Nov 29, 2008

Business - India;Hero Honda, Bajaj differ on future of 100cc

Sindhu Bhattacharya

Hero Honda Motors and Bajaj Auto, two of India’s biggest two-wheeler makers, continue to use diametrically opposite strategies to attract buyers in these trying times.

Hero Honda feels its continued focus on the 100cc segment is justified as the segment has outperformed the market consistently. But Bajaj Auto seems to be floundering on 100cc bikes and wants customers to upgrade to bigger bikes and has begun developing a low-cost entry-level motorcycle specifically for the purpose.

According to figures provided by Hero Honda, the 100cc bike segment has been outperforming the market throughout the fiscal, having logged 10% growth against the industry average of only 7%. The segment has far outpaced the 1.6% growth non-100cc bikes have shown as also the 2% increase seen overall in premium segment bikes (150cc and above).

The figures couldn’t be confirmed independently since the Society of Indian Automobile Manufacturers (SIAM) classifies all bikes from 75cc up to 125cc as entry-level bikes.
Anil Dua, executive vice-president (marketing & sales), Hero Honda, said, “The recent turn of events has confirmed our stand on 100cc bikes. Penetration (of two-wheelers) is still low across India and people look for value-for-money bikes. This segment (100cc) is here to stay. Sure, over a long period of time, the share of 100cc will come down but how can anyone ignore two-thirds of the market?”

But Bajaj Auto is reducing its focus on 100cc more than ever before. Sources said the company has not been making any profit on 100cc bike sales and is keen to gradually upgrade 100cc customers. The sources said that a low-cost, entry-level bike is already being tested for launch. This may mean that Bajaj is taking the battle back to the Hero Honda camp as the market leader appears to have no immediate plans of entering the low-cost bike space.

Industry watchers, however, find Bajaj’s inability to make money on 100cc bikes puzzling. “Hero Honda makes good money on these bikes, pays around 4% royalty to Honda and spends considerable amounts in marketing and advertising. So it is surprising that Bajaj has been unable to make money on 100cc bikes when Hero Honda manages to despite higher expenses…..the Ebidta on 100cc is negative for Bajaj,” one expert said. But Bajaj continues to enjoy a dominant 50% market share in the above 125cc bike segment where Hero Honda comes a distant second.

According to latest available SIAM figures, Hero Honda controls almost 48% of the two-wheeler market, followed by Bajaj with about 20% and TVS Motor at close to 17% share. Hero Honda has seen domestic sales in 75cc-125cc category fall marginally to 315,612 units (332,276 units) last month but the decline in the 125cc-250cc segment is steeper at almost 12% to 13,176 units (14,940 units).

But Bajaj has seen domestic bike sales in the 75cc-125cc segment falling by over 67% to 22,949 units (69,992 units) while the decline is lower in the 125cc-250cc category at 41% to 79,293 units (135,012 units).

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