Soft Pedalling Is Over, Rough Terrain Ahead For Bicycle Industry

The bicycle industry has not tapped the tremendous potential in the country. The growth of the bicycle industry in 1996-97 is far from satisfactory. This is mainly due to heavy competition in the export market and slack demand for cycles in the domestic market. Yet, India with a production figure of about 13.5 million bicycles annually is the second largest manufacturer in the world, after China. Indian bicycles are popular in Europe, Africa, Latin America and Southeast Asia.

The Indian bicycle market has not changed much unlike in the developed countries where fashions change rather swiftly. The manufacturers there have to be innovative to keep in tune with the market.

 

However, in India things are likely to change as international fashions reach the shores quickly. Indian bicycles have been slow so far in making a dent in markets of the developed countries. This indicates that manufacturers have to monitor the Western markets to tap the demand for Indian bikes.

Since the Indian market is still under the firm grip of traditional models, going in for innovations is a slow process. Indians still prefer the traditional black cycles. This is because bikes continue to be looked upon as means of transportation of goods rather than instruments of joy rides. Some advanced models like SLR, BMS, Racers, Hi-risers were introduced by the industry considering the demands from developed countries.

The share of these hi-tech models is just 12 per cent of the total cycle output in India, the bulk of the share being accounted for by traditional cycles. In order to increase the supply in the international market, the production of hi-tech bicycles must go up to meet the demand.

Prices of bicycles differ depending on the company and the model. In general, prices range from Rs 1,400 to Rs 2,750. For children's cycles, the range is between Rs 850 to Rs 1,500. Hero Cycles sells different models like Ranger Max, Hero Royal, Hero Champion and Twister. The Tango range of bicycles introduced by Atlas Cycle is gaining popularity in UP. They cost around Rs 1,700 to Rs 2,700.

The most popular models of Tube Investments of India are BSA SLR and mountain terrain bikes. There are many other cycle manufacturers such as Avon Cycle and RMI Cycle. However, the data from these companies is not assessable.

The gear cycles produced by Hero Cycle and Atlas Cycle have yet to make a dent in the market. It is difficult for the rider to use gear cycles in a crowded metropolitan city like Mumbai. In developed countries, gear cycles are very popular because roads are relatively free and less crowded.

Gears cycles are available in the range of Rs 3,000 to Rs 5,000 with a maximum of 10 gears, whereas in Europe gear cycles have up to 18 to 28 gears. Domestic gear cycles cost more in the domestic market than in the international market because of high costs. Atlas Cycles imports gear systems to manufacture sophisticated cycles. The company has started manufacturing cycles with 28 gears.

The fancy segment with a wide choice of models may add to the stiff competition. Standard traditional segments account for the maximum share of the total market.

This segment has been growing at two to three per cent per year whereas the growth of the fancy segment is pegged at around 10-12 per cent a year.

During the six months ended September 1996, three cycle companies have reported unsatisfactory performance. The sales income of these three companies rose marginally to 3.5 per cent in the first half of 1996-97 as compared with the rise of 24.7 per cent in the first half to 1995-96.

This was due to slack demand for cycles in the domestic as well as international market. Sales income of these select companies rose to Rs 456.9 crore (Rs 441.3 crore) - up 3.5 per cent. Operating profit rose by 23.2 per cent to Rs 32.8 crore (Rs 26.6 crore). Gross profit declined by 2.5 per cent to Rs 21.9 crore (Rs 22.5 crore). Net profit slumped by 18.3 per cent to Rs 9.6 crore (Rs 11.8 crore).

Despite increased input costs, the three companies managed to raise the operating profit margins to 7 per cent (6 per cent). Yet, gross profit margins fell to 4.8 per cent (5.1 per cent) and net profit margin to 2.1 per cent (2.7 per cent).

In 1995-96, the raw material cost of the companies increased by 19.4 per cent to Rs 41.9 crore (Rs 35.1 crore). The share of raw material consumption in the net sales increased marginally to 65.7 per cent (65.5 per cent). In the total raw material consumption of the three companies, the share of imported raw material consumption is hardly 7 per cent.

India's bicycle production in 1997 is estimated to increase by 8.9 per cent to 13.5 million compared with 12.4 million in the previous year. Since 1991, the production of bicycles in India has increased by 52.7 per cent. The production of bicycles turned out by three companies in 1995-96 has increased by 5.5 per cent to 46.6 lakh units(44.2 lakh units).

The capacity utilisation of the three companies was 74 per cent in 1995-96. However, Atlas Cycle and Tube Investment of India reported a capacity utilisation of 74 per cent and 82 per cent respectively. FOB value of exports for the three companies in 1995-96 increased by 16 per cent to Rs 100.4 crore (Rs 86.6 crore). The share of exports in the net sales of these companies fell marginally to 11.7 per cent (11.8 per cent).

India's foreign exchange earnings from exports of bicycles and parts are estimated to touch Rs 1,000 crore, of this 80 per cent will be from components. Tube Investment of India has formed a joint venture through its overseas subsidiary, Parry Overseas in Holland, for assembly and export of bicycles.

The benefits out of the joint venture are expected to flow in 1997-98.

As far as advertisements and sales promotion expenditure is concerned, the industry appears lukewarm. Advertisement expenditure gives long-term benefits and plays a critical role in the cycle industry where different brands and styles of products enter the market with regular frequency.

In 1995-96, the advertisement expenditure of the three companies increased by 3.8 per cent to Rs 9.8 crore (Rs 9.4 crore). The share of advertisement expenditure to net sales is merely one per cent.

Technological upgradation is a major problem faced by the industry. According to industry sources, the cycle industry is mainly concentrated in Ludhiana and there are few efforts to improve quality. Large investment is needed to modernise the plants. Those companies that have invested in value-added quality bicycles have made a name for themselves.