Bikes cold on premium models as fuel costs rise

Demand for premium models contracting; cheaper models account for 70% of total sales, say manufacturers Indian bikers are busy downtrading, as rising petrol prices encourage them to prefer cheaper models that sip fuel to the premium ones that are guzzlers. Lower income growth at a time when inflation is running at high levels has also driven this shift, analysts said. Senior officials at the two leading motorcycle manufacturers in India agree that buying patterns are changing. K. Srinivas, president, motorcycles, at Bajaj Auto Ltd, said the market for the premium segment and above has remained flat. “People are choosing either to buy the cheapest bikes or in the executive segment.” These two market segments account for more than 70% of total motorcycle sales in the country, he said, adding that the executive segment will be the fastest-expanding category. The compounded annual growth for sales of premium motorcycles has been 25% over the past three years, said Y.S. Guleria, vice-president, sales and marketing, Honda Motorcycles and Scooters India Pvt. Ltd, but he added that sales growth has been flat over the past few months even as the sales of 100cc bikes grew 15%. “The market in the 150cc to 180cc segment in the recent past has indeed been under pressure but as marketers we do not go by the short-term trends,” said Guleria. The three main categories in the motorcycle market are based on engine displacement: the entry-level machines with 100cc, the executive segment with 125cc and the premium ones with 150 cc and more. The dynamics of the premium segment are different from the other segments. Customers of bikes between 150cc and 250cc are typically in the 18-30 age group and include college students or fresh graduates taking up jobs. Bikes in this segment are bought for their styling and powerful engines. The premium segment is driven by new launches as people get fatigued by design and style. “Hence any new launch gives a spurt to the segment and carries on for some time,” Guleria said. As buyers downtrade, motorcycle demand is shifting toward the entry level and economy segments, Joseph George, analyst at brokerage IIFL Ltd, wrote in a 7 June report. “Two-wheeler dealers continue to see steady overall growth but they hinted at a marked shift towards fuel-efficient models,” he said. According to him, while the share of entry level bikes has increased to 21.1% in April 2012 from 17.5% a year ago, that of executive segment has contracted to 62.4% from 68%. Even the share of premium bikes has started contracting month-on-month—16.5% in April this year compared to 17.6% in March. “People are enquiring a lot more about fuel efficiency now than they were doing before. Therefore, companies that have fuel-efficient bikes will stand to gain,” India Infoline’s George said over the phone. He said Hero is in an advantageous position given higher fuel efficiency bikes. Bajaj has seen buyers downtrading from Discover to Platina. George doesn’t see sales in the premium bike market turning the corner till the overall economy improves or there is a cut in petrol prices. Ravi Sud, chief financial officer, Hero MotoCorp Ltd, agrees. “The petrol price hike will force more and more people to buy commuter segment motorcycles,” he told Mint on the sidelines of a recent press conference. “This is just because of the higher fuel efficiency. Companies with strong portfolio in this segment may take a hit also because the replacement demand has taken a hit.” He has also cut his industry growth estimate for two-wheelers from 10% to 8%. In the last fiscal, two-wheeler sales grew at 14.16% to sell 13.43 million units while the overall automobile industry grew at 12.24%. In a recent research report on the two-wheeler sector, analysts Subrata Ray and Jitin Makkar of ICRA Ltd noted that while the executive segment (bikes in the Rs. 40,000-50,000 price range) is expected to grow steadily, competition is likely to intensify following aggressive model refurbishment and new model launch plans of most manufacturers. They, however, maintained that premium bikes, albeit on a low base, are expected to have the fastest rate of growth over the medium term given the strong growth in purchasing power in the hands of middle-class urbanites, especially in the age group of 20-30 years. According to India Yamaha Motor Pvt. Ltd, another company with a strong portfolio of powerful bikes, the market saw people rapidly upgrading from the entry and executive segments to the premium segment in the last three years, but the trend has slowed in the last one year. But the company is optimistic and believes the downtrading will not last for long. “Someone who aspires for a performance bike will not compromise and settle for an entry level or executive bike,” said Roy Kurian, national business head at India Yamaha Motor. “He may just postpone the decision for a while due to negative sentiment.”