Prologue

The Samurai sword-masters of Japan were legendary for their poise and calm in battle. They lived by Bushido, a code of ethics that stressed on loyalty, self-discipline, and respectful behaviour. While the Samurai don’t exist today, there are some in the Land of the Rising Sun that the ancient fighters would approve of. In the battlefields of the corporate world, Atsushi Ogata, 60, Managing Director, President and CEO of Honda Motorcycle & Scooter India (HMSI), would surely be one such.

Atsushi Ogata
MD, President & CEO
HMSI

Let’s understand why. In December 2010, two-wheeler makers Hero Group of India and Honda Motor Co. of Japan went their separate ways after 26 years of a successful partnership. That year (FY11), market leader Hero sold 3.7 million vehicles more than Honda in India, according to data from Society of Indian Automobile Manufacturers (SIAM). In FY22, that gap shrank to just over a million vehicles. In April-October FY23, the gap was a mere 400,000 vehicles. Add exports to the mix, and the gap falls to 300,000 vehicles. Top that up: this September turned out to be the first month since their separation when HMSI had higher retail sales of two-wheelers than Hero MotoCorp—298,000 vs 267,000—according to data from Vahan, a government website that tracks vehicle registrations. (Thereafter, Hero sold more units in the next two months, but in November, HMSI grew at 38 per cent year-on-year, compared to Hero at 12 per cent.)

Next step, market leadership for HMSI in FY23 or FY24, right? Put that query to HMSI’s honcho, and instead of drumbeats and swagger, what comes across is a soft, almost sheepish, whisper: “It was the first time in HMSI’s history we saw that kind of market share. But from my point of view, it was accidental.” Clearly, Ogata will not be drawn into premature victory celebrations; he will only look at the chequered flag once it’s behind him. Sample these gems from Ogata: Yes, Hero is still
No. 1. Yes, HMSI wants to be No. 1, but it is hard. Yes, (iconic scooter) Activa is better known in India than brand Honda. Yes, Honda has failed to make its other products as popular as Activa. Yes, Activa sales are being challenged. Yes, Ola is a competitor not to be disregarded in electric scooters.

Pawan Munjal-led Hero (pictured above) is gearing up to counter every move of Honda and retain its leadership position in the two-wheeler space

Such demeanour makes Ogata a dangerous man to have on your rival team. A man who knows his organisation’s strengths and weaknesses, and calmly plans to work on them. Seated on a plush couch inside the newly built Dreamer’s Café—a pit-stop for Honda patrons and riders after a long highway cruise—at HMSI’s headquarters in the booming industrial town of Manesar, Ogata’s Samurai-like respect for the opposition, serenity and steely determination to overcome odds, are evident during a long conversation. So much so that even when he poses on the premium H’ness CB350 motorcycle for a photo shoot, decked in cool rider’s attire, he appears almost meditative.

The calmness also translates into cold, hard strategy. So, here’s the next set of responses from Ogata: Yes, a 100cc motorcycle from HMSI is on the cards to topple Hero. Yes, the battle will be taken to Royal Enfield, the 800-pound gorilla in higher-cc segments, through a series of premium motorcycles. Yes, an electric Activa is being planned…

Meanwhile, leader Hero is not sitting idle as its market share shrinks by the year. Led by the formidable Pawan Munjal, it remains a household name in India, especially in rural and semi-urban areas through its entry-level commuter motorcycles such as Splendor and Passion. While Hero, and Munjal, did not speak with Business Today for this story, conversations with company insiders and dealers unveil a picture that tells of the company’s plans. It plans to launch a strong scooter to take on Activa, a series of launches in the higher-cc motorcycle segments to take on Royal Enfield, HMSI and others, and a strong EV push through a new brand called Vida. Most important, it has plans to protect its turf in the bread-and-butter 100cc segment.

So, with HMSI gunning for Splendor, and Hero planning likewise for Activa, and both planning to take on Royal Enfield in the higher-cc segments as well as the EV brigade with their own versions of EVs, the stage is set for a battle royale in India’s two-wheeler market.

