How two-wheeler makers are riding out the slowdown


Car sales are down 5 per cent and truck volumes have plummeted 27 per cent so far this fiscal, but two-wheelers sales are revving up amid the economic gloom.

Scooters, motorcycles and mopeds saw a volume growth of 5.7 per cent in April-November 2013. This is well above the 2.9 per cent recorded for the 12 months ended March 2013. So what’s driving this trend?

Scooters have, for one, clocked an impressive 19 per cent sales volume growth in the April-November period. Apart from crowded traffic conditions and poor public transport (which usually drive two-wheeler sales), scooters have benefited from their better luggage space, the increasing number of women drivers and their unisex appeal, which allows any member of the family to use them, say industry experts.

Gearless scooters, which make up most of the market here, have been much in demand with brands such as Pleasure, Maestro (Hero), Activa, Dio, Aviator (Honda), Ray (Yamaha) and the newly introduced Jupiter (TVS) figuring among the bestsellers.

In fact, slowdown or boom, scooters have witnessed good demand over the past few years, so much so that their share in total two-wheeler sales has moved up from about 15 per cent in 2007-08 to about 24 per cent now.

Strong rural demand

Entry-level motorcycles (75 to 110 cc) have been zipping off the showroom shelves too, especially in the past three months.

Here, rural demand resulting from a good monsoon has come to the aid of motorcycle sales.

Rural demand constitutes an important proportion of revenues for motorcycle makers, with companies such as Hero Moto Corp deriving almost half their volumes from villages. Hero says its rural sales are growing 9-10 per cent, compared to about 5 per cent in urban areas.

Hero’s HF dawn, HF Deluxe, Splendor and Passion, and newer bikes such as the Dream Yuga (Honda), Pantero and Centuro (Mahindra and Mahindra) have been the most popular in this segment.

The high interest rates of the past two years have also led to consumers seeking out less expensive executive bikes. Consumers have actually stepped down from premium bikes.

Launches targeted at this segment have helped two-wheeler makers reap handsome gains. The success of the Ignitor from Hero, Phoenix from TVS and Discover 125T from Bajaj Auto are proof.

Cash purchases

Then, industry experts say that two-wheeler buyers, unlike car buyers, usually fund much of their purchase with cash and don’t rely too much on loans. Therefore they aren’t interest rate-sensitive.

That’s a recent trend. “About eight years ago, the financed component of two-wheelers used to be 40-50 per cent. Today, it is more around 25 per cent,” says Anoop Mathur, President, Two-wheeler sector, Mahindra and Mahindra.

Speeding ahead


The final round of the Indian National Motorcycle Racing Championship culminates at the Irungattukottai race track, Sriperumbudur

Racing improves the breed,” so said Soichiro Honda, the Japanese engineer and industrialist who established Honda Motor in 1948. Since those times, Honda has played an important role in motorsports, believing it to be the springboard for technological advancement. This year has been particularly good for the company in the field of motorsports, with Repsol Honda—the official factory team of Repsol and the Honda Racing Corporation—winning the MotoGP World Championship. In fact, Marc Marquez of the Repsol Honda team became the youngest to win the title.

In India, the company’s arm, Honda Motorcycle & Scooter India (HMSI), has been taking part in the Indian National Motorcycle Racing Championship (INMRC) and also conducting the Honda One Make race since 2008.

Now, INMRC is a national championship for two-wheeler racing and is approved by the Federation of Motor Sports Clubs of India. The technical sponsors for the championship are HMSI, India Yamaha Motor, and TVS Motor. The INMRC 2013 consisted of five rounds that took place at the three fully-functional race tracks India has—Kari Motor Speedway (Coimbatore), Irungattukottai Race Track (Sriperumbudur), and Buddh International Circuit (Greater Noida). From December 13-15, the final round of INMRC took place at Irungattukottai.

Among the major races that took place were the YZF R15 novice & open categories; the CBR 150cc open category and CBF Stunner novice category; and the Apache RTR 180 novice & open categories. Coming to the famous names, it was K Rajni who won the Honda MMSC One Make Championship race with the CBR 250R bike, while Dinesh Kumar finished in second place with A Prabhu in third. In fact, the CBR 250R category was under a Team Championship and Honda leased 16 CBR 250R performance bikes to teams registered at FMSCI.

