Allwyn Nissan Group 8

Case Study :Allwyn Nissan Limited

Prepared by :

• Priyank Patel - Roll no. 29• Jayesh Vasava - Roll no. 38• Naishadh Joshi - Roll no. 12

Group - 8

Allwyn Nissan Limited

Hyderabad Allwyn limited (1942)

Nissan Motor Company limited (1933)

Allwyn Nissan Limited (July 1983)

36 % 14.97 %

Commercial production was started (April 1, 1985)

ANL became subsidiary of HAL (1985-86)

Downturn of ANL (1985-88)

State government decided to sell of ANL

M&M entered into a MoU with HAL(June 10, 1988)

M&M26 %

ANL10 %

Mahindra Nissan Allwyn Limited

• Agreement between HAL & Nissan was terminated &

New venture agreement between M&M with Nissan was entered (Nov 7, 1988)

About Industry

Light commercial vehicles (LCVs) • Light commercial vehicles (LCVs) are usually referred to

goods and carriage vehicles with a light capacity that varies from one region to another

• Europe -- 3.5 tones of mass • India -- 3000-6000 kgs.

• In 2010, 2.7 million light vehicles were sold in India, up from just 700,000 light vehicles in 2000.

• By 2020, China’s light vehicles market is expected to reach 35 million units, while that of the US will rise to 17.4 million units, the report said.

• the JD Power Asia-Pacific Executive Director, Mr Mohit Arora, told PTI –

“Our forecast is that by 2020, India will become the third biggest market for light vehicles, that includes passenger cars and LCVs, with total sales of nearly 12 million units,”

“There is a huge potential in the Indian market, but the key challenges lie in infrastructure growth to support the automotive industry,” Mr Arora said.

• As per the report, of the projected light vehicle sales of 11.9 million units in India by 2020

• The Indian small and light commercial vehicle (SCV and LCV) segment is expected to log a compounded annual growth rate (CAGR) of 18 percent over the next five years to reach around 830,000 units by 2016, said consultancy firm Frost and Sullivan.

Financial Years Volumes

FY 08 215,912

FY 09 200,699

FY 10 277,777

FY 11 353,620

FY 12e 413,735

FY08 FY09 FY10 FY11 FY12e

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

-0.40%

-33.20%

33.50%31.80%

17.50%

LCVs Market in india

Segment - wise Industry Volumes

Segment – wise Market Share

About company

About company

• July 1983 Allwyn Nissan Limited =

Hyderabad Allwyn Limited + Nissan Motor Company Limited

• November 7, 1988

Mahindra Nissan Allwyn Ltd. = Mahindra & Mahindra Ltd. + Nissan Motor Company Ltd.

• February 27, 1989 – M & M formally took over ANL

Hyderabad Allwyn Limited

₋ Hyderabad Allwayn Limited was established in 1942 as Allwayn Metal Limited.

₋ Hyderabad Allwyn Metal Works Limited assembled Albion CX9 buses for Hyderabad State Railways.

₋ The ballot boxes for first ever general elections in 1952 was made by Hyderabad Allwyn Metal Works.

₋ The company had three divisions, Bus body building, Watches & Refrigerators.

– In July, 1983, the automobile division entered into a tie-up with Nissan and the division was named as Hyderabad Allwyn Nissan Ltd.

– Allwyn along with HMT & Titan Industries dominated the Indian watch market with almost 10% of the market share.

– The refrigerators division was privatized in 1994 and handed over to Voltas.

– The Allwyn refrigerators model was eventually phased out by Electrolux in 2002.

Nissan Motor Company Ltd

• Nissan Motor Co. Ltd. was established in Yokohama in Japan in the year 1933. It was initially named Datsum but was later re-christened Nissan Motor Co. Ltd in 1934.

• The company operates in more than 82 countries across the globe.

• Headquarters - Nishi-ku, Yokohama, Japan

• Nissan was the sixth largest automaker in the world behind Toyota, General Motors, Volkswagen AG, Hyundai Motor Group, and Ford in 2010.

