Regression analysis for Bus Industry
Regression analysis for Bus Industry
1. INDIAN BUS INDUSTRY - A BRIEF HISTORY
Infrastructure plays a major role in the functioning of any economy and when we talk about a country as diverse and big as India then the road transport is very important. Various government schemes like Jawaharlal Nehru National Urban Renewal Mission's (JNNURM), NURM and other similar schemes have increased the importance of this sector. Buses are used for intra city transportation as well as the inter city thus increasing its uses and dependency making it inevitable part of economy. Most of the sector is handled by the state units making it available for the mass.
This report goes through the bus sector analysis in comparison with the substitute as well as the complementary factors, which affect the sector. The demand of the buses as affected by these are analysed here.
2. GROWTH AND ISSUES:
With the growth and development of the economy the demand and supply of the bus sector was evident. The number of buses plying on the Indian street has risen from 56,800 in early years of 1960's to the 7,67,000 by the early 2000's. The increase in the length of the national highways, multi laning of highways have helped in the rise of the buses plying the street. The number of buses just before liberalization was around 250,000 which has since then grown around three fold to the figure of 7.5 lakhs. This shows the more widespread use of buses.
Now a days people living in Delhi goes to work in Noida, Gurgaon, Faridabad and other nearby places. Even inside the limits of New Delhi the people have to travel long distances to go for work. The most convenient mode of transportation in all these cases is the bus (managed by Delhi Transport Corporation for NCR zone). The case is true for almost all the metro cities of india, whether we talk about Chennai, Bangalore, Kolkatta or Mumbai. The situation is not far from different for the other tier II cities like Indore, Coimbatore, Lucknow, Chandigarh and other cities.
There is a stark difference in the growth of the buses by private and public sector companies. The public expenditure limited by so many regulations and bureaucracy is not flamboyant. It can be seen in table below, the number of buses in public sector has risen from 18,000 to 115,000 from 1961 to 2004 whereas for the same period it has grown from 38,800 to 651,000 for the private sector. Majority of the bus sector is maintained by the private firms.
Another issue with the bus sector is uneven distribution of buses in the country. The densities of buses vary from state to state. Various states like Jharkhand, Haryana, Bihar, and Orissa don't have a lot of buses plying as per the need there where as states like Tamil Nadu, Karnataka, Delhi have plenty of buses satisfying the need and requirement. The number of buses in public sector is also not constant.
Source: Compiled from the statistics released by : Ministry of Shipping, Road Transport & Highways, Govt. of India.
Other factor affecting the use of bus is the price of fuel. As soon as the price of fuel rises the cost of operating the bus increases and so is the usage of bus.
From the chart we can see that as soon as the price level of diesel rises the consumption of fuel the sale of bus decreases and vice versa. The sale of other mode of communication also decreases as and when the fuel prices vary.
The use of bus with the per capita income of the people also varies. There are people who treat bus as inferior product and try to go for any other mode as soon as possible. The cars and personal mode of communication such as motorcycles are more and more used by the richer classes. With the growth of economy the disposable income in the hand of individual is on a rise.
3. THE PLAYERS:
The history of Indian Bus Industry has begun in early 1830. This industry has developed from initial stage coaches, which ran on steam to modern integral frame buses. In Transport industry, Buses occupy a special position due to its large capacity at economic rates. The Indian Bus Industry boasts of the major players in this sector, who are involved in the production of huge quantity of buses. The names of prominent players in India are:
• Ashok Leyland,
• Hindustan Motors,
• Swaraj Mazda,
• Mahindra & Mahindra,
• Eicher Motors,
• Tata Motors,
• Force Motors.
The Indian Bus industry will show high growth rate in the early phases of development driven by inter city passenger movement. Increase in income level, change in mindset and explosive growth in communication has driving the change in this industry. The pollution control rules are being constantly upgraded in Indian Bus Industry to curb the pollution in India, by controlling emission of poisonous gases from the buses.
3.1: Ashok Leyland
Ashok Leyland is a commercial vehicle manufacturing company based in Chennai. It is among the most prominent players in the manufacturing of public utility as well as specially made buses. The company claims to carry over 60 million passengers a day, which is more than that of Indian Rail Network. The list of its range of buses includes:
a) Vestibule Bus,
b) Cheetah BS III,
c) Panther BS II,
d) Viking BS II,
e) Stag BS II,
f) Lynx BS II,
g) Viking CNG BS III.
Ashok Leyland is also engaged in the production of some special purposes buses as Airport tarmac Coaches, Double Decker with huge capacity.
