Kieta Muramatsu, the CEO and President of Honda Motorcycles and Scooters India, or HMSI, has had a dream run. During his five years at the helm (he took over in April 2011), HMSI has almost tripled sales, from 1.6 million a year in 2010/11 to 4.45 million in 2015/16. But his real success lies elsewhere. Under him, HMSI has achieved what was once considered almost impossible, if not unthinkable - its flagship scooter, Activa, has beaten Hero MotoCorp's all-time global bestseller, the motorcycle Splendor, in sales for all six months of 2016, five years after Hero and Honda called off their joint venture Hero Honda.
Getting past Splendor, the world's largest-selling twowheeler between 2001 and 2015 is no mean feat, especially if we consider that the scooter category was all but given up for dead a few years ago and most automobile companies decided to focus on motorbikes. Activa's success has given a new life to scooters - all two-wheeler makers, including Bajaj Auto, which stopped making scooters in 2010, are now re-looking at the category.
"The scooter strategy has gone absolutely right for us. Volumes speak for themselves. It has not only made us the segment leader but also made our two-wheeler operations Honda's largest globally. We believe there's still huge unutilised potential. We have just scratched the surface," says Muramatsu, an accomplished drummer who often plays at company gatherings. Under him, HMSI has grown at double the industry rate.
Early this year, HMSI commissioned a 1.2-million capacity scooter plant, the world's largest, in Gujarat. However, the demand for Activa is so high that confirmed bookings top 20,000. It is adding a second assembly line of 600,000 units a year to its Bengalore plant. "With another line for scooters, our cumulative capacity (including for bikes) will reach 5.4 million this year. I'm not sure if it will be enough," Muramatsu told Business Today in the new HMSI headquarters in Gurgaon, Haryana. But Muramatsu is aiming to sell 5.2 million twowheelers in India in 2016/17, besides exporting another 200,000. Activa's cumulative sales have crossed the 12-million mark. It was launched in 2001.
Activa, how it ruled
So, how did Activa manage to beat Splendor, which also had a Honda pedigree? The answer is simple. HMSI gave Indians exactly what they wanted, and more - good mileage/performance, plus some classy styling (it gave the model a unisex look, though it was without gears). Almost one-third Activa riders are women. "India was a different market. A decade ago, when scooters were on the fringes, there were hardly any women riders. Activa transformed the Indian customer's mindset," says Y.S. Guleria, Sales & Marketing Head, HMSI.
The company also gave the scooter an all-metal body for a more finished look at a time when plastics were increasingly coming into play in automobiles. Activa's fourstroke technology offered riders an experience that was on a par with what the world's largest two-wheeler company was offering in more developed markets.
The company also introduced tuff-up self-repairing tubes that reduced the chances of puncture by 80 per cent (now, it uses tubeless tyres), a first for the Indian market. It also gave storage space under the seat with enough room for a helmet. Besides making Activa more contemporary with a responsive and reliable engine (incidentally, the same engine later powered Hero's Pleasure and Maestro scooters), Honda kept improving fuel efficiency. The current 60 kmpl mileage was unthinkable a decade ago, when scooters ran less than 40 km on a litre of petrol. It also tried to make Activa as balanced as a motorbike and as nimble as a moped.
HMSI also kept working on safety with inputs from the local R&D staff. "If we had consulted our headquarters in Japan, they would have asked us to strap new engines with hi-tech accessories that would have driven us out of competition due to higher costs. We introduced robotics and Honda's global production system for reliability and hired 'Pre-deliver Safety Advisors' at dealerships to educate customers about riding scooters without compromising on the fun of riding these contemporary machines," says Guleria. Another reason for Activa's success is the multivariant strategy, with the latest launch, a bigger 125 cc model, coming as a final blow to remove the five-variant Splendor from the pole position.