• NISSAN MOTOR CO., LTD. is a Japan-based company primarily engaged in the manufacture and sell of automobiles

• As of March 31, 2012, the Company has 199 subsidiaries and 25 associated companies.

• In India, Nissan Motors is in its nascent stages. It is presently operating through a network of dealers located in Delhi, Mumbai, Bangalore, Secunderabad, and Chennai.

Mahindra & Mahindra Ltd.

• Mahindra & Mahindra Limited (M&M) is an Indian multinational automaker headquartered in Mumbai, Maharashtra, India.

• The company changed its name to Mahindra & Mahindra in 1948.

• It is ranked #21 in the list of top companies of India in Fortune India 500 in 2011.

• The company was founded in 1945 in Ludhiana as Mahindra & Mohammed by brothers K.C. Mahindra and J.C. Mahindra and Malik Ghulam Mohammed.

Allwyn Nissan Limited

Hyderabad Allwyn Limited + Nissan Motor Company Limited

• In the mid-1980s, Nissan tied up with an Andhra Pradesh Government undertaking and set up a light commercial vehicle (LCV) plant at Zaheerabad, about 70 km from Hyderabad.

• The manufacture of new generation light commercial vehicles

• The estimated project cost around Rs. 52 Cr., to be implemented in 2 phases

• The first phase was implemented at a cost of Rs. 24.10 crore.

• The commercial production of LCVs commenced in April 1985.

• The licensed capacity had been increased from 10,000 units to 50,000 units. The installed capacity was 5,000 per year.

• The company’s vehicles were marked under the brand name CABSTAR

Company Name No. of shares Equity Stake

HAL 5,999,948 36 %

NMCL 2,500,000 14.97 %

FIs & general public 8,200,052 49.03 %

Financial condition of ANL• Further appreciation of Yen value

– Loss of production– Cash flow problems and losses.– Cost was increased

• 20% higher price than its competitors.• Expensive product in the lower end of the market• ANL’s capacity utilization had barely touched 30 %• No. of units: Average sales 1,650 - Projected sales 3,000• Losses ` 10 crore

Interest burden ` 4 crore/year.

Positive factors

• The financial institutions were actively considering the company’s request for rephrasing of loans and exemption on commitment charges.

• The A.P. Government granted a sales tax subsidy in 1987

• The A.P Government asked all state PSU to purchase LCV from ANL only.

• Reduction in excise duty up to 50% by the government

Negative factors

• 2,289 LCVs manufactured - Only 1,882 were sold

• Sudden and sharp rise in the value of the Japanese currency.

• Increase in excise and customs duties in the union budget – Hike in vehicle price.

• April-June quarter of 1986 – ANL received a setback in sales

• Demand recession in the LCV market• All help proved insufficient - the company was forced to curtail its

production to 697 vehicles in 1986-87

PORTER’S FIVE FORCE ANALYSIS

Competitive Rivalry

Threat of substitute product

or services

Buyers bargaining

power

Threat of new Entrants

Suppliers bargaining

power

Suppliers bargaining power• There were few potential suppliers

• On effective follow-up with the government, – It got the excise duty on LCVs reduced by 50%– Government granted a sales tax subsidy in 1987– All state public sector undertaking to purchase LCVs from ANL only.

• For goods transportation – vendors had no options• License Raj – manufacturing unit had license to manufacture up to certain limit• Monopoly in the market

Supplier’s bargaining power is moderate

Buyers bargaining power• No possible substitute –

– Door to Door services – not possible for Railway

• Most cost effective option

• Time consumption - low– Used for short distances– Not for heavy load

• Transportation cost depends on – Petrol/Diesel prices

Buyer’s bargaining power - limited

Threat of substitute product or services

• Railways :– Substitute of road transport– Cheaper than road transport– Less Time consuming for long distances– Not possible for door to door services– high freight charges & concentration on transport of bulk material

• For LCVs - Road network is more efficient than Railway network in India.

