HINDUSTAN MOTORS

Presented By

Ankit Bafna Atul Zade

Ranjan Sharma

Swathi Velisetty

Index

Introduction

HM’s Strategy

Sector Analysis

Competition

Financial performance

Introduction

Hindustan Motors

Hindustan Motors Limited

India's pioneering automobile

manufacturing company

Flagship Company of the C.K. Birla Group

Established 1942 by Mr. B.M. Birla

of the industrious Birla family

Commenced operations  in a

small plant in Port Okha near Gujarat

Brands

Passenger cars

Ambassador

Grand

Avigo

Multi Utility Vehicles

Trekker

Porter

Pushpak

RTV

Premium segment

Mitsubishi Lancer

Lancer Select

Lancer Cedia

Sports Utility Vehicle

Mitsubishi Pajero

Plants

•Mitsubishi Lancer cars •Technical collaboration with Mitsubishi Motors, Japan.

Tiruvallur (Chennai)

•Passenger Cars- Ambassadors, Contessa•Multi Utility Vehicles -Trekker, Porter and Pushpak.

Uttarpara (Kolkata)

•Road Trusted Vehicle(RTV) division•Technical collaboration with OKA Motor Company, Australia

Pithampur (Indore)

Collaborations

•Collaboration : Mitsubishi Motors Japan in the year 1998 •Products : The Lancer and Pajero range of cars

Chennai Car Plant (Tiruvallur, Tamilnadu)

•Collaboration : OKA Motor Company Australia in the year 1998•Products : Road Trusted Vehicles 

RTV Plant (Pithampur, Madhya

Pradesh)

•Isuzu Motors Ltd. Japan from 1983 –1993 •Vauxhall Motors U.K. from 1980 – 1990•Ricardo Consulting Engineers Ltd U.K. from 1989-1993

Past Collaborations

•Caterpillar U.S.A. for the manufacture of Dumpers and Excavators •Terex for the manufacture of Dumpers, Loaders, Dozers•Fermac U.K. for the manufacture of Backhoe Loaders

Earth Moving Equipment Division

(EED)

Automobile Industry

Initial Years •License Raj•High Customs duty•Steep excise duties & sales tax

•2 Major players

1980s•Entry of MUL•Seller’s Market

Early to mid 90s•Decrease in customs & excise

•Auto finance boom

Mid 90s – Early 2000s•Buyers market•Finance lease, fleet management, insurance and used car market

Milestones

1942 •Incorporated at Port Okha in Gujarat as a small assembly plant for passenger cars.

1948 •Shifted its activities to Uttarpara in West Bengal and set up facilities for manufacture of cars and trucks

1971 •Set up an Earthmoving Equipment Division at Tiruvallur, near Chennai

1985 •Commenced Power Products Division at Hosur, Karnataka for manufacture of heavy duty transmission required for Earth moving Equipments

1986 •The Commercial Vehicle Division for the manufacture of Heavy Commercial Vehicles at Vadodara, Gujarat abandoned

1987 •Commenced production of petrol engines and transmissions at Pithampur, Madhya Pradesh, in collaboration with Isuzu Motor Company, Japan

Milestones

1996 •Upgraded and expanded its Earthmoving Equipment Division, Power Plant Division and the Uttarpara Plant.

1997 •Began the production of the Road Trusted Vehicle.

1998 •Commenced the Mitsubishi Lancer Car project.

2001 •The Earthmoving Equipment Division plant was sold off to Caterpillar, USA.

2002 •Launch of the Mitsubishi Pajero in India.

2004 • Components Business transferred to AVTEC – a company jointly held by HM, Actis and CK Birla Group.

Till 1980s

Ambassador- vehicle of choice

Senior politicians, Top civilians, Bank managers and Defense personnel.

Official car (GOI)

Better suited for the rough Indian roads

Strong structure- withstand the impact of accidents

Ambas-sador; 70

Premier Padmini; 30

Market Share

Ambas-sador; 65

Others; 35

Taxi Segment

MUL’s Entry

Export• teadily increasing,

mainly in the British and Japanese markets.