Even after many years of its [Activa’s] launch, the attraction of the product continues. In spite of being at a higher price point compared to EVs, the scooter segment is still called the Activa segment

MANISH RAJ SINGHANIA
President
FADA

The Story Of A Changing Market

Even as the future seems arresting, the industry has effectively retreated 10 years in terms of wholesale deliveries—13.44 million units in FY12; peak at 21.18 million in FY19; and back to 13.47 million in FY22. But even as Hero’s sales slid 23 per cent over these 10 years, HMSI grew by 73 per cent. What set the industry back? While demonetisation (in November 2016) and the introduction of GST (in July 2017) didn’t create much of a ripple in this market, the shift from BSIV to BSVI emission standards (in April 2020) increased the costs for manufacturers and jacked up prices of the products. A double whammy was delivered with the first Covid-19 lockdown in March 2020. “The ever-increasing input costs have really taken a toll on the entry-level customer. There has been almost a 40-50 per cent jump in the entry-level price point,” says Manish Raj Singhania, President of Federation of Automobile Dealers Associations (FADA).

Two years since, the situation has not corrected yet, with high inflation piling on the agony. “Although our economic numbers show growth, it is not necessarily equitable growth across the country. In sensitive segments such as rural India and Tier III towns, consumers are playing wait-and-watch on buying new two-wheelers,” says Kavan Mukhtyar, Partner & Leader–Automotive, PwC India, adding that many consumers are also veering towards the used vehicles market.

Then, like cars, the two-wheeler market, too, is moving towards higher sale of premium products. “The challenge for the industry is the cost in the entry-level commuter segment, but at the same time we’re seeing a movement towards higher-end vehicles. This is something we’re seeing in the four-wheeler segment also. The rural contribution is moving towards the premium end of these vehicles,” says Sridhar V., Partner at Grant Thornton Bharat LLP.

Although our economic numbers show growth, it is not necessarily equitable growth... In sensitive segments such as rural India, consumers are playing wait-andwatch on buying new two-wheelers

KAVAN MUKHTYAR
Partner & Leader – Automotive
PwC India

This shift is hurting Hero more than HMSI. In April-October 2022, the motorcycles segment grew at 19.7 per cent in wholesale deliveries. Hero, which banks heavily on entry-level bikes, grew at 12.2 per cent overall and at 10.34 per cent in its core entry-level segment. HMSI, which is mostly into premium bikes, grew at 31.7 per cent in motorcycles overall, albeit Hero sold 2.95 million motorcycles in the period compared to HMSI’s 1.15 million. What has given an added push to HMSI is scooters, where it has grown 30.2 per cent in April-October compared to Hero’s 2.67 per cent. HMSI’s scooter growth has also come on a base that is 7.5 times higher than Hero. Bottom line: regardless of high or low base, HMSI has been clocking much higher growth than Hero in the current fiscal, in both scooters and motorcycles.

Experts say Hero’s de-growth might also be making HMSI look impressive. “The gap between Hero and Honda is reducing, but there’s a recency bias playing out where we think what happened in the recent past will continue to happen,” says Vivek Kumar, Director of Institutional Equity Research at JM Financial. “I’m not surprised with what’s happening with Hero MotoCorp’s market share. These corrections are a very natural phenomena. The way to look at it is not that the company is in irreparable mode but rather what Hero is doing to recapture its lost market share,” he adds.

Higher-cc motorcycles are increasingly seeing more action from manufacturers. Reason: the products offer better margins. For instance, in FY22, the market leader in the 250cc-and-above segment, Royal Enfield, enjoyed operating profit margins (OPM) of 25.37 per cent. Comparatively, Hero’s OPM for FY22 was 13.42 per cent.

Where does that leave the 100cc segment? “Unless an OEM champions the 100cc segment and aggressively pushes it, customers may continue to directly jump to the next segment,” says Mukhtyar of PwC. Plus, he points out that many consumers are also thinking of going for EVs. “A combination of these factors is resulting in some slowdown in the two-wheeler space. But I do believe that this is temporary. At a vehicle ownership level, there is still a lot of headroom for growth in India,” he says.

The Story Of Honda

Sometimes, things don’t go as planned, yet they work out better in the long run. A few years after 1937, when Honda’s founder Soichiro Honda started his first company Tokai Seiki to produce piston rings for Toyota, he had to shut shop after a US B-29 bomber and the Mikawa earthquake destroyed two of his plants. Soon after selling the remnants of his business to Toyota, Soichiro founded Honda Technical Research Institute to make improvised, motorised bicycles, which later developed into Honda Motor Company in 1948. Today, Honda is a $104-billion (net sales in FY22) behemoth that makes everything from cars to motorcycles to watercraft to robots to executive jets. For perspective, India’s biggest company, Reliance Industries, had consolidated net sales of Rs 7,21,634 crore in FY22, which translates to about $90 billion at current exchange rates.

