Toyota are some of the other automotive manufacturing regions around the country.
Emission norms In tune with international standards to reduce vehicular pollution, the central government unveiled the standards titled ‘India 2000’ in 2000 with later upgraded guidelines as ‘Bharat Stage’. These standards are quite similar to the more stringent European standards and have been traditionally implemented in a phased manner, with the latest upgrade getting implemented in 13 cities and later, in the rest of the nation.
Delhi(NCR), Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Ahmedabad, Pune, Surat, Kanpur, Lucknow, Solapur, and Agra are the 13 cities where Bharat Stage IV has been imposed while the rest of the nation is still under Bharat Stage III. 10 Market Characteristics Market Size The Indian Automotive Industry after de-licensing in July 1991 has grown at a spectacular rate on an average of 17% for last few years. The industry has attained a turnover of USD 35. 8 billion, (INR 165,000 crores) and an investment of USD 10. 9 billion.
The industry has provided direct and indirect employment to 13. 1 million people. Automobile industry is currently contributing about 5% of the total GDP of India. India’s current GDP is about USD 650 billion and is expected to grow to USD 1,390 billion by 2016. The projected size in 2016 of the Indian automotive industry varies between USD 122 billion and UDS 159 billion including USD 35 billion in exports. This translates into a contribution of 10% to 11% towards India’s GDP by 2016, which is more than double the current contribution. Demand Determinants
Determinants of demand for this industry include vehicle prices (which are determined largely by wage, material and equipment costs) and exchange rates, preferences, the running cost of a vehicle (mainly determined by the price of petrol), income, interest rates, scrapping rates, and product innovation. • Exchange Rate: Movement in the value of Rupee determines the attractiveness of Indian products overseas and the price of import for domestic consumption. • Affordability: Movement in income and interest rates determine the affordability of new motor vehicles.
Allowing unrestricted Foreign Direct Investment (FDI) led to increase in competition in the domestic market hence, making better vehicles available at affordable prices. • Product Innovation is an important determinant as it allows better models to 11 be available each year and also encourages manufacturing of environmental friendly cars. • Demographics: It is evident that high population of India has been one of the major reasons for large size of automobile industry in India.
Factors that may be augment demand include rising population and an increasing proportion of young persons in the population that will be more inclined to use and replace cars. Also, increase in people with lesser dependency on traditional single family income structure is likely to add value to vehicle demand. • Infrastructure: Longer-term determinants of demand include development in Indian’s infrastructure. India’s banking giant State Bank of India and Australia’s Macquarie Group has launched an infrastructure fund to rise up to USD 3 billion for infrastructure improvements.
India needs about $500 billion to repair its infrastructure such as ports, roads, and power units. These investments are been made with an aim to generate long-term cash flow from automobile, power, and telecom industries. • Price of Petrol: Movement in oil prices also have an impact on demand for large cars in India. During periods of high fuel cost as experienced in 2007 and first –half of 2008, demand for large cars declined in favour of smaller, more fuel efficient vehicles.
The changing patterns in customer preferences for smaller more fuel efficient vehicles led to the launch of Tata Motor’s Nano – one of world’s smallest and cheapest cars. 12 Rank Wise Largest Automobile Manufacturers in India by Sales 1. Maruti Suzuki 2. Hyundai 3. Tata 4. Mahindra 5. GM Chevrolet 6. Toyota 7. Honda 8. Ford 9. Fiat 10. Skoda Unit wise sales of manufactures in India (F. Y. 2009-10):-In this we can see that Maruti has the highest sales and Honda is in the seventh position. Reason:- Honda basically has to capture in small car industry and Honda has only one car of that segment i. . , Jazz (B+ Segment). Inference:- This shows that in India their is a wider scope in Small Car Industry as we can see that the leading players are good in small car making. 13 Automobile Brands in India Local Brands • • • • Hindustan: Ambassador. ICML: Rhino Rx Mahindra: Bolero, Xylo. Verito, Scorpio. Maruti Suzuki: 800, Alto, WagonR, Estilo, A-star, Ritz, Swift, Swift DZire, SX4, Omni, Versa, Eeco, Gypsy. • Premier: RiO. • San: Storm. • Tata: Nano, Indica, Indigo, Sumo, Safari, Aria. Foreign Brands Locally manufactured Automobiles of Foreign Brands • Audi: A4, A6. BMW: 3 Series, 5 Series. • Chevrolet: Spark, Beat, Aveo U-VA, Aveo, Optra, Cruze, Tavera. • Fiat: Grande Punto, Linea. • Ford: Ford Figo, Ikon, Fiesta, Endeavour. • Honda: Jazz, City, Civic, Accord. • Hyundai: Santro, i10, i20, Accent, Verna, Sonata. • Mercedes-Benz: C-Class, E-Class. • Mitsubishi: Lancer, Lancer Cedia • Nissan: Micra. • Renault: Fluence, Koleos. • Skoda: Fabia, Octavia, Laura. • Toyota: Corolla, Innova. • Volkswagen : Polo, Jetta, Passat. 14 Automobiles sold in India as CBU (Completely Built Units) • • Audi: A8, TT, R8, Q5, Q7.
