NEW DELHI: Gone are the days when affordability used to be the major factor for two-wheeler manufacturers to grab a bigger pie in the Indian market.
In the past few years, manufacturers have scaled their offerings, and in more recent times, they have flooded the market with ‘premium products’ as this segment continues to outpace the overall growth of the two-wheeler market.
The premium segment, which comprises bikes above 150cc, grew in strong double-digits in FY23 and accounted for 18% of the total two-wheelers sold in the country, as per the Siam data. This is a big jump given premium bikes accounted for about 14% of total sales in FY18. The share of entry-level bikes (76-100cc) and commuter bikes (110-150cc) has seen a noticeable fall in the past five years. This change in market dynamic comes even as the overall two-wheeler market fell to a decadal low in FY22 and could only witness a minor recovery in FY23. Following the uneven monsoon this season and continued distress in the agrarian economy, recovery of smaller-engine two-wheelers remains uncertain. The premium category, however, appears to be bucking the slowdown trend.
What is leading to ‘Premiumisation?
As per industry experts, there are many factors behind premiumisation -- from growing aspiration of young riders to the rising disposable income of target consumers. Easy finance availability, ever-increasing options and bigger operating margins for original equipment manufacturers (OEMs) are other enablers.
Rohan Kanwar Gupta, vice president & sector head, of corporate ratings at ICRA, says as opposed to the price-sensitive entry segment, the premium segment demand has remained relatively healthy (YoY volume growth of 32% in >150 cc motorcycle segment in FY2023 vis-a-vis 14% for the entire motorcycle segment), buoyed over the years by increasing per capita income, growing motorcycling culture, rising popularity of superbike clubs along with the availability of a wide range from several global brands.
“The up-trading (from lower to higher engine power) is expected to continue over the medium term and support volumes in this segment. OEMs have been looking at enhancing their presence in this segment to benefit from the relatively healthy demand,” said Gupta. This week alone, two bikes were launched in the premium segment -- Hero MotoCorp’s Karizma XMR and Royal Enfield’s Bullet 350.
Himanshu Singh, research analyst, Prabhudas Lilladher, says as the premium segment has one of the highest Ebidta (Earnings before interest, depreciation, taxation and amortization) margins, OEMs are focusing more on this segment. He cites the example of Hero MotoCorp, whose operating margin has remained lower than that of Royal Enfield.
Singh also believes the uncertain recovery of the commuter segment has put the focus of bikemakers on premium products. “Low-income consumers, especially in rural India, are yet to recover from the last two-three years of slowdown caused by the Covid-19 pandemic. During this period, prices of two-wheelers went up sharply, delaying the recovery of small engine-powered bikes. On the other hand, primary consumers of premium segment have not been impacted much by gradual price rise and slowdown,” said Singh.
An Uphill Task for Hero MotoCorp
While Bajaj Auto, TVS Motor and Royal Enfield have seized a sizeable share in the premium segment, Hero, the country’s largest two-wheeler player, is yet to become a major force in this segment. With three back-to-back launches, the maker of the Glamour and Splendor models is serious about increasing its share in the segment. Analysts, however, have given a mixed reaction to Hero’s fresh strategy as they believe the segment is highly competitive. Hero’s big gambit in the premium segment comes at a time when its share in domestic two-wheeler market has fallen below 30% mark.
Analysts at Kotak Institutional Equities believe weak demand trends, coupled with increased competitive intensity in the commuter segment, will weigh on growth prospects of Hero’s core portfolio. “In our view, it will be challenging for the company to gain much share in the premium motorcycle and scooter segments, given weak brand positioning and strong customer affinity toward established brands,” Kotak said in a recent report.
As per Singh, even if Hero manages to increase its presence with fresh launches, it will need to sustain that. Earlier, we have seen Hero gaining market share in the initial stage and then losing out, he added.