Rooted strongly in Soichiro’s philosophy of never being afraid of challenges, Ogata picked up the baton to lead Honda’s transformation to become the No. 1 two-wheeler player in India in May 2020, bang in the middle of the lockdown. “[Nearly] Three years back, I couldn’t see a bright future. It was very difficult to even visit India due to the lockdown while the production was also suspended. My task was to lead the reformation of our four factories and expansion of market volume,” he recalls. His transformation plan—Project Rupantar—included converging scattered company operations like corporate affairs, financing, HR, production management, new model planning, sales, etc., into a newly transformed head office at Manesar.

I’m not surprised with what’s happening with Hero MotoCorp’s market share. These corrections are natural. The way to look at it is not that the company is in irreparable mode but rather what Hero is doing to recapture its lost market share

VIVEK KUMAR
Director
Institutional Equity Research
JM Financial

The Story Of Hero

For 26 Years, Hero sold motorcycles under the brand Hero Honda, in a joint venture with Honda Motor Co. (Coincidentally, the two partners also held 26 per cent stake each in the JV.) The split happened on December 16, 2010. In a conference hall packed with more than 100 journalists in Taj Mahal hotel located at Delhi’s posh Mansingh Road, Pawan Munjal, the JV’s MD & CEO, announced that Hero would acquire the entire stake of Honda Motor Co., and not the other way around. “It was a bold decision. Questions were raised on Hero’s ability to survive in a highly competitive market without a credible technology know-how for product development on its own,” a senior Hero executive told BT on condition of anonymity.

Munjal delivered another surprise soon enough. Despite being allowed by the separation agreement to retain the Hero Honda brand till June 2014, he decided to launch his own brand. Logic: he did not want to keep investing in a brand that was to vanish eventually. On August 9, 2011, Munjal flew more than 1,200 people—dealers, suppliers, senior employees, other associates—to London for the global unveiling of the new logo and brand name. That day, at the grand O2 Arena, Hero MotoCorp was officially born, with a new theme song—Hum Main Hai Hero—composed and sung by A.R. Rahman.

Eicher Motors (Royal Enfield) with its Hunter 350 has received tremendous response from the market. Similarly, Bajaj and TVS also have a strong pipeline of premium products. So, it’s an uphill task for Hero [to make a dent in the premium segment]

ADITYA WELEKAR
Research Analyst
Axis Securities

Befuddling the sceptics, Hero undertook a transformational journey. In 2011, Hero had three manufacturing facilities; today it has eight. In 2011, all its manufacturing facilities were in India; today, it has one factory each in Colombia and Bangladesh, with assembly lines in other countries in Africa and Latin America. In 2011, Hero sold its products in four countries; today, its global footprint spans 43 markets in Asia, Africa, Central and South America, and the Middle-East, albeit the sales numbers are nothing to shout about. For the first few years after separating from Honda, Hero added about 500 customer touch points every year to its distribution network. Currently, Hero has over 7,000 touch points across the country, the highest for any two-wheeler company.

The company made significant progress on the technology front, too, with new R&D centres in Jaipur and in Munich. Hero’s engineers developed a patented i3S (idle start-stop system) technology, which helped increase the performance of the engine and made Splendor iSmart one of the most fuel-efficient bikes in the world. At the same time, it leveraged its understanding of the rural markets with some innovative marketing and after-sales service campaigns.

Hero’s challenge now is to resuscitate its rural market play, take on big boys HMSI, Bajaj Auto and Royal Enfield in the growing premium motorcycle segments, and take on Activa in scooters.

One Battle, Two Battlefields

The Battle Between Hero and HMSI is essentially a battle between Splendor and Activa. Even though they are in different product segments, their huge following gives their companies the bulk of their sales. Anecdotes are aplenty about their popularity. Ogata relates an incident where HMSI had invited some schoolchildren to its Manesar plant to talk about rider safety. “We asked the kids if they knew Honda. They said no. Then we asked them if they knew Activa. They said yes! Indian society doesn’t belong to Honda, but to Activa,” confesses Ogata.