Bentley: Arnage, Azure, Brooklands, Continental GT, Continental Flying Spur, Mulsanne. • BMW: 6 Series, 7 Series, X3, X5, X6, M3, M5, M6 and Z4. • Chevrolet: Captiva. • Fiat : Nuova 500. • Honda: Civic Hybrid, CR-V . • Jaguar : XF, XJ, XK. • Lamborghini : Gallardo, Murcielago. • Land Rover: Range Rover, Range Rover Sport, Discovery 4, Freelander 2 • Maybach: 57 and 62. • Mercedes-Benz: CL-Class, CLS-Class, S-Class, SL-Class, SLK-Class, M-Class, Viano. • Mitsubishi: Pajero, Montero, Outlander. • Nissan: Teana, X-Trail, 370Z. • Porsche: 911, Boxter, Panamera, Cayman, Cayenne. Rolls Royce: Ghost, Phantom, Phantom Coupe, Phantom Drophead Coupe. • Skoda: Superb. • Suzuki: Grand Vitara. • Toyota: Camry, Land Cruiser, Land Cruiser Prado, Fortuner, Prius. • Volkswagen: Beetle, Touareg. • Volvo: S60, S80, XC90. MARKET SHARE Honda Civic comes in Lower D Segment or A 4 Executive cars. Along with Civic other cars of same segment are Toyota Corolla Altis, Skoda Octavia, Skoda Laura and Volkswagen Jetta. According to 2009-10 sales figure Civic leads the segment by 46% market share, then comes the Skoda Laura having 33% market share.
Toyota Corolla Altis have a Market share of 19% and rest 2% is held by others. 15 4 P’s Analysis for Honda civic: PRODUCT: There are 4 variants to Honda Civic 1. 8 E MT 1. 8 V AT 1. 8V MT CIVIC SPORT COLOURS: Honda Civic 1. 8 V AT (Automatic Transmission) and 1. 8 V MT is available in 7 colors • Night Hawk • Black Carbon • Bronze Pearl • Bluish Silver • Misty Voilet • Habanero Red • Alabaster Silver • Taffeta White Honda Civic E MT ( Base model) is available only in 4 colors: • Carbon Bronze • Pearl Crystal • Black Albaster • Silver • Taffeta White 16
PRICE: The on road price for the respective models in Delhi is • 1. 8 E MT : Rs. 10,75,701 • 1. 8 V AT : Rs. 13,48,393 • 1. 8V MT: Rs. 12,76,269 • CIVIC SPORT: Rs. 12,97,336 PLACE: SALES AND DISTRIBUTION NETWORK Honda Siel Cars India has a strong sales and distribution network spread across the country. The network includes 100 facilities in 59 cities. HSCI dealerships are based on the “3S Facility” (Sales, Service, Spares) format, offering complete range of services to its customers. PROMOTION: ADVERTISING: Through TV Commercials, Print Media, Placing Hoardings and On-line Advertisement.