3.2: Tata Motors
Tata Motors ranks high among the major Bus players in India, engaged in the production of buses in the category of Starbus and as well as Globus buses. The Tata Starbus is available in a comprehensive range of variants, seating capacity of 16 67 seats. It has been designed for optimum comfort and functionality. The Starbus range includes Standard, Deluxe, low Floor, and school buses options. The Tata Globus Coaches has been designed for long distance traveling. It ensures passengers safety and ultimate comfort by ergonomically designed seats, personalized climate controlled vents, improved engines, air suspension, superior brake systems etc. Tata Motors also has formed a JV with Macropolo of Brazil to manufacture and assemble fully built buses, targeted at developing mass rapid transportation systems. Tata and Macropolo has jointly launched low floored city buses which are widely used in Delhi, Mumbai and Bangalore transport corporations.
3.3: Eicher Motors
Founded in 1982, Eicher Motors is now one of the leading manufacturers of commercial vehicles in India. Eicher is engaged in the production of buses as well as Cruisers. It has also begun manufacturing CNG buses following new pollution guidelines and giving tough competition to its competitors within a very short time. Eicher buses come with distinctive features like its aerodynamic designed body and a wider windshield.
3.4: Swaraj Mazda
Swaraj Mazda was promoted in 1984 in technical and financial collaboration with Mazda Motor Corporation and Sumitomo Corporation, Japan to manufacture LCVs and HCVs. Swaraj Mazda rolled out luxury buses powered by Isuzu Engines, which is now very popular in Indian Market. It also has a range of products in Designer coaches and school bus category.
Besides this, there are few major players like Hindustan Motors, Mahindra & Mahindra etc. Hindustan Motors produces RTV buses comprising school buses, custom made buses and passenger buses. On the Other Hand, Mahindra & Mahindra has earned substantial popularity in the Indian Bus Industry by manufacturing Tourister 15, Mahindra FJ Minibus, and Mahindra FJ 470.
4. DATA COLLECTION METHODOLOGY:
The various factors considered for the regression are:
Sales of Buses, indicated by the share of the top 5 players (Q),
Self price calculated based on the sales/quantity (Px),
Train ticket prices, which are the substitute prices (Py)
Diesel prices to be the complement Prices (M)
Per Capita Income (I) to gauge the purchasing capacity
Population (P) to indicate the consumer base.
The balance sheets and annual reports of the top 5 players have been referred to and the values from these have been used to compile the quantity and price figures.
Population has been calculated by taking the bas figure as 2001 census data and assuming a 1.6% constant annual growth rate. The actual figures may vary but there is no survey that gives the exact results, so this is assumed to give the correct results.
The per capita income has been obtained from the aponline website which is the official website of AP Government and indiastats website.
5. LIMITATIONS:
The most basis assumption that demand and supply are the only two factors and the data collected is assuming the other factors being constant so not hold here.
The government is the single most important buyer and the government spending do not necessary follow the trends of population or income parameters and so the applicability of the model to reflect the actual market is highly constrained.
6. DATA ANALYSIS AND EXPECTED RESULTS:
The demand has grown very heavily in the recent times and this is partly because of the increase in the users. The consistent growth story of the country in both urban and rural areas is one of the possible reasons.
The income and the demand follow a very similar pattern. This is as expected as the quality is improving and the need for more usage is also increasing.
The log linear model is used for the elasticity calculations and the linear is used for estimation. The equation used is: the powers will be the respective elasticity and these would be obtained using the Regression:
Log liner function: Q = (C) (Pxa2) (Pya3) (Pza4) (Ia5) (Pa6)
Linear function: Q = a1*Px + a2*Py + a3*Pz + a5*I + a6*P + C
7. Regression analysis and results for the linear model:
The eviews software has been used and the following results have been obtained. The analysis is given below:
Dependent Variable: Q
Method: Least Squares
Date: 08/16/09 Time: 23:30
Sample: 1999 2008
Included observations: 10
Variable Coefficient Std. Error t Statistic Prob.
C 81558.92 373163.9 0.218561 0.8377
PX 0.075746 0.145164 0.521795 0.6294
PY 212.1297 400.0772 0.530222 0.6240
I 1.276469 3.120200 0.409099 0.7034
PZ 26.21525 776.2542 0.033771 0.9747
P 0.000158 0.000427 0.370183 0.7300
R squared 0.957982 Mean dependent var 27971.90
Adjusted R squared 0.905460 S.D. dependent var 9894.672
S.E. of regression 3042.346 Akaike info criterion 19.16235
Sum squared resid 37023466 Schwarz criterion 19.34391
Log likelihood 89.81177 F statistic 18.23962
Durbin Watson stat 2.218415 Prob(F statistic) 0.007402
8. Regression results analysis:
The obtained values have been used to do the estimation and the results compared to the actual. There is a good correlation between the actual and estimated.