Delivery• 6 months to

1 year

MUL• Small fuel

efficient and well designed car, Maruti 800, became a market leader

1990’s

•Launched the Contessa -One of the first up-market cars in India in technical collaboration with Vauxhall Motors (VM). 1984•Launched Contessa classic considered the most powerful car available•Never managed to match Ambassadors success1987•Contessa GXL version with power steering was launched. 1997•Launched Opel Astra in collaboration with GM 1996

Strategy

Porters Model Analysis

•HM was unable to create barrier for potential new entrants, many foreign collaborated entrants like Maruti Suzuki, GM, Toyota launched and HM was unable to compete with their existing strategies

Threat of new entrants

•Even suppliers were not looked into deep, company was in a snail pace and couldn’t take up the challenge of new potential entrants in the market, including the suppliers of its different parts

Bargaining Power of Suppliers

Porters Model Analysis

•HM was focused only to one segment till 1997 and with in that time MUL was able to bring out brands for each segment with in the nation. Substitute for the brand was quite visible in the economy

Threat of Substitute

•Rivalry within the company also lead to downfall of the company and ultimately leading to less market share. Eg. Internal Problems, Union problems etc….

Competitive Rivalry

Problems

CITU, the trade union

of CPM

No dividends to its

shareholders

HR inefficiency

Lax management policies and

shortsightedness

HM’s design was not aesthetic and even

failed in aerodynamic designs

Car was not up-to the mark in

design and performance

Need for Turnaround

Daewoo, GM, Daimler Benz, Hyundai, Honda entered India through

joint ventures (JV)

HM was the worst affected due to

poor performance of its vehicles

HM launched Nova (1990) with better interiors

HM launched 1800 ISZ(1993),

better engine performance

Appointed consultants

McKinsey & Co. for a restructuring plan

Mckinsey & Co. findings

Asked HM to focus on the marketing of components

Refurbish the Ambassador model and upgrade other

vehicles

Speed up the delivery process and improve productivity through

re-engineering on the floor shop

Reduce the workforce in its production plant

at Uttarpara

Implementation

HM collaborated with Oka Motor Co. to develop targeting at rural markets.

Launched Trekker (Rural Transport Vehicle)1995 in 3 northern states

1998, Trekker sales dropped by two thirds of its initial volumes to around 800 a year.

1999, HM launched the redesigned Trekker and an upgraded version of the amby.

Not sustainable- Decline in sales.

Turnaround Efforts -1

Workforce downsized

VRS scheme announced

Legal Hassles

Productivity reduced

Turnaround Efforts -2

HM unveiled a new distribution system,

wherein dealers where divided into

three tiers

Established Indore unit to

assemble engines and gearboxes

HM entered into an agreement with M&M for developing petrol

engine for M&M vehicles

HM tied up with GM to market the entire range

of transmission equipments

manufactured by Allison Automatics

Turnaround Efforts -2HM began exporting RTVs to Bangladesh.

HM also supplied Petrol engines to UK

‘Click and Customize’ service for Lancer

Effects

Narrow down the losses in the first quarter of 2001-

02 by around 30%

Banking on the Ambassador’s niche

markets (government and taxi) and hoped to retain the segment by launching

new variants

The Trekker was also poised to do well after the relaunch and HM hoped to sell 3,200 vehicles in 2001-02

HM seemed confident that with Pajero’s launch in early 2002, it would

regain its position in the Indian car market

Sector Analysis

Industry Overview

Key industry propelling Indian Economy

Contribution to GDP: About 4%

100% FDI allowed via automatic route

Major generator of employment (450 million in 2007)

(Source: Automotive mission plan 2006-2016)

Contribution of Automobile Sector to GDP

0

1

2

3

4

5

2001-02 2002-03 2003-04 2004-05 2006-07

Years

Percentage

(Source: SIAM)

Mission Plan 2006 - 2016

Objective• Investment Planned – $ 35 to 40 bn • Increase share in GDP (to 10%)• Generate employment opportunities

Government Plans• Reduction in excise duty (to 5% - 7.5%)• Development of NATRIP

Automotive Mission Plan (AMP)

Decade-long plan launched in 2006 Key Objectives:

Reduce & Simplify tax laws Create flexible labor laws Emphasize on R&D investments Lower interest rates Encourage capacity addition ; Bharat

Forge followed suit with 20% addition in FY’07

Industry Structure

Highly fragmented industry Around 500 organized players account

for 77% of the value added in the sector Organized market led by Bharat Forge,

Sundaram Clayton Around 6000 unorganized players

account for 23% of the value added in the sector

Ancillary Leaders

Engine Parts Bharat Forge, Amtek Auto

Electrical Parts Exide

Transmission & Steering

Sona Koyo

Suspension & Braking

Sundaram Clayton

Equipment Motherson Sumi

Industry Players (Op Profit Margin)