By giving Sponsored Links on popular social networking websites and through banners. SPONSORSHIPS: Through sponsorship of various environmental and Sport events. WORD OF MOUTH: Honda’s cars particularly the civic are very much appreciated for their superb styling among general public. 17 Economic Analysis Economic analysis is the analysis of forces operating the overall economy a country. Economic analysis is a process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in order to understand exact condition of an economy.
GDP and Automobile Industry In absolute terms, India is 16th in the world in terms of nominal factory output. The service sector is growing rapidly in the past few years. The per capita Income is near about Rs38,000 reflecting improvement in the living standards of an average Indian. Today, automobile sector in India is one of the key sectors of the economy in terms of the employment. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher.
As the world economy slips into recession hitting the demand hard and the banking sector takes conservative approach towards lending to corporate sector, the GDP growth has downgraded it to 7. 1 per cent for 2008-09 and predicted it to be 6. 5 per cent for FY 200910 Mr. Montek Singh (Planning Commission of India). The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near about 5% and will be double by 2016. The automotive industry in India grew at a computed annual growth rate of 11. 5 percent over the past five years, but growth rate in last FY2008-09 was only 0. % with passenger car sales shows 1. 31% growth while Commercial Vehicles segment slumped 21. 7%. Recession All the major auto companies enjoyed the high growth ride till the mid 2008. But at the end of the year, industry had to face the hard truth and witnessed the fall in sales compared to last year. In December 2008, overall production fell by 22 % over the same month last year. Global recession has hit the Indian auto industry, India is strong and growing industry but the impact of recession is evident now on industry as sales & growth of automobile companies have declined.
Passenger Vehicles segment registered negative 18 growth. One of its supporting facts is that the sales in December 2008 for passenger vehicles fell by 13. 86% over December 2007 Two Wheelers registered minor growth of 1. 85 % during April – December 2008. However, Two Wheelers sales recorded 15. 43 percent fall in December 2008 over the same month last year. Although the sector was hit by economic slowdown, overall production (passenger vehicles, commercial vehicles, two wheelers and three wheelers) increased from 10. 85 million vehicles in 2007-08 to 11. 17 million vehicles in 2008-09.
Passenger vehicles increased marginally from 1. 77 million to 1. 83 million while two-wheelers increased from 8. 02 million to 8. 41 million. Total number of vehicles sold including passenger vehicles, commercial vehicles, two-wheelers and threewheelers in 2008-09 was 9. 72 million as compared to 9. 65 million in 2007-08. Inflation Despite of negative inflation these days (-. 21% on 22-Aug-09) we saw an increasing trend of sales in auto sector. A moderate amount of inflation is important for the proper growth of an economy like India because it attracts more private investment.
The fall in wholesale prices from a year earlier is mainly due to a statistical base effect and doesn’t suggest contraction in demand, the Reserve Bank of India said few week back, while revising its inflation forecast for the FY through March to around 5% from 4%. In last FY despite of skyrocketing oil prices. Indian automobile Industry was not as much affected and experts think that Indian automobile industry will continue to grow this year despite all obstacles- oil price hike, higher interest rates. However, the effect of inflation has affected every sector, which is related to car manufacturing and production.
The increase in the price of fuel and the steel due to inflation has led to a slower growth rate of the car industry in India. The effect of inflation has taken the rise in the price rate of the cars by 3-4%, which in turn suffices the need to meet the rise in price of the raw materials to build a car. The car market and the car industry witnessed a fall of 8-9%. FDI’s In India FDI up to 100 percent, has been permitted under automatic route to this sector, which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry.
