Fuel on fire, bike makers stare at downtrading

Rahimulla Shaikh always fancied the Discover 125 bike. It would make his daily commute such a song. But at the point of buying on May 23, this owner of a tailoring shop in Kalyan decided to take home a less expensive, 100cc Platina. “I was so thrilled with my choice. That day, petrol prices rose by `7.50,” Shaikh said. Ditto Dharmendra Upadhay works at a chemical factory in the Thane district near Mumbai. He, too, settled for a budget bike, which offered savings of as much as 30% on fuel. Buying decisions of many commuters appear to have suddenly veered towards lower-cost, higher-mileage bikes, more so after the price of petrol was yanked up. The problem for manufacturers, said an analyst, is that these economy bikes are not a focus area. “Hence, the marketing spend on them is limited. And margins are lower by 300-400 basis points compared with executive bikes.” The last financial year, in fact, saw a clear trend reversal in the commuter segment, which breaks up into two broad categories -- bikes costing less than `40,000 and those in the `41,000-45,000 range. Though the overall commuter segment grew 7-8% last fiscal, sales of sub-`40,000 bikes grew 22% compared with 8% in the previous fiscal. Sales in the `40,000-plus category, on the other hand, grew just 4% compared with a whopping 29% the previous fiscal. The sub-`40,000 category currently has bikes like Bajaj Platina, Hero Motocorp’s CD Dawn and CD Deluxe, Yamaha Crux and TVS Star. The `40,000-plus commuter category has Splendor, Discover 100cc and TVS Jive. “Our Platina sales are somewhere around 55,000-57,000 units, which is a reflection of the economy. Such numbers normally came only during marriage season,” Kevin D’sa, chief financial officer of Bajaj Auto, told analysts during an earnings call. Roy Kurian, national business head, India Yamaha Motor, concurred. “Fuel prices have gone up in the last few months, which is why customers are now moving to lower cc bikes. They think lower cc bikes would fetch them better mileage.” “However, the difference could just be in the range of 8-10 km per litre. I think this trend will not continue for long,” Kurian pointed out. An analyst from a domestic brokerage said the trend is typical of an inflationary scenario. Headline inflation, or inflation based on the wholesale price index, came in at 7.23% for April, after averaging an uncomfortable 8.85% last fiscal. This has eroded people’s purchasing power and tamped appetite. “Hopefully, inflation would taper off soon. However the current quarter and the next quarter look weak for the overall market,” said the analyst, requesting anonymity. For the record, the overall motorcycle industry grew 12% last fiscal compared with 23% in fiscal 2011. The executive segment, which sits above the commuter segment and mainly comprises bikes with a capacity of 125cc, logged 18% growth. The sporty segment — priced above `50,000 — grew just 3%. Industry estimates say the two -wheeler segment is expected to grow at 12% in the current fiscal.