Hero Faces Challenging Times In Two-Wheeler Market

If it continues to manufacture similar machines, country’s largest two-wheeler maker Hero MotoCorp might lose its crown in next 8-10 years to its former partner Honda Scooter and Motorcycle India ltd (HSMI). The company’s market share has declined nearly 5 per cent post the divorce on the backdrop of bad monsoon and products coming out of its factory unchanged.

FY 2015-16 sales result shows that Honda’s share in the last five since the split has doubled from a nominal 13 per cent to 26 per cent whereas Hero’s market share slide nearly 5 per cent percentage points to 39 per cent. In the bike segment, Hero's market share is above 50 per cent.

For fiscal ended March 31, it posted a marginal increase in sales at 66,32,322 units as against 66,31,826 units in previous year. For the fiscal year ended March 31, 2016, the company posted a marginal increase in total two-wheeler sales at 44,83,459 units as against 44,52,005 units in the previous fiscal year.

In the last five years, Honda has manufacturing capacity has multiplied many times. From one manufacturing facility with a capacity to make 1.6 million two-wheelers in 2010-11, the company now has four facilities where it can produce 5.8 million vehicles a year. Hero has the capacity to produce 8.1 million units a year.

What aids Honda and hampers Hero

The Growing Scooter Market
It’s been only six 6 months that Hero has started focusing intensively in the scooter segment. Scooter’s which now holds 31 per cent of the two wheeler market has remained a forte of its former partner Honda whose market share is around 50 per cent compared to Hero’s 22 per cent.

Honda was the first company to realise the growing trend of scooter among urban users, especially the female section. It launched popular model Activa in 2000 and since then it has been the best-selling model in the country. Hero on the contrary continued to focus in the 100-125cc category bikes which affected its scooter sales. However it’s latest scooters- Duet and Maestro Edge has been received well in the market. The company's sold 88,156 units of scooter in February 2016, a double digit growth compared to last year’s Feb sales.

In the premium commuter segment (150cc-250cc) too, the company has failed to deliver a landmark model to strengthen its position in this growing segment.

Bad Monsoon
Nearly 45 per cent of Hero’s total sales come from rural India and a bad monsoon can a negative impact on the company’s growth. Pawan Munjal, CMD of HeroMoto Corp says that the motorcycle industry has been slow over the past two years because the changing rain patterns have affected demand. He believes that the company’s plan to sell 12 million units annually will largely depend on this year’s monsoon. He says that if monsoon is good, there will be changes in the segments in the rural markets.

A bad monsoon in 2016-17 is the last thing the company would wish for as the country has already witnessed two consecutive droughts.

Honda on the contrary bakes its product for urban population which are least affected by monsoon cycle and more by economic cycle. Satisfied with the FY16 result, Honda Motorcycle & Scooter India senior vice president-sales and marketing Yadvinder Singh Guleria said, "From a strategic perspective, 2015-16 was like a base camp for Honda and now we are fully armed for the steep climb in 2016-17."

Signs of Improvement
Despite the shortfalls, the company held its tag as the first preference of Indian buyers. Its economical, fuel efficient and simple looks are still adored by many, especially in ruler India. But with the changing preference of the buyers, the company has started focusing equally in the other segments. It recently inaugurated one of the largest R&D centre in Jaipur to expand its portfolio and meets its target, which is to sell 12 million units in a year by 2012.

Munjal stated that the R&D team is expected to come up with innovative products that will help to push the firm’s vision as a global brand. He added that the firm is currently present in a few segments and it needs to strengthen its position especially in the segments where it has lagged behind.

On the growing scooter segment too, the company launched two popular in-house developed models, Duet and Maestro edge which is being well received in the market. As a result the company has emerged as the second largest player in the segment.

Munjal also said that the market is working to develop bikes with higher engine efficiency to compete with the likes of Bajaj’s Avenger and Royal Enfield bikes.

The Budget's push to boost the rural economy, especially policies related to improving the road infrastructure, should help raise overall two-wheeler sales.