Faced with a number of challenges from rural distress to tougher emission norms and rising input costs, Hero MotoCorp is battling on multiple fronts.
Its dealerships are saddled with unsold stock; its profit in the January-March period has fallen by a quarter to Rs 730.32 crore, against Rs 967.4 crore in the same period last year; and a pick-up in sales is unlikely over the next few months as dispatches to dealers would be curtailed to reduce the inventory.
If the industry-wide slowdown in auto sales, higher ownership costs due to a switch to stricter fuel emission norms and a change in buyer preference to premium models weren’t enough, rival Bajaj Auto’s aggressive pricing in its stronghold of entry segment bikes has made its journey even more difficult . Even in a slowing market, having a foot in both premium and entry-level has helped Bajaj Auto boost market share in the motorcycle segment to 19 per cent in FY19 from 16 per cent a year ago. Hero, on the other hand, saw its market share drop to 50.69 per cent from 51.50 per cent. Even in April, while Hero saw its sales in the domestic motorcycle market decline 12 per cent to 0.534 million units over a year ago, Bajaj Auto's sales, albeit from a smaller base, increased 2 per cent to 0.205 million units in the same period a year ago.
To counter this trend, Hero is stepping up its premiumisation drive to create new demand, and placing faith in freebies to kick-start demand for existing models. It is launching technologically advanced motorcycles in the premium segment – where rivals have a headstart—and bundling free gold coins, helmets and attractive finance schemes with its vehicles to woo buyers during the ongoing “wedding season” in north India, when rural sales typically peak.
This strategy’s impact at dealerships is too early to discern, but Chairman Pawan Munjal believes HeroMotoCorp has a winning game-plan.
“Over the next 12 months, the domestic two-wheeler industry in India will go through a tectonic shift with the implementation of new safety and emission norms. We are completely geared up for this transition and to lead the industry into the next growth phase in the world’s largest two-wheeler market as well as in our global markets,” Munjal said in statement on 1 May.
The statement followed a raft of premium motorcycle launches in a bid to entrench Hero in a segment that has been the bastion of rivals including Bajaj Auto and Royal Enfield.
HeroMotoCorp’s premium X-range portfolio now comprises the XPulse 200, XPulse200T, Xtreme 200S and the Xtreme200R. The last one went on sale in the second quarter of 2018-19. Priced in the range of Rs 94,000 to Rs 105,000 (ex-showroom prices), the models, developed ground-up at Hero’s Centre of Innovation and Technology in Jaipur are “the reflection of the company’s technological capability,” says Sanjay Bhan, head of sales and after sales.
Since the separation with Japan’s Honda in 2010, HeroMotoCorp has been working on shoring up its research and development capability with a sharper focus on the premium category.
“With the Karizma and CB-Z models, it was Hero that kick-started the premiumisation trend in the Indian motorcycle market,” says Bhan, adding that with the new range, Hero is looking to make a mark in the segment once again.
But analysts remain sceptical of its premiumisation journey when its core brand positioning stands for attractively priced, entry-level bikes. “While Hero’s three new launches may lead to some market share gains in the near-term, we do not think Hero will be able to significantly establish its presence,” said Bharat Gianani, analyst at Sharekhan.
Another worry is that slowly the premium segment is slowing as well. “Even market leader Bajaj Auto which is well known for its technology has lost market share as multinationals players (Honda, Yamaha and Suzuki) have sharpened focus on the premium segment in India with new launches. They have an established technological prowess having manufacturing worldwide,” he said.
Buyers trust Hero’s models such as Splendor and Passion blindly, said an analyst who declined to be identified, adding that it remains to be seen whether Hero can pull off similar success with its premium bikes.
Its other category, scooters, has been struggling too in the face of competition from players like Honda Motorcycle, TVS and Suzuki Motorcycles. So far, Destini 125, a premium model, is the only product that has done reasonably well. There are quality issues with the Maestro.
Scooter sales skidded to a five-year low of 0.719 million units in fiscal 2018-19, according to Society of Indian Automobile Manufacturers (Siam). As with motorcycles, here, too, Hero is banking on technologically superior variants of Destini and Pleasure in the 125cc segment to stem the slide in sales. It has also come up with new marketing plans such as buyback offers for scooters in a bid to retain customers and attract new ones.
“Hero’s biggest disadvantage, when it comes to the premium segment is, that its R&D is 10 years behind TVS and Bajaj,” said Deepesh Rathore, co-founder and director at Emerging Market Automotive Advisory, a consulting firm. Hero will have to keep refreshing the line-up of premium model at regular intervals to keep pace with the ever changing buyer preference, he said.
Its popularity in the entry segment, however, could help its premium products to an extent. On an average, Hero sells 0.6 million-plus two wheelers every month. “Hero boasts of having the highest number of footfalls in its showrooms. So, when a guy walks in to buy a Splendor, he can be upsold a premium bike,” pointed Rathore.
“The models, however, cannot afford to be lagging in any aspect as compared to the competition,” he said. If that happens, buyers will immediately switch to rival brands.
Amid all this, the pressure on margin is unlikely to ease as Bajaj Auto may continue to pursue the volume-led approach in the months ahead and mount further pressure on Hero and others in the motorcycle market. “We have seen the impact of what Bajaj has done on the margins of all the players including Bajaj itself,” said Gianani.