India’s Motorbike Makers Face a Fork in the Road
(Bloomberg Opinion) -- India’s motorcycle industry is struggling with an existential problem: Which is better, more for less or less for more?
That calculus has become a focal point for the country’s makers of motorbikes, mopeds and scooters, as volumes rise and margins shrink. It’s far from simple for a market that churns out more than 2 million vehicles a month. Sales continued to climb in September compared with a year earlier, data from some of the largest manufacturers showed this week.
The size and structure of the industry make it difficult to navigate every twist and turn. Two-wheelers account for around 80 percent of India’s vehicle sales. Motorcycles make up more than 60 percent of the segment, with about 1.5 million units sold per month. Within motorcycles, there are several sub-categories such as commuter and sports bikes, with engines that vary in price, size and power.
Bajaj Auto Ltd., one of India’s largest bike makers, has taken the quantity approach, hoping volumes will tip the balance in its favor. The company is trying to strengthen its hold on the lower-end market, aiming to raise its share to close to 50 percent from the current 35 percent. Bajaj “will be taking aggressive stands in price points” for its entry-level machines, Chief Financial Officer Kevin D’Sa said on an earnings call in July.
The company dropped prices earlier this year on its most basic model, the CT100, and its iconic Pulsar brand. But it reversed course after an initial uptick in market share that failed to help the top line. Bajaj then introduced a mid-range, basic version of the Pulsar in June to create more choice for aspirational consumers. That didn’t work either — something the company should have foreseen, having taken this approach when introducing its higher-end Discover and V brands. On the earnings call, Bajaj said it was still a couple years away from tackling this segment again.
So the reality is discounts haven’t really helped, even in a market as price-sensitive as India’s. Bajaj’s margins have fallen more than 2 percentage points over the past year.
Meanwhile, smaller competitor TVS Motor Co. has resisted price pressures and instead pulled back in the lower-end commuter segment. The company has a few high-end products out like the Radeon and Ntorq for younger riders that have hit the spot. It’s also ramping up premium bikes and scooters ahead of the industry, and is increasing exports to other emerging markets.
Scooter sales have been rising faster than motorbikes for TVS and posted their highest-ever number in September, according to Goldman Sachs Group Inc. TVS’s margins have also shrunk, though. On its earnings call, management prudently shifted the conversation away from prices and market share to cutting costs.
Their results may be similar for now, but the difference is that TVS has its eyes on the road ahead while Bajaj is still looking at how to rejig a market of the past.
For one thing, competing on price will become tougher. In the near term, costs will be forced up whether bike makers like it or not. Last month, India’s insurance regulator raised the mandatory personal accident cover for two-wheelers. Separately, the Supreme Court mandated that new buyers purchase third-party insurance upfront for a period of five years. Taken together, the cost of a basic motorbike could rise by as much as 20 percent. That’s a steep jump for the segment Bajaj is targeting.
In addition, India’s transition by 2020 to the Bharat Stage VI fuel-economy norms is already forcing delays in product launches and will come with capital spending (read: costs) to upgrade technology.
India’s armies of two-wheeler buyers aren’t just poorer rural consumers; they include up-and-coming millennials. The bike makers to come out on top will be those that find a niche and keep their finger on the pulse. In this tricky terrain, less may in fact be more.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
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