• LCVs are used for door to door services –

Threat of substitute is LOW

Threat of new Entrants• Technology changes• Environment norms getting stricter – strong R & D required• Wide range of products• Effective follow-up with the government• License Raj• Increase in demand due to surge in economy and industrial

production, higher investment in Road infrastructure• After 1991 – LPG – open economy

Threat of new entrants is reasonability High

Competitive Rivalry• All leading automobile players are competing• New product launches from different rivals

• low cost labor, local availability of steel, aluminum and natural rubber as well as strong ancillary industry in addition to the 100 per cent FDI allowed in the sector has attracted many foreign players

• Intense Competition• New technology

Competition is Intense

CRITICAL SUCCESS FACTORS (CSF)

Critical Success Factors (CSFs)• Critical Success Factors (CSFs), sometimes referred to as Strategic

factors or key factors for success, are those which are crucial for organizational success

• They represent those managerial or enterprise area, that must be given special and continual attention to bring about high performance.

• Identifying the CSFs in an industry or business and then to inject a concentration of resources into a particular area where the company sees an opportunity to gain significant strategic advantages over its competitiors.

CSFs for Allwyn Nissan Limited

PROBABILITY OF IMPACT IMPACT ON BUSINESS

HIGH MEDIUM LOW

HIGH Technological, Economic

Trade policies of gov.

Substitute products - railway

MEDIUM Wide product range

Distribution network

Political environment

LOW Road transport Vehicle financing International trade policies

ENVIRONMENTAL THREATS AND

OPPORTUNITY PROFILE (ETOP)

Market Environment

• Indigenous LCV manufactures – Telco, Bajaj Tempo

• New generation LCV manufactures – DCM Toyota, Swaraj-Mazda, Eicher-Mitsubishi

• In 1986, there was a recession in the Light Commercial Vehicle market .

• ANL fared the worst among the four new-generation LCV manufacturers.

Technological environment

• Around 1986, enough technology was available to produce fuel efficient and cheaper LCVs.

• ANL was among the top four New generation LCV manufactures

• Nissan was the sixth largest automaker in the world – latest technology - Better quality product are manufactured

Economic Environment

• Andra Pradesh Government was facing severe financial crisis.

• Several other State Owned Enterprise were also running in losses

• Sudden and sharp rise in the value of the Japanese currency Yen in Rupee terms.

• Till 1991 License Raj – after 1991 LPG

Regulatory Environment

• A reduction in excise duty from 20% to 10% on fuel efficient LCVs

• The conversion of interest due into fresh loans on soft terms by financial institutions could not offset the rise in input costs.

• The financial institutions were actively considering the company’s request for rephrasing of loans and exemption on commitment charges.

• Reduction in excise duty up to 50%• The A.P. Government granted a sales tax subsidy in 1987• The A.P Government asked all state PSU to purchase LCV from

ANL only.

Political Environment

• Stable environment

• Not much affect

• Till 1990 it was License Raj.

Socio-Cultural Environment

• Before 1990 Car or any other automobile is counted as a Luxury not as necessity ,while after 1990 they were slowly shifted in necessity.

• Earlier because of less strictness in following the rules companies, enterprises and people can manage with less number of vehicles.

• Socio – Cultural environment has also no major role in this industry.

International Environment

• Sudden and sharp rise in Value of Yen

• New generation LCV manufactures – DCM Toyota, Swaraj-Mazda, Eicher-Mitsubishi

• Japanise Automobile companies were coming in India with Joint Ventures.

• Because of LPG - Indian market is open now

Environmental

Sector

Nature of

Impact

Impact of Each Factor

Market In 1986, there was a recession in the Light Commercial Vehicle market .

