HERO - TOO MANY VILLAINS IN THE PLOT NOW

By Ruma Dubey

Whenever a couple separates, it takes a while for life to settle down; there are teething troubles and major adjustment issues but over a period of time, slowly things simmer down. It is only after this phase that there begins growth.

Hero Motocorp, after its separation from Honda is still facing adjustment issues. Teething troubles are at their peak as the divorce is still very new. But taking advantage is Bajaj Auto which is today threatening to usurp Hero’s seat of numero uno.

Hero, for November, which was stated to be its best season, given the festive demand, registered a sales of 5,02,305 units, a YoY decline of 6.42%. In December,  Hero sold 5,41,615 units  v/s 540,276 units on YoY. And Bajaj, for December, reported the highest ever motorcycle dispatches in December at 298,350 units, up 13% (YoY).

And that’s not all; Hero’s biggest strength area is motorcycles with 100-110cc engines and rivals are now gnawing this share of its pie too. Hero is too firmly entrenched in this segment, offering the widest range of motorcycles – 17 in 100-110 cc range and it planning to increase it further. So to take away this share of its pie will not be an easy task.

Hero’s best selling brand has been Splendor and in September, Bajaj Auto’s Discover became the world’s largest selling motorcycle brand, overtaking Hero’s Splendor. It sold 1,22,968 units of the Discover, while Hero sold 1,21,018 vehicles during the month. Bajaj Auto last week, launched yet another 100 cc motorcycle, the Discover 100 T, at the upper end of the mass market segment.

And not just Bajaj, its divorced partner, Honda Motorcycle and even Scooters India are getting ready to beat up Hero. Honda launched its Yuga bike in the same segment as Splendor. Honda hopes to sell 3 lakh units of Yuga before end of FY13  and it hopes to increase India’s contribution to its total global revenue to around 30% from the current 13%. That’s not all. Honda is planning to put up fourth plant in India, at a capex of Rs.1000 crore, to spike up its total capacity to 5.2 million units pa, which is a tad shorter than Hero’s current capacity of 6.15 million units pa. So it is planning to go for Hero’s jugular – expanded capacity as well as low cost bikes.

In terms of coming up with new products to fight off competition is proving to be tough as it is still in the process of consolidating its R&D, post the divorce. But one area where Hero scores over Honda is the after sales service. Many dealers say that people are a bit reluctant to buy Honda Yuga, despite it being the cheapest bike in the market as they have heard horror stories of very poor after sales service and would thus rather go with Bajaj or Hero. But knowing Honda, it would ramp up this weakness very soon.

Competition is heating up in the mass segment – 100cc to 125cc bike segment. Mahindra 2 Wheelers, a subsidiary of M&M recently announced its re-entry into motorcycles with two 110cc bikes, Centuro and Pantero. That’s not all – Hero now has severe competition also from Suzuki Motorcycle India, Yamaha India and Piaggio India.

Honda’s aggressive plans are in fact not just a threat to Hero but to the others around too. As per data put out by Society of Indian Automobile Manufacturers (Siam), Hero’s motorcycle market share, till end of Nov’12 fell 300 bps to 52.54% and that of Bajaj Auto fell 100 bps to 25.23%. On the other hand, Honda’s share rose 400 bps to 11.47%, which was purely on the back of success of Dream Yuga. According to Siam, Hero’s sales in the mass segment declined 6% to 3.2 million units, while in the 125-150cc segment its plunged 50%. And in terms of market share in overall mass segment, Hero’s market share declined 6%  and by a shocking 50% in the 125-150cc segment. This means, Bajaj Auto also needs to watch out as Honda is a giant and when it moves, it speeds. Honda has already nudged out TVS from the No.3 to and has firmly ensconced itself there. Now sights are on Bajaj at No.2 and then the current No.1, Hero.

Yes, Honda is a giant and we cannot take its footsteps lightly. The sheer impact could vibrate and shake-up the entire sector. Bajaj and Hero, especially Hero needs to watch out.

The 27 year old marriage was split for a purpose and Honda will surely make the divorce more than worth it.