No Easy Rides in Moto Market Anymore

Motorcycle market shifts a gear as Hero powers on minus Honda, which beats TVS to the No. 3 spot, and Bajaj Auto takes the race to global tracks : Lijee Philip

Fill it, shut it, forget it, is a line imprinted in the minds of more than half of motorcycle riders in India — a line Hero MotoCorp used to devastating effect to convey its proposition of fuel efficiency when it had Honda as its joint venture partner. A little over a year after the partners decided to go their separate ways, Hero MotoCorp is still king of the hill, accounting for 56% of all bikes sold between April 2011 and February 2012.

That’s bad news for the competition — not just because Hero has demonstrated a robust growth of 16.5% in the current fiscal year and bumped up its share from 54.6% a year ago. Rivals also need to be wary about the Japanese bikemaker that is synonymous with quality riding on its own. In January, Honda displayed its prowess when it overtook TVS Motors to claim the No. 3 position in the Indian motorcycles market.

Honda has now trained its sights on No. 2 Bajaj Auto Ltd (BAL). Although the gap between the two is still substantial — the Japanese maker has a share that is under a third of BAL’s — there are signs that Honda is closing in. For the month of February the difference in sales between the two companies (of all two-wheelers) was just 7,000 units. And with Honda Motorcycles & Scooters India (HMSI), the Indian operation of the Japanese giant, preparing to launch the Yuga 110 cc in May in the entrylevel segment, it will be in a position to address a new segment of buyers.

Nervous Bajaj? No

You’d expect BAL CEO Rajiv Bajaj to be nervous with the sight of Honda in his rear view mirror. He isn’t. For a very good reason: he is looking at BAL from a global perspective — 35% of BAL’s sales are overseas. Of the roughly 50 million two-wheelers sold globally, 30-35 million are motorcycles. By the end of the current fiscal year, BAL would have sold close to some 3.8 million motorcycles, giving it a global market share of over 10%. “We should go up to 20-25%. A day should come when 20% of our sales are from India and 80% from outside,” says Bajaj.

More important, says Bajaj, BAL is the world’s most profitable two-wheeler maker with operating profit margins of roughly 18%. Analysts point out that Hero and Honda have operating profit margins
of 11-12%; other global twowheeler majors (Suzuki, Yamaha, Kawasaki), have operating margins in low single digits, if not in negative territory.

New Customers

Hero may not have Honda in tow, but that isn’t stopping it from harbouring global ambitions. It’s teamed up with the world’s largest privately owned engine developer, AVL of Austria, to develop technology for its bread-and-butter 100 cc and 110 cc models: the Splendor range and the Passion. “Over time, we will develop our own R&D to make products for the global market,” says Pawan Munjal, MD & CEO, Hero MotoCorp.
The top three have begun to move out of their comfort zones in a bid to attract new customers. Hero, which reigns supreme in segments that matter — 100 cc and 110 cc — is now attempting to carve a space for itself at the higher end by signing a technology-sharing deal with US motorcycle firm Erik Buell Racing (EBR).

BAL is counting on its five-year alliance with KTM of Austria. Bajaj proudly says KTM is to Bajaj what Audi is to Volkswagen — to crack open new markets and produce higher-end products. BAL is yet to venture into China and Brazil, the largest, and third largest markets for motorcycles, respectively (India is the second largest).

By 2015, Bajaj expects half of KTM’s bikes to be produced out of his Chakan factory. KTM makes smaller bikes — more relevant to BAL. “I won’t be surprised if KTM hits volumes of 2,00,000 soon as it is now entering Malaysia and other emerging markets”, says Bajaj. By the end of the current fiscal, KTM would have sold some 1,20,000 bikes, 30% of them made in Chakan. KTM and Pulsar make BAL a powerhouse in the 60,000-plus bike segment.

But BAL’s weakest link is the 45 000-50 000 price band. Bikes in this range account for more than 25% of the market. It is also the segment Hero dominates, with a 93% share.

Even in the segment that’s one rung below — bikes priced between 40,000 and 45,000 — Hero reigns supreme. Riding on the warhorse Splendor, the Munjals control a little over 70% of this segment that accounts for a fifth of all motorcycle sales in the country.

Honda’s Plans

Bajaj may just have to bite the bullet — it has tried before and failed — and attack these two chunks of the market if it has to get somewhere close to Hero. At the same time, however, it also has to reckon with Honda, which sees 30% of its sales coming from India by 2020, from 13% currently. To achieve this, HMSI is expanding capacities furiously, and will invest 1,000 crore in the following fiscal year.

HMSI, which began its India sojourn with scooters, is keen to step up its presence in motorcycles. Currently scooters — with the bestselling Activa leading the way — have been the driver for HMSI, accounting for 60% of total production.

In 2012-13, motorcycles and scooters will be produced in equal proportion. The company is putting up a third plant which, when commercialised in early 2013, will give HMSI a capacity of 4 million units, close to BAL’s current capacity of 4.6 million (excluding three-wheelers).

Trying Times for TVS

The one hurting the most in the battle amongst the top three is TVS Motor. The southern company will work on filling the gaps in its portfolio and upgrading existing models in the new fiscal year. “Suffice it to say that TVS Motor is in the process of implementing a strategy to recover its third position in the next financial year with new product launches and dealer activation to increase market share,” says a senior TVS official.

In the next few months, TVS will launch a 125 cc bike; and by December it will re-launch the TVS Victor. Recently, it launched the 2012 version of the Star City, and refreshed versions of the Apache and Scooty are also in the works. But more than incremental improvements TVS may just need some stunning innovation to get back into the race and challenge the Big Three.