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INDIAN DOMESTIC TWO WHEELER PLAYERS STRUGGLES HARD TO SURVIVE

After witnessing tremendous growth, two wheeler industry is dipping downwards towards sluggish demand and single digit growth. As estimated by us, two wheeler industry reported growth merely of 6% in last quarter compare to 15 % last year.

 

Downfall in economic growth, drying out of rural demand, hike in petrol price and interest rate, increasing cost, over supply due to increasing competition from MNCs have left Indian domestic two wheeler market at a stagnant point.

 

In the month of July 2012 third largest two-wheeler maker of domestic Indian market, Bajaj Auto reported 2.90 per cent fall in motorcycle sales at 3,08,858 units in July. Its exports also fell by 12.84 per cent during the month at 1,25,501 units compared to 1,43,996 units in July 2011.In the three-wheeler category, Bajaj's sales stood at 35,292 units against 45,617 units in the same month last year, a dip of 22.63 per cent.TVS Motors equally had a slope down in sales falling to 1,61,255 units in July 2012 from 1,89,962 units in July 2011, a fall of almost 15%. Their exports fell by 32 %. Hero MotoCorp July total sales were down 1.5% at 4.84 lakh units versus 4.91 lakh units, YoY.

 

At the same time, there is another side to this coin. Domestic players are losing grounds and MNC players like Honda, Suzuki & Yamaha are strengthening their position in Indian market.

 

Honda showed tremendous growth of 56.90 % reporting sales of 2,39,094 units compare to 1,52,382 units in the corresponding month of the previous year.

 

Honda wants India to be its biggest two-wheeler base globally, ahead of Indonesia and Vietnam, which means the next few years could see a lot of action.

 

The company, which recently appointed Bollywood star Akshay Kumar as its brand ambassador, has so far invested Rs 5,000 crore in India, including Rs 1,500 crore in its 4th plant at Karnataka, scheduled to open in 2014, as also expansion of network. With this, the company's production capacities will increase from 27 lakh to 50 lakh two-wheelers annually, mostly to cater to the domestic demand. By the end of this fiscal, the company aims to increase the number of their sales and service network to over 2000 from the current count of 1500 dealers, and by the next fiscal year the aim is of 2700 dealers.

 

Besides this, the firm is all set to start production at the upcoming 3rd plant in Narsapur facility in Kolar district, near Bengaluru from January 2013 In order to further improve its after-sales service network, It will start an additional second line of production in its 2nd plant in Rajasthan in march 2013 to achieve its targets. HMSI will set up 20 zonal offices (currently 5) with centers imparting training to nearly 2,000 technicians from within the dealers' network in the next two years.

 

Suzuki and Yamaha are as determined to push the envelope aggressively while Piaggio has already launched Vespa and looking forward for much more to come. Suzuki , with its continued investment in its current plant in Gurgaon, as well as setting up on new plant in Rohtak ( Haryana), plans to deliver  1 million two wheelers by 2014.

 

Yamaha plans to invest Rs 800 crore on capacity expansion and new product development in the next two years, as it looks to sell 10 lakh two-wheelers by 2014 in India.

 

Market leader, Hero MotoCorp, who recently parted ways with Honda, is looking forward for capturing a larger chunk of market. Hero MotoCorp recently announced an investment of over Rs 2500 crore in setting up two new plants, expanding capacity at existing plants and in building an integrated R&D centre (at Kukas in Rajasthan). With this expansion, total installed capacity of the company would be touching more than nine million units in two years' time, which is equal to 7.5 lakhs units per month. They have the benefit to have the most advanced technology that Honda had given them.

The point to capture here is clear. Moderating demand of two wheeler along with increasing competition from Japanese makers is indeed a threat to our domestic players.  When the market is slowing down and competition from technologically superior MNC players is stiffening, who is losing the game? The answer can be found in our recent results where domestic players like Bajaj, TVS, and Mahindra have began the downward ride.

 

As seen in the past with the other industries of India like 4 wheeler industry, consumer durable industries like TV, air conditioner, refrigerator manufacturers, where MNCs captured the major market share leaving the domestic players struggling, the trend seems to be repeating in this two wheeler industry of India. Predicting the future of this industry becomes easy as the MNCs are taking over control over the Indian market and slowly choking off the domestic makers. Indian two wheeler industry is at a phase where the race can lead the leading player Hero along with MNCs like Honda, Yamaha & Suzuki to escalate to capture more than 90% of market leaving behind domestic players like Bajaj, TVS and Mahindra struggling for the rest. It's time to wait and watch that who comes out triumph in the race.

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