Prabhu Nagaraj, general manager, customer service, HMSI, said, “For six years, Honda has been successfully promoting motorsports in India. We are delighted to see the overwhelming response to Honda One Make Race 2013 by both participants and enthusiasts. With the CBR 250R under Team Championship, Honda will continue to provide global exposure and first-hand racing experience to biking enthusiasts.”

On its website, TVS Motor claims that racing can do wonders for the company as it has been proved that racing helps in both product development and building a long-term image of the company. HMSI claims that, globally, technologies from the track are, in various ways, incorporated in everyday vehicles. They are tested, refined and proven under the trying conditions in the races, and then adapted in the vehicles, so that even two-wheelers like Activa and Dio can benefit from such technologies. Racing, indeed, has a better future in India, just that we need more participants in events such as the INMRC.

Honda in pact with Gramin bank in Rajasthan


Honda Motorcycle & Scooter India has entered into a retail finance tie-up with Baroda Rajasthan Kshetriya Gramin Bank. As part of the deal, the two wheeler firm has announced slew of measures that include daily reducing interest, low EMI and a 6-month instalment scheme for farmers, among others to woo buyers, who can avail of loan up to 75 per cent of on-road price of Honda 2-wheelers. It now looks at tie-ups with co-operative and Gramin banks to attract buyers in semi-urban and rural areas.

Hero’s stock revs up on earnings growth prospects

Hero Motocorp Ltd is back on firm ground. The company has travelled quite a distance since December 2010, when challenges mounted as it severed ties with its Japanese joint venture partner Honda Motor Co. Ltd. The optimism is mirrored on the bourses. The stock has risen by 37.4% since April, clocking higher returns compared with its strong competitor Bajaj Auto Ltd, which has risen only 7.6%, while the benchmark Sensex index has moved up by 10.75%.

A combination of several factors has rekindled investor confidence. Most important, the company has gained momentum in the fastest growing segment of two-wheelers—scooters. Industry estimates point out that the scooter segment grew at a 26% compounded annual growth rate (CAGR) over fiscal years 2009-13, as opposed to 15% for motorcycles. A report by Espirito Santo Investment Bank Research forecasts the trend to continue with scooter sales growing at a faster 13.6% CAGR compared with 7.7% for motorcycles until fiscal year 2020. Hero is expanding scooter capacity by 25% even as its market share rose by 2 percentage points to 19%, amid competition by Honda. Bajaj Auto is not present in this segment.

Meanwhile, a key concern about competition from Honda Motorcycle and Scooter India Pvt. Ltd (HMSI) is on the ebb. Strong rural demand augurs well for Hero, what with nearly half its sales accruing from these markets. On the whole, it has regained lost market share (post-Honda). In fact, HMSI’s foray into the domestic motorcycle market led to a greater erosion of Bajaj Auto’s pie than that of Hero.

Analyst estimates says that HMSI’s gain of around 3.7 percentage points market share between April to November has seen a greater loss to Bajaj Auto than Hero, which still retains its leadership with a 51% share. One may recall that three years ago, there was a 25% erosion in its stock price as investors were worried whether Hero could sustain growth amidst strong competition.

That said, one must note that the forthcoming years would see only single-digit growth in the motorcycle segment, more so in domestic markets. Of course, Bajaj Auto could well offset the pain in domestic markets through growth in exports, an area where Hero is just making efforts. In fact, Bajaj’s strength in registering the highest profitability among peers comes from strong exports, where realizations are better, and from three-wheelers, which bring in higher operating margins.

The recent bump up in Hero’s stock price is partially due to a huge jump in earnings per share estimated in fiscal year 2015. Royalty payable to Honda, following the partnership break-up, ends in June 2014. A report by Prabhudas Lilladher Pvt. Ltd says that a Rs.450 crore saving on royalty, along with some margin expansion coming from cost savings, will translate into a 20% compounded growth rate between fiscal years 2013 and 2015.

Not surprisingly, the stock is rated among the top auto picks by most brokerage firms although the recent rally has priced in most of the positives. At Rs.2,120, the stock, which rose 3.1% on Wednesday, trades at 15 times one-year estimated earnings per share.

Hero weathers Honda's rise better than others

The board meeting held on a wintry December afternoon in New Delhi by Hero Honda was anything but regular. One of world's most fruitful manufacturing joint ventures spanning nearly three decades - Hero Honda - was due to end.

