Hero, Bajaj take battle of bikes to Africa & LatAm

The battle for two-wheelers market share is crossing Indian boundaries to Africa and Latin America, which give better margins.

Bajaj Auto, which is an early mover in these markets, in September built an assembling unit in Tanzania, and plans to sell bikes in Brazil. Its rival Hero MotoCorp is keen to sell its products in these markets, and consultants say its largest-selling Indian bike Splendor will be sold there by mid-2012. Its joint venture with Honda Motor, broken in December last year, allowed the company to sell its bikes to neighbours Bangladesh and Sri Lanka and was barred in countries the Japanese company sold its bikes.

“Latin America and Africa are the next markets of growth for two-wheeler makers,” says Abdul Majeed, auto practice leader, PricewaterhouseCoopers India. “Indian companies are looking for a niche presence in these markets.”

Analysts say it will be no cakewalk for the two companies in these markets as Japanese bike makers Honda and Yamaha have a formidable market share and network in Latin America. They will also face tough competition from cheaper bikes from Chinese firms.

“Hero will have to set up a small operation unit to assemble its motorcycles and appoint distributors, but all this will take time,” said Amit Kasat, an analyst with Standard Chartered Research in Mumbai. “Hero, known for its 100cc range, would find it tough selling against the Chinese makers in African market.”

“Bajaj is looking at creating a cult brand with its focus more on more powerful bikes,” he added.

“There were certain parts of Latin America where Honda was sourcing Splendor bikes from the erstwhile Hero Honda and selling under its brand. Hero is more or less unknown in the export market,” said Mahantesh Sabard, auto analyst with domestic brokerage Fortune Broking Services.

Bajaj will have to leverage its partnership with Austria's KTM and Japan's Kawasaki to sell bikes in Africa and Latin America as it lacks products for first-time buyers or at the entry level, unlike its rival Hero, the largest bike maker in the entry-level segment in India.

“Bajaj Auto is looking at profitable growth and is not running behind volumes alone,” said Standard Chartered Research's Kasat.

Companies earn anywhere between 3% and 5% more margins by selling bikes abroad than in India. Bajaj Auto reported operating margins of 20.19% in the September quarter against 19.1% in the preceding June quarter as its sold more bikes abroad, improved operating efficiencies and reduced advertising spend. Hero reported 15.8% operating margins in the three months to September against 13.6% in the June quarter.

Exports for Hero are anywhere between 3% and 4% of the company's total sales of 5.4 million units for 2010-11. “The company plans to expand this to 10% in the next five to six years,” Pawan Munjal, managing director and chief executive officer, Hero MotoCorp, had said early this year.

“Our exports have grown five times in the past six years," Rajiv Bajaj, managing director, Bajaj Auto, said in an earlier interaction. Exports now make up 36% of total sales from 5% few years back. Bajaj expects exports to outstrip domestic growth this year, at over 1.5 million units as against 1.2 million sold last year.

Bajaj had also spelt out the company's focus on fewer products but with a wider market reach. “We have kept scooters on the back burner because we want to focus on one product, that is, motorcycles,” Bajaj said “We want to be a branded company and not a commoditised company.”

“When we looked around, we saw that companies that choose one thing are more successful than ones that are into too many things – you become a jack of all trades but not an expert,” Bajaj said. “People who make everything do not make money.” he added.

Southeast Asian markets are also on the radar of the two companies. While Hero is looking to enter these markets, Bajaj Auto is looking at further expanding its presence in Thailand and Vietnam.

But again, selling bikes in South Asian markets will be tough as the markets are dominated by Japanese bike makers. Bajaj Auto and TVS Motor have earlier burnt their fingers there,” said a Mumbai-based consultant. “The product line up needed for these markets is completely different, and the Indian companies don't have it.”

"These markets have huge demand for mopeds, something like the TVS Stroke and Neo,” he added.