India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25 to 30 per cent lower than their western 19 counterparts the Investment Commission has set a target of attracting foreign investment worth US$ 5 billion for the next seven years to increase India’s share in the global auto components market from the existing 0. 9 per cent to 2. 5 per cent by 2015. FDI inflows in Automobile Industry 2008-09 was Rs. 5,212 Cr an increase of 47. 25% compare to 200708, while in April-May 2009 it was around Rs. 497 Cr. Indian Automobile Industry at Global level: • • • • •
India ranks 1st in the global two-wheeler market. India is the 4th biggest commercial vehicle market in the world. India ranks 11th in the international passenger car market. India ranks 5th pertaining to the number of bus and truck sold in the world. India is the second largest tractor manufacturer in the world. 20 PEST ANALYSIS THE POITICAL ENVIRONMENT • Open Economy: India has recently opened up the economy and hence there is tremendous scope in terms of growth here. As one of the emerging markets in Asia, it has a lot of potential as the earning power of people increases. Liberalization policy of Congress: The liberalization policy of the government started in 1990s has reaped tremendous benefits at this stage. The Indian economy has opened up and if such policy continues to be the agenda of the government then it would pave the way for one of the most exciting markets for cars. THE ECONOMIC ENVIRONMENT • Rising GDP and per capita Income indicates growth of economy and hence rises in demand. • Segmentation: Younger generation has more disposable income with increasing salaries & they are also perceived to be more technology savvy & ecologically conscious. 58% of Indian population is youth population.
This will be the target market for the next few coming years. THE SOCIO CULTURAL ENVIRONMENT • Today’s society judges people on the type of car you drive. Society does not like to admit to this but it is very true. Manufactures know this happens and targets their markets by these thoughts. For example, anyone who drives a mini van is perceived as a soccer mom. This is because the manufactures target mini vans to mothers. Anyone who drives a nice vehicle is thought to be wealthy. No one wants to be seen driving an unattractive piece of junk because of what other people will think of him or her.
Consumers also just feel better when they are driving a nice or new car; it makes them feel better about themselves. Therefore the car you buy reflects your social status also. • Another aspect of the sociocultural is the environmental concerns for the need of fuel-efficient vehicles. 21 THE TECHNOLOGICAL ENVIRONMENT • Opening up of Indian market to foreign investors has created a rush of new technologies. There is a thirst to grasp more and more of latest technologies by the car manufactures. However, the R&D expenditure of HONDA has reaped good benefits, making the cars best among its league. and also coming up with newer and newer models.
SUMARY OF PEST • Political environment – Largest democracy, era of coalition governments, fair amount of political stability, political consensus on economic reforms and higher target of growth of the economy, sound legal system – a factor contributing to a large foreign direct investment. • Economic environment – continued economic liberalization, encouragement to foreign investment, big growth in services sector, controlled inflation in recent time, reasonably stable exchange rate, scarce and costly energy, abundance of skilled low cost labor, easy availability of raw material being a major producer of steel. Social environment – large middle class, major changes in life style, a major increase in urbanization, consumption, both parent working, nuclear leisure activities, and trend of using credit cards. • Technological environment – technology import liberalized and a significant effort in internal technology development. • Increasing affluence of urban consumers would ensure reasonable demand for cars. The changing lifestyles indicated an increase in demand for cars in the mid price segment. • The changing buying behavior of the consumers shows that they are becoming choosy and looking for styling, comfort, etc, and fuel fficiency conforming to environmental standards. • Technologically the industry is experiencing major changes. The technology rests with very few players in the world. • Intense competition is indicated in the coming years. families, 22 COMPETITIVE ANALYSIS PORTERS 5 FORCES MODEL I’ve used the Porters 5 Forces Model to gauge the industry attractiveness • Threat of new entrants o The threat of new entrants is very low in the automobile industry. The industry is very mature and it has successfully reached economies of scale.
In order to compete in this industry a manufacture must be able to achieve economies of scale. For this to occur, manufacturers must mass-produce the automobiles so that they are affordable to the consumer. o Another barrier to entry is that it takes an incredible amount of capital to manufacture the automobiles. It takes an extreme amount of capital not only to be able to manufacture the products but also to keep up with the research and development that is necessary for the innovation requirements. o Access to distribution channels is another high barrier to entry.