The Munjals, Hero's promoters, were set to acquire all of Honda's stake in Hero Honda Motors, go independent in operating the company and end its reliance on the Japanese company for technology and branding.

Shareholders and analysts who tracked the company feared Hero MotoCorp, which started by making bicycles, would struggle to survive without Honda, a brand which it helped make a household name after introducing it in India.

Albeit, Honda's stellar growth, punctuated with a flurry of launches backed by solid engineering, has helped it grab share from rivals. However, three years after the Hero-Honda split, a look at market share movements of the last three financial years and eight months of this year (please see table), reveals that Hero's loss in share is the least when compared to its peers like Bajaj Auto and TVS Motors in the motorcycle segment.

Honda which sells the Shine, Twister, Unicorn, has doubled its share to little more than 15 per cent by the end of November.

Hero has seen an erosion of 6 per cent in market share to 51.39 per cent by the end of November. That is less than the steep erosions seen by Bajaj and TVS of 22 per cent and 18 per cent, respectively.

Despite an aggressive entry of Honda in the less-than-110cc, which is the bread and butter segment of Hero generating 82 per cent of its total volumes, Hero has held on to its 50 per cent market share. Every second motorcycle sold is one by Hero.

Anil Dua, senior vice-president - sales, marketing & customer care, Hero MotoCorp, says, "We worked out the post-transition period. We rebranded the company. We built our own R&D and made new investments. Honda has grown rapidly in the scooter segment but we have entered that recently and seen good traction in. We have defended our motorcycle market quite well."

The rebranding was completed in mid-2011 when the 'Honda' name was dropped from all products and dealershipsand a changed font marked the Hero brand. It did not have a major negative impact on the company, as feared earlier.

What has helped Hero hold ground, say analysts, is its unparalleled reach and distribution. Hero's market penetration is more than double the size of Honda and generates about half its sales from the rural areas.

Honda has three models in the economy segment with prices starting from Rs 46,191 for the Dream Neo that is pitted against the Hero Splendor at Rs 44,814. Splendor remains the largest-selling two-wheeler brand in India.

While Hero's focus on the Splendor and the Passion, two of the largest-selling bikes, has helped it arrest a drastic slippage in market share, the company has lost traction in the 125-250cc segment. Despite several launches, Hero has not been able to replicate the entry-level's success in the premium segment.

Hero has more number of models in this segment than competition but has a share of just 10.6 per cent, as per the Society of Indian Automobile Manufacturers (SIAM). Four models, the Acheiver, Hunk, Xtreme and the Impulse in the 150cc category and the Karizma and Karizma ZMR make up Hero's premium segment.

Bajaj, the second-largest two-wheeler producer in the country saw its market share fall to 18 per cent in the April-November period this year as against 20 per cent recorded in the same period last year in the entry level segment. Nearly 55 per cent of Bajaj's sales come from the entry level and it has recently launched three models under the Discover brand.

The Chennai-based TVS attempted to gain lost ground with the launch of Jive, a motorcycle without a clutch, but met with a dull response. The company was forced to phase the bike out in less than three years after its launch.

"The motorcycle segment is a fiercely contested one. Despite the slowdown, the segment logged growth of 3.3 per cent this year at 7 million unit sales. Hero has done well to protect its share and Honda has done even better to gain share", says a Mumbai-based analyst.

For Vespa, the mantra is slow and steady

Italian two-wheeler maker Piaggio & C. SpA’s results for the first three quarters of this calendar year had a brief, but significant, reference to its iconic scooter in India. “Vespa run rate falls short of our expectations; we are stepping up efforts to increase sales,” the company said in its November presentation.

Ravi Chopra, Chairman and Managing Director of Piaggio’s Indian operations, would rather look at the bigger picture. “We are moving in the right direction and sales will step up. It is important to be patient,” he told Business Line over the phone from Pune.

Chopra reiterated that for a premium scooter like the Vespa, volumes are not top priority. “On the other hand, we are creating a segment which we can own. The brand is getting accepted and people are talking about it.” Clearly, the Vespa is not in the same mass product category as the Activa, Pleasure, Jupiter or Ray. With a higher price tag, its sales would be confined to a specific category of buyers keen on showing off this scooter. As a result, the numbers will be slow in coming which is precisely what Piaggio had anticipated. Earlier this year, the company had slashed Vespa prices by nearly Rs 6,000, which meant the ex-showroom price would begin at around Rs 60,000. According to Piaggio, this was a result of better “operational productivity in the plant and efficiency through systems”. Chopra had then said this price slash would not impact the Vespa’s premium positioning in the market.