Amtek Auto Bharat Forge Motherson Sumi

Sundaram Clayton

0

5

10

15

20

25

30

35

FY07(%)

FY08(%)

Source: www.economictimes.com

Effect of Inflation

Brake on Growth Plans of Auto Companies

Increase in Sale Price by 3-4%

Auto Industry growth in revenues• 2007: 17.15%• 2008: 6.4%

(Source: SIAM & www.financialexpress.com)

Competition

Key Growth Drivers of Indian Automotive Industry

Government Policies• Overall economic

growth• Lower duties and

taxes• NHDP and

improving road infrastructure

• Logistics boom due to retail industry growth

New Product Launch

es

• Contemporary products

• Shorter life cycles

• Vendor & Distributor management

Increasing

consumer demand

• Growth in Income levels

• Easier financing

Competitors in Passenger cars and LCV segments

Passenger cars

Maruti Suzuki

Tata Motors

M&M

Hyundai

Continuous innovation and new product launches by competitors

Maruti Suzuki Limited

Maruti 800

Alto

Gypsy

Wagon-R

Swift

SX-4

Hyundai(26 variants in 6

segments)

Santro

Accent

Getz

i10

Tata Motors

Indica

Indigo

Safari

Nano

Continuous innovation and new product launches by competitors

Ashok Leyland

Buses (CNG and Normal variant)

Engines

Defense and special vehicles

Trucks

Tata Motors

Pickups

Heavy trucks

Light trucks

Tippers

Buses (Globus etc.)

Tractor-Trailors

Mahindra & Mahindra

Utility Vehicles (Bolero,

Commander)

Pickups (Maxx Maxxi Truck)

Three major auto clusters exist in India-Location Advantage for competitors

Three major auto clusters exist in India-Location Advantage for competitors

Three major auto clusters exist in India-Location Advantage for competitors

Auto financing- another differentiator for competitors

Tata Motors – Tata Motor Finance

Maruti Suzuki - Citicorp Maruti Finance Ltd. , Maruti Countrywide Auto Finance Ltd.

M&M – Mahindra First Choice, Mahindra Finance

Increasing thrust on distributor management for robust After sales services which is high margin business

Tata Motors has over 3500 touch points for all its product offerings

Maruti Suzuki has over 600 sales outlet and 2500+ authorized service centers

Hyundai has network of 250 dealers and 1000 after sales service centers

Toyota has developed exclusive network of 63 dealers for sales and servicing

JVs with Multinationals has brought modern technology and opened doors of global markets

Toyota- Kirloskar JV

M&M – Renault : New products and increased access to technology

Tata Motors- Fiat, JLR acquisition gives access to world class components from Ford

Maruti – Suzuki : strategic partnership for Suzuki

Ashok Leyland – Nissan

Competitors taking benefits of government policies for developing Automotives sector

Automotive Mission Plan aims to make India a hub of Small car export station.

- Hyundai exports 36% of its production to 67 countries

- Suzuki plans to export 200,000 cars from India by 2010

- Ford Motor exports 58% of its production from India

NHDP and increased spending on developing road infrastructure critical to develop LCV market

- Hub-and-spoke model is gradually developing- Tata Motors strategic acquisition of Daewoo - Ashok Leyland- Nissan JV to produce LCV in

Chennai- Boom in retail and FMCG sector a big driver for

this vertical

Financials

Peer Comparison

Value Driver Formula

ROIC = (1-T) * (Price - Cost) * Quantity

Capital Invested

Sales (INR Crore)

2004 2005 2006 2007 20080

200

400

600

800

1000

1200

1400

1600

Net profit (INR Crore)

2004 2005 2006 2007 2008-100

-80

-60

-40

-20

0

20

40

60

80

Operating Cash Margins

2004 2005 2006 2007 2008-10

-5

0

5

10

15

HMTataMaruti

Fixed Asset Turnover Ratio

2004 2005 2006 2007 20080

0.5

1

1.5

2

2.5

3

3.5

HMTataMaruti

Inventory Turnover

2004 2005 2006 2007 20080

5

10

15

20

25

30

35

HMTataMaruti

Exports as % of sales

2004 2005 2006 2007 20080

2

4

6

8

10

12

14

HMTataMaruti

Recommendation

Technical Collaboration with Foreign automobile

companies

Improve Efficiency in

Manufacturing

Focus on Marketing

Focus on Auto Component

Business

Thank You