One of the remarkable aspects of post-lockdown two-wheeler sales in India has been the surge seen in the numbers of Hero MotoCorp, India’s largest motorcycle maker.
While sales trends were largely depressed for rivals Honda (down 37% in July), Bajaj Auto (down 23%), TVS (-16%) and Royal Enfield (-23%), Hero — despite its massive market share — was able to avoid any such decline in July.
Due to the strong performance of the company since the lockdown was lifted in early May, Hero MotoCorp has taken a whopping 5 percentage points from its combined rivals in terms of Indian two-wheeler market share.
The company now accounts for almost 1 out of every 2 motorbikes sold in India, and has further consolidated its position as the market leader as far as volumes are concerned.
The key reason for the company’s strong performance has been its reliance on rural and semi-urban market to drive much of its sales. It also focuses more on the lower-half of the market by price, and gets the overwhelming majority of its revenue from models in the Rs 60,000-1,00,000 range.
Others, like Bajaj Auto and Royal Enfield, also get a substantial chunk of their revenue from the Rs 1 lakh plus segment — also known as the premium category. However, TVS and Honda — Hero’s former partner — also get most of their revenue from the sub-1 lakh market segment.
Naveen Chauhan, who heads sales and aftersales for Hero MotoCorp, said the company benefited from the fact that the rural economy of India has been less impacted by the COVID-19 pandemic than the urban areas.
Rural areas, he said, saw a classic V-shaped recovery, with a sharp dip in demand coinciding with the lock-down, followed by a steady and unbroken recovery.
This, he pointed out, helped the company quickly plan for and tap the pent-up demand in these areas once the lock-down was lifted in May.
“The lock-down was holding demand back for a brief period. The moment the lock-down opened up, the demand came back,” Chauhan told investors after the company’s first-quarter results announcement.
“On the urban side, due to the sentiment being low, due to certain higher levels of unemployment rates, there may be some bit of [pent up demand] which may manifest in festival sales,” he added.
Not surprisingly, Hero MotoCorp ascribes its stellar performance during the unlock period to its agility in terms of quickly restarting operations and ramping up output to cater to the rising demand.
Even as other two-wheeler makers remained cautious about ramping up production quickly, Hero MotoCorp urged its suppliers to churn out parts quickly. The company sold 4.5 lakh two-wheelers in India in June and 5.06 lakh in July.
“We conducted a town hall with suppliers and we indicated a figure of 5 lakhs production. Everybody was taken by surprise,” Chauhan said.
But the company was sure there would be enough demand. “Through the internal calls, which we were getting from the customer, we were very confident and that confidence was given to the vendor community,” he added.
In fact, Hero MotoCorp struggled to meet demand in the early days of ‘unlocking’. Right now, company officials said, it has managed to get production ahead of demand and is building up inventory in anticipation of higher demand during the upcoming festival season.
Except Maharashtra and Gujarat, demand has bounced back in most places, Chauhan said.
“We’ve got very very strong recovery seen in the central zone, which is Rajasthan and MP, good double-digit [growth] in UP. In Bihar, before the lock-down happened in mid-July, it was growing at a good pace. The lock-down held up the pace at which it was growing. After it opened up in the first week of August, it has picked up the same pace.
“The whole of East is doing pretty good. Maharashtra and Gujarat, where the sentiments are relatively low, are yet to pick up traction. South is moderate.”
Besides pent-up demand from April and May, part of the reason for the increase in sales may be the need for personal transportation in the era of the viral contagion.
Many people in India, especially those who need to travel to their work sites, have warmed up to the idea of buying a motorbike or scooter to take them there, instead of relying on public transportation. This favors a player like Hero, which focuses on mass market, commuter bikes, than someone who focuses on higher-end models.
Proof for this phenomenon comes from two sources. First is the nature of the buyer.
The number of first-time buyers — and those buying a second bike — are rising, while replacement buyers — who trade in their old bikes for a new one — remains down. In other words, people are buying motorbikes out of necessity, and not out of choice.
This was also borne out by the results of a survey that the company conducted, which showed that people were advancing their decision to purchase a motorbike due to the COVID-19 pandemic.
“On the current levels, 10-12% is what the preponement is happening in terms of personal mobility. We have done a deeper survey and we have looked at which kind of customers are actually coming and buying and the contribution of customers who are preferring to go to work [by bike], their contribution has jumped up significantly,” Chauhan said.
The second factor is Hero’s refreshed product catalog related to the introduction of the tougher, BS-VI emission norms in April.
Over the past several weeks, the company has unveiled spruced up, BSVI models of its models like Super Splendor, Glamour and Passion.
Some of these models have seen extensive redesigns. The Passion Pro model, for example, has been almost rebuilt from ground up, and the new line-up has been appreciated by buyers, says Chauhan.
“If you look at our BS-VI products, there’s a different response that we’re getting. Passion, in a new avatar, is taking us into new markets. The refresh we have done on Super Splendor and Glamour, Glamour you know was a product for certain select pockets. It’s going in to new markets as well,” he said.
Volumes in certain markets and segments have increased by five times after the BS-VI refresh, he added.
Hero MotoCorp, however, has had mixed luck so far with its attempts to move into the premium category.
It launched the Xtreme 200R exactly two years ago at around Rs 90,000, making it the most affordable 200cc bike in the market.
The model, however, failed to set the charts on fire, and there is currently no word on whether there will be a BS-VI version for the bike or not. What the company has done, instead, is to launch the Xtreme 160R on June 30.
Niranjan Gupta, Chief Financial Officer of the company, said the company is okay with building its presence in the premium category model by model.
“Our task in premium is to have a complete line-up and that’s what we’re embarking on, with XPulse, the Xtreme 160, and you’ll see more and more action moving forward, every year on this. We want to complete the line-up horizontally as well as vertically, across different segments and across different CCs.
“Clearly, the first task would be to quickly move towards a double-digit market share.. The primary objective is to have absolutely right, fantastic products which are loved by customers and have a line-up which should make us a credible player in the premium segment. Market share will follow,” he said.