The 125cc scooter was launched in April 2012, followed by the high-end VX version in July this year. Sales of the Vespa duo are reportedly averaging 5,000 units a month. The capacity at the Baramati plant near Pune is 1.5 lakh units a year and it was widely believed that it would be doubled by the end of this year. But then, market conditions have been difficult for automakers for a while now. It is this depressed sentiment, coupled with the Vespa’s higher price tag, that puts the sales numbers in perspective. Yet Chopra is not deterred. “People are noticing its distinctiveness and positioning strategy,” he said. Piaggio is also keen on spreading the network to other parts of India in course of time.

Buyer base

For the moment, men take up over two-thirds of the buyer base for the Vespa, but this could change.

Women prefer options like the TVS Scooty and the Hero Pleasure as well as the Honda Activa and the Yamaha Ray, which meet their style quotient as well as budgets. The Vespa is still in a premium league and its owners want to be associated with a scooter that is distinctly European and more upmarket.

Even before its India launch, Piaggio was clear about the positioning of the Vespa as a ‘lifestyle, iconic, timeless and ageless product'. The idea was to sustain the brand image through an appropriate positioning and communication strategy focusing on its heritage and unique values.

In an earlier interview to Business Line , Chopra had said: “Ours is not a scooter; it’s a Vespa and a way of life. The idea is to awaken a sleeping potential consumer who does not have such a product.”

Continental Shift!

 The thing with some cultures is that they never die. They may fade out for a while, and the followers may dwindle down to insignificant numbers, but they come back when someone makes a concerted effort to revive them. The Café Racing culture is one of them.

When it started off in the post-war era, it saw young English men and women clad in leather jackets, helmets with goggles over them and boots hunched over quick and fast motorcycles, racing each other. These young Brits, who called themselves Rockers, and rode machines called Café Racers, did exactly what the name suggested – raced from one café to another.

It gave the world two things – a new subculture and a new genre of motorcycling. Motorcycles from Triumph and Norton with low slung handlebars, long fuel tanks and big motors with quick acceleration became the to-have machines. Their amalgamations, the famed Tritons, also became very popular. Royal Enfield too had a 250cc machine called the Continental GT, which was also used by the manufacturer at racing events.

From that namesake, the new Royal Enfield Continental GT has arisen. Sure, it has a lot of history riding on its shoulders, but it also has two challenges to face. One, to make a motorcycle for the enthusiast with a touch of new-age practicality, and two, to introduce this product as not just a motorcycle, but as a lifestyle, to a country like India which has never seen much of leather-clad ton-up Rockers or the Café Racers.

Design and styling

The new Royal Enfield Continental GT has got everything in terms of styling to be called a proper Café Racer. And the designers have added their bits of practicality as well. Right out at the front is the round headlamp with a 55W lamp, sitting in front of low-slung clip-on handlebars. These handlebars are adjustable and can be fitted with optional bar-end rear-view mirrors, which not just add to the styling but are also way better than the stock mirrors (more on that in a bit).

The long tank is well sculpted to lean over as you shoot off the block, and has recesses to tuck your knees in. The footpegs and gear and brake levers too have been pushed back to give a proper sporty stance. And to accommodate that ride posture, the Continental GT has been fitted with a narrow, sculpted seat with a bum-rest. The seat actually looks very authentic, and the curved bit of plastic at the end adds a very sporty touch to the motorcycle. The Continental GT is mainly intended for solo riding, and if you need a pillion seat, you’ll have to shell out more money.

There’s a lot of chrome and brushed metal thrown around as well. The exhaust pipe, headlamp and the lining on the twin-pod analogue-digital console are bits that shine in the sunlight. The frame is a twin downtube-cradle unit, which is painted all black. The cropped fenders at the front are a nice touch, and come in shiny grey. The aluminium spoke wheels don’t just add the retro touch to the bike but also shed weight.

But the best part about the overall scheme of design is the paint-job. The gleaming red paint on the motorcycle is very well finished, and the overall styling makes the Continental GT a guaranteed head-turner. Moreover, it just feels good to ride around the city on a machine that is so well crafted.