Technological

ANL was among the top four New generation LCV manufactures

Economical

Not favorable as state government was facing financial crisis

Regulatory Reduction in excise duty & sales tax subsidy

Political Political environment was stable

Socio-cultural

Does not have major role in the industry

International

Sudden and sharp rise in the value of Yen in Rupee terms

STRENGTHS, WEAKNESS, OPPORTUNITIES AND

THREATS (SWOT ANALYSIS)

STRENGTHS

• Nissan - reputed brand in international market• Government company • Full support from government• No major player available in the market at that time• Financial support from government• ANL was among the top four New generation LCV

manufactures

WEAKNESS

• Low market share in LCV segment• ANL fared the worst among the four new-generation LCV

manufacturers.• Manufacturing unit of the company did not perform well

OPPORTUNITIES

• New policies – LPG – End of License Raj• Open market • Top most population in the country • No other substitutes for transportation • Developing infrastructure - roads and highways• Growing market• Vendors & small business need these type of transportation

vehicles.

OPPORTUNITIES is very HIGH

Threats

• Intense competition• Because of LPG - Indian market is open now • Technology changes• Environment norms getting stricter – strong R & D required• Foreign companies entered into the market

Threats level is reasonably high

Strategic Advantage Profile(SAP)

Financial Capability Factors• The financial institutions were actively considering the company’s

request for rephrasing of loans and exemption on commitment charges.

• The A.P. Government granted a sales tax subsidy in 1987• Reduction in excise duty up to 50% by the government• Rephrasing and getting new loans at softer terms.• Sales tax subsidy from Andhra Pradesh Government.• Losses ` 10 crore

Interest burden ` 4 crore/year.

Company Name No. of shares Equity Stake

HAL 5,999,948 36 %

NMCL 2,500,000 14.97 %

FIs & general public 8,200,052 49.03 %

Marketing Capability Factors

four basics categories

• Product• Price• Place• Promotion

Product :• Launched improved version of its vehicles• “CABSTAR – 576”• LCVs of a 3 - tone payload capacity• Launched – water tender, refuse capacitor, A.C. minibus, police soft-

top vans, etc.

Price : • Prices were at least 20% higher than competitors• It could not reduce price as it would have meant severe pressure on

profitability• Thus, the company had an expensive product in the lower end of the

market

• Place :• With the takeover by Mahindra, the distribution network of the

company geared up• M&M had a great deal of clout abroad, which may helped the

company in exports

• Promotion :• Company used to provide high discount.• Favorable company and product image.• After takeover by M&M. It get benefit of M&M promotional

activities.

Operational Capability Factors• Good capacity in LCV segment• Effective utilization of equipments• loss of production and Appreciation of Yen value led to acute cash

flow problem and losses• Face severe competition in its payload capacity range• Capacity utilization had barely touched 30% in 3 year of operation• Existence of good inventory control system• After takeover by M&M , the company has many advantages with

its production.

Personnel Capability Factors

• Factors related to the personnel system - Genuine concern for human resource management and development

• Factors related to organization and employees’ characteristics - High level of organizational loyalty.

• Factors related to industrial relations

Information Management Capability Factors

• Factors related to management effectiveness• Factors related to communication• Factors related to acquisition of information• Factors related to the processing and synthesis of information• Factors related to retrieval and usage of information• Factors related to transmission and dissemination• Integrative, systemic and support factors

General Management Capability Factors

• Good relation with the government.• Control of company is also taken by M&M as In 1988 M&M

agreed to acquire 26% share capital in ANL.• M&M took over with right to appoint three director, including

chief executive.• Also with the takeover by a private sector organization, the much

needed expertise in the top management will be available

Capability Factor Nature of Impact Competitive Strength/Weakness

Financial Capability Company facing financial problem in the market

Marketing CapabilityProduct & promotion activities

ware good but price & place as weak point

Operational Capability

The company has been placing a lot of importance on its operational capability, it

endeavors to effectively utilize its equipment

Personnel Capability This factor’s effectiveness - moderate

Information Management Capability Factors Moderate

General Management Capability

The company’s top management is extremely

forward looking, it has time and again rescued the

company

Thank you