A company must find a dealership to sell their automobiles or have their own dealership. Space in the dealerships lots is very limited making it difficult to have a wider variety of inventory. o Brand Identity: Honda brand name is almost known all over the world and its reputation in India is very strong. (+) o Government Policy: The government has a very open policy in the automobile sector with almost negligible control over the companies (major companies) coming to India Hence, there would be no control over who can come up with a new technology and a new model in the Indian market. -) o Learning curve: HONDA has a huge learning curve in the Indian market and since it has been here long enough to know its customers, it can envisage their needs in a better way than any other new entrant. (+) 23 • Bargaining power of suppliers o The bargaining power of suppliers is very low in the automobile industry. There are so many parts that are used to produce an automobile, that it takes many suppliers to accomplish this. When there are many suppliers in an industry, they do not have much power. There are so many suppliers to this industry; manufactures can easily switch to another supplier if it is necessary. Bargaining power of buyers. o The bargaining power of the buyers is moderately high. The buyers being consumers purchase almost all of the industries output. The manufacturers depend on them to stay in business. The buyers also are a significant portion of the industries revenue. If they can not keep their buyers happy then there is a risk of losing them to their competitors. The buyers have low switching cost because if they are not happy, they can easily switch. All the buyer has to do is sell the car they own and purchase a new one. o The reasons why the power is not completely high is that the buyers are not large and few in number.
The buyers do not have the ability to integrate backwards into the industry. If they want a car then they have to purchase it from a dealership. • Threat of Substitute Products o There are not many substitute products for automobiles. Some of the substitutes are walking, riding bike or taking a train. Substitutes products all depend on the geographic location of the consumer. In some cities such as New York or Chicago, a car is not as necessary. In cities such as those, the subway is the most effective means of transportation. However, in most places a person must have to access to an automobile in order to get around. 24 Intensity of Rivalry among Competitors o Rivalry among the competitors is very strong is this industry. The major competitors are so closely balanced that it increases the rivalry. In order to gain market share in the automobile market, one must gain market share by taking it from their competitors. o One of the other reasons there is such high rivalry is that there is a lack of differentiation opportunities. All the companies make cars, trucks or SUV’s. The competitors are compared to one another constantly. The price, quality, durability, and many other aspects of different manufacturers are greatly taken into consideration when deciding hat type of vehicle to purchase. When the different manufacturers advertise they even compare their products to their competitors. For example, the commercials will focus on areas where the company outperforms its competitors. SWOT ANALYSIS • Strengths o Familiar brand name o New age design. o Reputation for producing high quality products. o Honda has won many awards for initial quality and customer satisfaction o Automobiles are reliable and generally fuel efficient o Strong research and development which has afforded them competitiveness in quality products. They were a pioneer in engineering low emissions internal combustion and hybrid technology. o Honda is the only other manufacturer outside of Mitsubishi to branch out into many other areas outside of automobiles o Huge learning curve. 25 • Weaknesses o Prices are higher for non-luxury vehicles than comparable modals by other manufactures. • Opportunities o To continue progressing low emission vehicles and alternative power sources. While they have made progress in this area, the technology is still overpriced for the consumer, and the infrastructure does not exist. Another area of opportunity would be developing nations like china and India. These are large markets, and cheap dependable transportation would be a hot seller. o Easy Financing. • Threats o If continuous innovations are not done, then competitors will beat you with last year’s technology. o Strict environmental Laws like EURO III Norms. o Liberal Government Policies. 26 FINANCIAL STATEMENT ANALYSIS • TATA Motors • Mahindra and Mahindra Companies: TATA Motors I. Liquidity Ratios • Current ratio • Quick ratio • Cash ratio 1) Current Ratio = Total Current Assets/ Total Current Liabilities For 2007-? 08 = 0. 64 For 2008-? 09 = 0. 4 For 2009-? 10 = 0. 44 The Current ratio for Tata Motors in 2008-? 09 and 2009-? 10 fairly below one, which shows that the company’s financial position is not very healthy i. e. if the need arises the company, would struggle to cover their current liabilities with the current assets. 2) Quick ratio = Total Quick Assets/ Total Current Liabilities Total Quick Assets = Current Assets-? Inventories(Stocks) For 2007-? 08 = 0. 66 For 2008-? 09 = 0. 58 For 2009-? 10 = 0. 44 Quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities 27 immediately.
