Hero MotoCorp’s Premium Makeover Has An Image Problem
Hero MotoCorp Ltd., India’s largest two-wheeler maker known for its budget models, is searching for a hold in the lucrative market for bigger motorbikes. It has even tied up with Harley-Davidson Inc. But the company has an image problem.
Hero MotoCorp’s brand is not associated with premium or luxury, said Suraj Ghosh, who leads the South Asia division of powertrain and compliance forecasts at IHS Markit. “Any mass product entering the segment will have to fight the perception battle. Maruti Suzuki faced it with the Kizashi sedan that it later pulled back. For Hero MotoCorp to sell anything more than Rs 1.25-1.5 lakh will be difficult.”
The maker of Xtreme motorcycle’s interest in the category is, however, warranted. According to ICRA Ltd., the segment comprising 250cc and higher vehicles has grown at an annualised rate of 30% in the decade through March 2020 to 0.68 million units. The category, ICRA said, accounts for a little over 6% share of the overall two-wheeler market, with Royal Enfield dominating nearly all of it.
For perspective, more than 1.7 crore motorcycles and scooters were sold in India in 2019-20 fiscal—87% of these were budget vehicles of less than 150cc engine capacity. And Hero MotoCorp accounted for 36%.
The company, however, also has a small, yet growing portfolio of premium variants of 150-200cc such as the XPulse and the Xtreme.
The New Delhi-based firm aims to launch adventure, sports and commuter motorcycles in the middle-weight segment. It’s working on a 300-400 cc motorcycle at its Jaipur R&D centre, according to a person aware of the matter who didn’t want to be identified as details are not public.
The company has yet to respond to BloombergQuint’s emailed queries.
Niranjan Kumar Gupta, chief financial officer at Hero Moto Group, said in a post-earnings conference call with analysts that the company aims to launch more than 10 models, including refreshers, every year. The firm’s tech centre in Germany, he said, will be working on two things—building premium portfolio, and electric vehicles.
Hero MotoCorp will also sell and service Harley-Davidson motorcycles, parts, accessories and general merchandise. As part of a licensing agreement, it will develop and sell a range of premium motorcycles under the Harley-Davidson brand name.
“Our partnership with Harley in a sense is the icing on the cake because that allows us to get into a segment which would generally be difficult unless you’ve got that retro, that heritage brand image,” Kumar said.
Yet, Hero MotoCorp is betting on the iconic American brand that itself pulled out of India to cut costs after an unsuccessful run. And India’s No. 1 two-wheeler maker, said analysts, will run into similar hurdles.
To start with, it’s a crowded market.
Joining The Crowd
Besides the dominant Royal Enfield that, according to ICRA, has 96% share in the 250cc and above segment, Hero Motocorp will have to take on peers such as Bajaj Auto Ltd. and TVS Motor Co. Then there is Jawa, revived by Mahindra Group, and Honda Motorcycles and Scooters India Pvt.’s H’ness to contend with.
Bajaj Auto partnered with U.K.’s Triumph and KTM Group, while TVS Motor tied up with BMW Motorrad in the sub-500cc segment and acquired the British Norton Motorcycles in April last year.
Demand, too, has stagnated.
ICRA attributed that to muted macroeconomic sentiment, and more than 30% increase in the cost of ownership because of stricter safety and emission standards and a higher upfront insurance price.
Moreover, according to Shamsher Dewan, vice president and sector head at ICRA, 85% of the premium two-wheeler sales are driven by replacement demand or upgrades, not first-time buyers. “Volumes are limited because of lower purchasing power ability of customers and the relatively under-developed cruiser segment.”
Even Royal Enfield’s share, said an Elara Capital report, has stagnated at 5-6% of the overall motorcycle market in the last four years.
Getting Pricing Right
Pricing was also one reason for Harley’s retreat.
During its India journey for a little over a decade, the American company imported components and assembled its motorcycles in India. Import duties kept prices high and sales didn’t cross 3,000 units a year. The cheapest Harley-Davidson Iron 883 starts at around Rs 8 lakh. It had launched Street 750 and Street Rod models priced at around Rs 4.7 lakh and Rs 6 lakh for India, but discontinued it.
Royal Enfield, however, prices its motorcycles competitively. Its best-seller, the Classic 350, costs Rs 1.6-1.7 lakh (ex-showroom). To beat that, Hero Moto will need to localise manufacturing.
“There is a need to reduce pricing and it’s possible only when manufacturing starts in India and it will take time,” Abhishek Jain, vice-president of research (automobiles) at Dolat Capital, told BloombergQuint over the phone. “At present, Hero is assembling and selling via the distribution channel.”
Hero MotoCorp can borrow from Royal Enfield’s playbook, according to Hetal Gandhi, director at Crisil Research. Royal Enfield first brought refurbished versions of old models and in the second phase, launched new ones, she said, adding that it’s still contemplating the strategy for the third phase.
Hero MotoCorp, Gandhi said, already has the distribution network and bargaining power.