Engine and specs

Royal Enfield has always received mixed responses for the Unit Construction Engine (UCE) block. Some fans like it and some don’t. It’s as simple as that. The UCE block has had its quirks, and is infamous for sending serious vibrations up to the rider on high speeds. Mostly, it is notoriously heavy, and many riders feel that the EFI system isn’t as refined as it should be.

Nevertheless, the Continental GT uses an air-cooled, fuel-injected 535cc motor which can churn out a maximum power of 29.1 bhp (21.4 kW) @ 5,100 rpm and manages a peak torque of 44 Nm which kicks in at a decent 4,000 rpm. The ECU has been remapped and for better performance, a Keihin Electronic Fuel Injector delivers smooth fuelling based on throttle input and other parameters.

This motor is mated to a 5-speed gearbox, which has good ratios for both city and a bit of cruising. But the gearbox has a few problems, mainly with slotting between 2{+n}{+d} and 3{+r}{+d} gears, and there’s the usual fumble with finding the neutral.

As for the exhaust note, yes, you can still hear underlying notes of the old sounds of the Bullet, but what the Continental GT sounds like can be best describes as a throaty, angry grunt. There is none of the good old thumping and thudding that Royal Enfields have always been associated with.

And though Royal Enfield’s claim about the Continental GT being their lightest and most powerful motorcycle in production is true by sheer numbers, this Café Racer is still a bit heavy. The Continental GT weighs 184 kilos at the kerb, with a near full tank of fuel and oil.

Ride and performance

But the thing with this motorcycle is that by the time you go over specs and admire the craftsmanship, you’re just a tad bit impatient to get on the bike and take it for a spin. And when you do, you won’t be disappointed, much. For one, the ride has a lot of drama to it.

When you lean over the tank, push your bottom to the seat’s end and gun the throttle, a grin comes automatically to your face. Because that’s when you leave everything behind in a blur. Quite literally. Because one, the motorcycle is quick, and two, the handlebar vibrations make the stock mirror absolutely useless. But, there is no transfer of vibes to the footpegs or the tail.

And it’s very nimble too. You could be going really fast and yet you’ll find enough footing around corners. The Pirelli Sport Demon tires and very centralised weight distribution make sure of that. But there’s one problem – once in a while downshifting can cause a slight drift. There’s massive stopping power with 300mm Brembo discs in the front and 240mm at the rear.

The Paioli Twin gas charged shock absorbers at the rear come with adjustable preload and have 80mm travel, and combined with the front 41mm telescopes, the bumps are taken care of. But it’s not the bumps that bother so much as the vibration from the machine itself. Although the Continental GT has a lighter flywheel and stronger valves and springs, the engine is still not as refined as you’d expect it to be. While riding in the city, where you’re already bothered by the traffic, these vibrations add to the agony. But they tend to disappear once you start cruising along. But don’t expect to do more than 120 kmph and not be thoroughly shaken. The vibration starts getting harsh once the needle is past the 4,000 rpm mark.

As you might have guessed, the ride posture is a bent-forward, foot-back type, so it’s not very ideal for very long rides. The seat is narrow but comfortable nonetheless. But heat dissipation is a matter of concern. Apart from giving your feet a heat massage, the bend at the exhaust pipe may also burn your shoes (or feet if you’re wearing open footwear).

Bottomline

The new Royal Enfield Continental GT, even with all of its quirks, is a fun motorcycle. It’s pure joy to ride, that’s what it is. It has its own set of problems, as with every Royal Enfield motorcycle. The engine needs more work on refinement, and the gearbox isn’t the best in town. But then again, if you’re a Royal Enfield loyalist, you’ll learn to live with these quirks.

But keeping the riding part aside, what Royal Enfield has done is introduce a lifestyle product in the form of a motorcycle. It offers some really authentic merchandise, such as Rocker jackets, boots, helmets and a lot of other accessories, which are of premium quality. Sure, at first you might look a bit out of place, as this side of motorcycling hasn’t caught up in India. But you’ll feel good nonetheless, as you soak up an iconic bit of motorcycling history. There are other motorcycles which offer more power, stability and finesse, but none that offer what the Continental GT does. Heritage. The Royal Enfield Continental GT is available for Rs 2.05 lakh (on-road, Delhi).