The slowdown in rural markets, where motorbikes usually do better than scooters, has also helped. Bike sales have risen 18 per cent to 10.70 million in the past five years (till March 16). Scooter sales have expanded 142 per cent to 5.03 million during the same period. "Sizeable Activa users are men and include students, homemakers, businessmen, even logistics companies. Scooters are one of the quickest ways of travelling in congested cities," says Guleria.
Analysts who track the auto market swear by HMSI's approach and say it has laid a strong foundation for the future. "If Honda can be half as successful in motorcycles as it has been in scooters, there will be no hindrance to its leadership drive," says Abdul Majeed, Partner, Price Waterhouse.
The Big Trend
If one goes beyond the headline numbers, one can see a reconfiguration of the domestic two-wheeler industry where the Splendor-Activa fight is only one part of the story. In spite of Activa taking the top slot, Hero continues to rule the motorcycle segment with over 50 per cent market share. Moreover, it is not letting HMSI take up the entire scooter space either that some thought will be ripe for picking after Bajaj decided to focus only on motorbikes. The motorcycle king, which some said will be starved of latest technology after Honda's exit, has cornered 18 per cent of the country's scooter market, thanks largely to Maestro Edge and Duet, the first two models developed by its own R&D team that were launched last year. It now has four scooter models.
Things become even more interesting if one sees trends in the scooter-motorcycle sales mix over the years. From a high in the early 90s, when Bajaj Chetak reigned supreme, to the early 2000s, when a number of auto makers saw no future in scooters, to now, when one scooter is sold for every two bikes, it has been a roller-coaster ride. The ratio is expected to become 1:1 by 2020.
While Activa has led the comeback, the shift towards scooters means rivals such as TVS Jupiter, Yamaha Ray and Suzuki Access have also tasted some success. But has Hero, the number two in scooters, been able to alter its strategy and diversify enough to take on the Honda threat? The company says it has, over the past few years, built an expanded portfolio of popular products and is not over-dependent on a single brand such as Splendor - its Passion and HF Deluxe models sell over a million units each annually. "As market leaders we know the nerve of Indian customers and have launched the Splendor iSmart 110 cc bike with a proven stop-start system. We will take mileage to the next level," says Bhasin. Hero's share of the twowheeler market (motorcycles and scooters) is still close to 40 per cent, thanks to its domination of the motorcycle space.
Active WorriesActiva's recent sales spurt has a lot to do with the overall stagnation in motorcycle demand.
Scooter sales grew 12 per cent in 2015/16 while motorcycle sales fell 0.5 per cent. In the April-June quarter, scooter sales rose 27 per cent compared to 9 per cent growth in motorcycle sales.
Hero says this is a temporary blip. "Despite the tepid growth in its segment, Splendor continues to be the country's largest-selling two-wheeler brand. Its annual sales are well over two million units, despite a sluggish industry environment, a testimony to its continued popularity," says a Hero MotoCorp spokesperson.
Honda's plan to drive higher sales from motorcycles has not worked till now. Scooters continue to dominate and account for over 58.4 per cent twowheeler sales. "We are looking at equal participation but of late the market has become skewed towards scooters," says Muramatsu.
Hero, on its part, is betting big on the indigenously-developed Splendor iSmart. At the recent launch, CMD & CEO Pawan Munjal said, "We have an obsession to improvise Splendor. With our own R&D team in place, we are working on a host of revolutionary technologies with the first making iSmart the most fuel-efficient bike in the country." HMSI, too, is taking the challenge seriously. It has stretched the envelope with a concept called NAVI. It's a hybrid between a scooter and a bike and uses Activa's underpinnings such as frame and powertrain (engine and gearbox). NAVI could play a key role in Honda's pursuit of leadership in the Indian market.
"It offers a new lifestyle but comes with the same powerpacked punch of economy and sporty styling. It is currently sold out. We are expanding our stressed production lines to make more units," says Muramatsu, a key architect of NAVI, who was with Honda's motor sports division when he was asked to take over HMSI in 2011.
The two-wheeler space promises to throw up more surprises in the days to come.