The results are tabulated below and graphically shown.
Actual / Estimated Actual demand Estimated demand
0.998 17746 17774.67
1.071 18768 17525.27
1.056 20084 19014.46
1.004 21700 21607.24
0.843 22803 27046.62
1.048 28203 26915.04
1.016 30261 29782.46
0.969 33585 34660.79
0.947 37907 40048.67
1.065 48662 45712.57
Demand estimation for 2009:
Using the linear model:
Q = a1*Px + a2*Py + a3*Pz + a4*I + a5*P + C
Where a1= 0.075746, a2 = 212.1297, a3 = 26.21525, a4= 1.276469, a5 = 0.000158.
Estimated value for
PX PY I PZ P
764253 247.3 41824.64 37.2 1186719055
The calculated value is: 49956.97.
The correction factor is 1.001 and we get the corrected estimated value to be 50041.23
9. Regression results and analysis for log linear function:
Dependent Variable: LOG(Q)
Method: Least Squares
Date: 08/16/09 Time: 23:56
Sample: 1999 2008
Included observations: 10
Variable Coefficient Std. Error t Statistic Prob.
C 247.9824 118.9652 2.084495 0.1055
LOG(PX) 0.767695 1.291678 0.594340 0.5843
LOG(PY) 1.579984 1.273422 1.240739 0.2825
LOG(I) 0.925317 1.130897 0.818215 0.4592
LOG(PZ) 0.080813 0.484967 0.166637 0.8757
LOG(P) 12.76662 6.093138 2.095246 0.1042
R squared 0.980652 Mean dependent var 10.18734
Adjusted R squared 0.956467 S.D. dependent var 0.332376
S.E. of regression 0.069349 Akaike info criterion 2.215619
Sum squared resid 0.019237 Schwarz criterion 2.034068
Log likelihood 17.07809 F statistic 40.54752
Durbin Watson stat 2.668283 Prob(F statistic) 0.001606
At 95% confidence (which is typically taken) level with degree of freedom 3 the critical value of t is 3.182. As none of the t ratio exceeds the critical value the relevance of individual parameters selected is circumspect. The f statics is 40.835 which are above the critical value and hence we can assume that none of the coefficient is zero.
Self price elasticity of demand = 0.76
The price elasticity of 0.76 suggests that with the increase in price the demand also goes up.
The main reason is that the number of people requiring the bus services or in fact the transport itself is rising very heavily in the recent times due to the increase in the number of office and non office users. So this could be one of the reasons for the increase.
Also the data obtained is not keeping the other factors constant, which is the assumption for regression. So this also could be one of the reasons for misleading data.
Also the government spending maybe assumed to be decoupled from the price rise. So the demand can be assumed not to be following the simple expected pattern.
Cross price elasticity of demand.
Trains = 1.57:
This indicates that a 10% rise in the train prices would cause the demand for buses to fall up by 15.7%
This may be because the actual improvement in the train services over the years is a major factor in the people shifting to trains over buses, Also introduction of quality local trains like delhi metro, MMTS in Hyderabad etc and the increasing transit time on roads are causing people to shift to train services which are timely and faster due to absence of congestion problems.
Income Elasticity = 0.92
This indicates that a 10% rise in income would cause demand to fall by 9.2%. One of the reasons could be that the rise income would cause people to shift to more comfortable and flexible yet costly services like private cabs, low end planes and high end trains.
Also the per capita income would not be a good indicator of the income growth in the relavent section of population meaning the income growth in the section using the buses may not be same as the national per capita income growth rate.
Population Elasticity = 12.76
Based purely on the elasticity value this would mean that a 10% rise in population would cause a 127.6% rise in demand for buses. But this is not correct.
One of the reasons is that the population is assumed to grow at a constant rate of 1.6% and this would not be translated into 1.6% growth in the actual bus users.
10. References and Tools and limitations:
1. Capitaline database
2. Indiastats.com
3. CMIE reports
4. http://www.hul.co.in
5. www.nestle.in
6. www.censusindia.in
7. www.livemint.com
8. www.rediff.com
9. ISI emerging markets
10. Eviews5
Limitations
1. Data constraints
2. Time constraints
