Hero MotoCorp is trying to rev up its premium play and make a dent in the 350 cc-plus market with Harley’s cheapest bike in India—X440
There are two ways to gauge the direction in which the bike market is headed. The first is to take a close look at the latest performance of the big boys. Let’s start with Hero MotoCorp, India’s biggest two-wheeler maker and the hero of the commuter segment, which happens to be the largest in terms of volumes of bikes sold in the country. In June this year, Hero MotoCorp sold 404,474 motorcycles, which is a fall of 12 percent year-over-year (y-o-y) and a 17 percent decline in month-over-month (m-o-m) numbers, according to the latest auto sector monthly report by brokerage firm JM Financial.
For the third-biggest player, Bajaj, it was a similar story. It sold 293,649 bikes, which translates into a 7 percent and 5 percent dip in y-o-y and m-o-m, respectively. For TVS, the second-biggest by volume in India, it was almost the same story. With 148,208 motorcycles sold in June, it was a growth of 1 percent y-o-y, and a dip of 9 percent m-o-m. There is one easy and a no-brainer takeaway from the report card. Bikes are sliding when it comes to y-o-y sales. But when it comes to overall fiscal data, India’s bike market increased from 9 million in FY22 to 10.2 million in FY23.
Well, there is another side of the story, and another conclusion to be drawn from the same set of data. Have a look at how Royal Enfield has fared. In June this year, India’s biggest premium bike maker sold 77,109 bikes, which is a 26 percent y-o-y jump. Though there is a slight dip in terms of m-o-m, which was 77,461 in May this year. Overall, the bike maker had a glowing report card in the last quarter of FY23. It posted sales of 214,685 motorcycles, up 17.9 percent from 182,125 motorcycles sold during the same period in FY22. One quick and easy conclusion is: The market and the bikes above 350 cc is growing. In fact, in FY23, the overall premium market of bikes grew at a faster clip than the commuter segment.
There is another way to slice and dice the bike market. This can be done by contrasting volume and value. Let’s start with Hero MotoCorp. In FY23, it sold 4,959,156 bikes, and posted Rs 33,805.65 crore in revenue from operations. Now contrast it with Royal Enfield, which sold 834,895 bikes and made Rs 14,442 crore in revenue from operations. Clearly, in terms of size, Hero is more than double the revenue and over six times bigger in volumes.
The picture, though, dramatically changes when one looks at the value data. In spite of selling over 49.59 lakh bikes, Hero posted a profit after tax (PAT) of Rs 2,910.58 crore in FY23. In FY22, the PAT stood at Rs 2,473.02 crore. So, a growth of over Rs 400 crore in a fiscal. Now, during the same period, Eicher Motors’ (Royal Enfield) sold over 8.34 lakh bikes and posted a revenue of Rs 14,442 crore. Its PAT, though, was bigger than Hero MotoCorp at Rs 2,914 crore! Last fiscal, in FY22, the PAT stood at Rs 1,677 crore. This means a jump of over Rs 1,200 crore in a fiscal! Clearly, when it comes to value, Eicher Motors is much bigger than Hero MotoCorp. The secret sauce—you might call it magic fuel—for the hero of the 350 cc and above market lies in its premium play. Sales of bikes between 250 cc and 750 cc jumped 38 percent last fiscal, which is more than double of the two-wheeler category. Also read: Cover story: Pawan Munjal, hinterland hero
No wonder, Hero MotoCorp—the hero of the mass market brand which gets over 90 percent of sales from bikes less than 125 cc—is trying to rev up its premium play and make a dent in the 350 cc-plus market. And it’s doing so by joining hands with Harley Davidson, rolling out Harley’s cheapest bike in India—X440—which is priced between Rs 2.29 lakh and Rs 2.69 lakh, and planning to come up with more Hero-branded premium bikes over the next few quarters. Pawan Munjal, chairman of Hero MotoCorp, bared his ambition and intent during the latest launch of X440 in Jaipur. “This product that we are launching is in a segment which is broadly one-third of the premium volume,” he reportedly said in a media interaction. “But it has half of the premium profits and revenues. So that is the significance of this [segment],” he underlined.
The battle lines are drawn. The game plan is clear. Hero already has volume in the mass segment. Now it wants volume in the premium segment to beef up its margin and PAT play. When asked about the strategy of the company over the next two-three years, Hero MotoCorp CEO Niranjan Gupta outlined the roadmap during the Q4 earnings call in May this year. “The focus on customers is what is going to create the market cap,” the CEO stressed. Customers’ love, Gupta explained, translates to more products being bought at a higher price premium and for a longer period of time. “And that with a viable business model creates a market cap. So in the end, that's going to be the focus,” he said, adding that the company will aggressively roll out more premium launches over the next few quarters. “There will be big launches, which will then ensure that we can build the right premium portfolio and get our market share,” he added.
Hero’s hyper aggressive moves in the premium segment is clearly from a dominant trend in the bike market. Gupta explained the trigger in the earnings call. If you look at the premium segment, which is 150 cc and above, the motorcycles have grown by 28 percent in FY23 compared to the overall 14 percent growth of the total motorcycle market. So, you can already see that one part of India, he reckons, started growing and started spending and being more confident about it. “It's only a matter of time until the other parts start participating in this category,” he said.
Industry experts reckon that the Hero-Harley combo stand a good chance of making a dent in the premium market. Amit Kaushik, managing director of Urban Science India, starts with the positives that the American bike maker will draw by joining hands with Hero. “Thera are three things that make a foreign and premium brand a big hit in India,” says the auto analyst at the Detroit-based global consulting firm. A foreign brand must be aspirational, affordable and accessible. Harley, Kaushik maintains, just had one attribute. “It fared poorly in affordability and accessibility,” he says. Also read: Inside Royal Enfield's 'Studio' bet
Hero, on the other hand, has so far found it hard to crack the premium segment because of three reasons. First, the tag of being a mass brand takes all sheen away from wooing aspirational users. Second, it lacked firepower in 250 cc and beyond engines. Third, it was too focussed on commuters for decades. “Premium needs a laser-sharp approach,” he says. Now with X440, the premium market gets wide open in terms of affordability, accessibility and the brand pull of Harley. “The combined might give both the brands a better chance to take on the rivals,” he reckons.
Okay. But what about the impact on Royal Enfield? Will it finally face its first serious challenge in decades? Players like TVS, Bajaj (along with Triumph) and Honda have been trying to take on the premium king in India but nobody has tasted success so far. Can Hero-Harley change the game? Kaushik reckons that Royal Enfield definitely has a tough fight this time. “Hero won’t be content with just X440,” he says, adding that the company plans to roll out its own premium models in 350 cc and above. “Once the portfolio gets beefed up, the challenge will become serious,” he says.
Royal Enfield, though, won’t be a pushover. Omkar Kamtekar, research analyst at Bonanza Portfolio, explains why the hero of the premium segment in India will keep its lead and edge intact at least for the next few years. First, the cult following of Royal Enfield, which translates into high sales as well. Second, the wide portfolio basket of Royal Enfield means there is something for everybody and across diverse price points and engine points. “Hunter is the latest addition in its diverse armoury,” he says. Third, the user experience and stickiness come with years of customer service. “Price might pull you in, but the user sticks because of how the brand treats her after that,” he says. The vast retail footprint of Royal Enfield, including its dedicated after-sales, makes it difficult for other brands to intimidate the leader.
Though the challenger brand—X440—is set to flex its marketing and strategic muscle, it will take months if not years to topple the leader Royal Enfield.