We can see that the quick ratio for Tata Motors is poor and that means it cannot easily cover its current liabilities using its quick assets. 3) Cash Ratio=Cash and Marketable securities/Current Liabilities For 2007-? 08 = 0. 074 For 2008-? 09 = 0. 058 For 2009-? 10 = 0. 11 Cash Ratio can determine if, and how quickly, the company can repay its shortterm debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party. In 2007-08,0809 and 09-10 the cash ratio was less than 1, which means that the company couldn’t cover the debt quickly using its cash.
II. Profitability ratios • Operating margin • Net Profit Margin • Return on Net Worth 1) Operating margin (%) = (Operating income/ Net Sales)*100 Operating income= Net Sales -? Cost of sales For 2007-? 08 = 10. 53% For 2008-? 09 = 6. 71% For 2009-? 10 = 11. 74% Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. The company’s operating income has been fairly uniform throughout the 3 years. 2) Net profit margin(%) =PAT/Revenue For 2007-? 08 = 6. 96% For 2008-? 09 = 3. 77% For 2009-? 10 = 6. 26% 28 Net profit margin is calculated sing the profit obtained after removing the taxes. The Net profit margin has been poor for the company for the past three years. 3) Return on Net worth (%) = Net Income/Shareholder’s Equity For 2007-? 08 = 25. 98% For 2008-? 09 = 8. 09% For 2009-? 10 = 14. 96% The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The results for the past three years for the company have been good with positive returns. Activity ratios • Inventory turnover atio • Asset Turnover ratio • Investments Turnover Ratio 1) Inventory turnover ratio = Cost of goods sold/Average Inventory Average Inventory = (Opening Inventory + Closing inventory)/2 For 2007-? 08 = 14. 44 For 2008-? 09 = 13. 47 For 2009-? 10 = 13. 07 A ratio showing how many times a company’s inventory is sold and replaced over a period. The ratio should be high because low ratio is a bad sign for the company because products tend to deteriorate while kept for long. The ratio has been very little for the last three years. 2) Asset Turnover ratio =Net sales/total Assets III. For 2007-? 08 = 2. 69
For 2008-? 09 = 1. 88 For 2009-? 10 = 1. 95 29 The asset turnover ratio is very low for the company. This suggests that the company has higher profit margins. 3) Investments Turnover ratio = Sales/(Net Worth + Long Term Liabilities) For 2007-? 08 = 14. 44 For 2008-? 09 = 13. 47 For 2009-? 10 = 13. 50 This determines Return earned on capital invested in a business. It has been very uniform in the last 3 years. IV. Leverage ratios • Debt ratio • Debt-? equity ratio • Interest coverage Ratio 1) Debt ratio = Total debt/Total Assets For 2007-? 08 = 0. 44 For 2008-? 09 = 0. 51 For 2009-? 10 = 0. 53
A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load. The company’s debt ratio has been less than 1 for the three years which suggests that the risk level for the company is low and the debt is very less as compared to the total assets. 2) Debt-? Equity Ratio = Total Liabilities/Shareholder’s Equity For 2007-? 08 = 0. 80 For 2008-? 09 = 1. 06 For 2009-? 10 = 1. 11 It indicates what proportion of equity and debt the company is using to finance its assets.
A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. The ratios for Tata Motors are pretty high so there is a high level of risk for the company. 30 3) Interest Coverage Ratio = EBIT/Annual interest expense For 2007-? 08 = 6. 28 For 2008-? 09 = 2. 43 For 2009-? 10 = 2. 77 A ratio used to determine how easily a company can pay interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. When a company’s interest coverage ratio is 1. 5 or lower, its ability to meet interest expenses may be questionable.
An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. The ratio for the company is very high which suggests that the company is doing well. Mahindra and Mahindra I. Liquidity Ratios • Current ratio • Quick ratio • Cash ratio 1) Current Ratio = Total Current Assets/ Total Current Liabilities For 2007-? 08 = 0. 86 For 2008-? 09 = 0. 90 For 2009-? 10 = 1. 11 The Current ratio for Mahindra and Mahindra is very good in 2009-? 10 above 1 and on a steady rise in the last 3 years, which is very healthy for the company.