As for Hero, wedding season in rural India is incomplete without a Splendor. In large villages or talukas, several weddings take place in a single day. With demand for Splendor rocketing, a dealership in UP once had to deploy police personnel around its showroom. But the villagers were not to be deterred. When the motorcycles were dispatched to the showroom, the villagers hung around the truck that brought the bikes in. As they were offloaded, some villagers would grab a Splendor and slice open the seat cover with a knife, ensuring that no one else would buy that unit.

This kind of crazy popularity is both an advantage—in terms of sales—and a weakness, because these two products overshadow anything else that Hero and HMSI throw at the consumer. Splendor dominates in the less-than-110-cc motorcycle segment, in which Hero has 76.7 per cent share, and a huge base of 2.48 million unit sales in April-October 2022. Likewise, Activa dominates in the less-than-125-cc scooter segment, where HMSI has 51.8 per cent share with sales of 1.58 million units in the same period. Launched in 2001, Activa resuscitated the scooter segment in India, after original market leader Bajaj Auto exited the segment in 2010 to focus on motorcycles. Activa’s mileage, styling and unisex look helped it gain popularity among one and all, from students to homemakers, businessmen, and even logistics companies, especially in cities.

Both companies have tried to match each other’s strength over the years, but failed to make real impact. However, while Splendor’s sales took some hits following a rise in prices, Activa’s surprisingly did not. “Even after many years of its launch, the attraction of the product continues. In spite of being at a higher price point compared to EVs, the scooter segment is still called the Activa segment,” says Singhania of FADA.

Now, the two rivals are planning deeper forays into each other’s strongholds. A Hero dealer who spoke anonymously to BT says Hero is well aware that Honda’s challenge comes mainly from Activa, and one new Hero scooter—among three it will launch in 12-18 months—will be directly pitched against Activa. “Any volumes that this new product generates will be at the cost of Activa,” the dealer says.

At the same time, HMSI is gearing up for a charge on Hero’s backyard, rural India. “We have an excellent product, Livo, to compete with Splendor, [but] the company should have aggressively marketed it. If you want to fight the market leader, you should have four extra features and be price competitive. Honda Dream and Neo had extra features, but the cost was Rs 5,000-6,000 higher than Hero HF Dlx or Bajaj Platina/CT 100. That, in an entry-level segment, proved to be a major deterrent,” says Ashish Pande, Dealer at Om Auto Honda in Bhopal.

But now Ogata says HMSI is ready: “We’ve studied the construction of all parts exclusively for India’s rural market and are launching a new 100cc model. We will launch it in six months.” And even as the entry-level motorcycle segment remains under pressure, Ogata insists the timing is just right. Regardless of timing, as Singhania points out, HMSI’s 100cc motorcycle needs to match Splendor’s mileage and pricing. Besides, Hero’s extensive reach in rural markets, with spare parts being available at every garage and mechanic shop, makes maintenance easier and cheaper, and gives its products better resale value than all competitors. These are factors HMSI will be hard-pressed to match.

“No product can compete with Activa in scooters. Similarly, in entry level 100-110cc motorcycles where Hero dominates, HMSI’s rural network is taking time to be established,” says Pranav Shah, Director of Innovative Motors, an HMSI dealership at Ahmedabad in Gujarat. “The two highest selling models for Hero are Splendor and Passion. To break the dominance of Hero, we need to focus on price and product quality, and also remember that the customer wants something they can replace these two models with.”

Anticipating their opponent’s strategy, both rivals are also polishing their acts in their respective strongholds. HMSI has envisioned the Activa in a futuristic avatar. “In the scooter segment, the young generation needs more exciting and sporty vehicles that are dynamic and have connectivity features. We’re going to e-mobility already,” says Ogata. “The new addition to the Activa family should be an EV. We want to create that scenario.”

As for Hero, it is planning to launch upgrades and sportier versions of its war horses Splendor, Passion and HF Deluxe. A person familiar with developments in the company says: “Hero will counter the upcoming 100cc launch of Honda with a new Splendor in a modern and sporty avatar, to be launched towards the first quarter of next fiscal. This will be followed by the new Passion in Q2 of FY24.”

The battle lines have been drawn in the traditional strongholds. But there are more battles to be fought.

The Coming Storm

The first new battle is shaping up in premium motorcycles. In the three segments between 250cc and 800cc, top dog Royal Enfield’s cumulative market share stands at an almost frightening 91.2 per cent, albeit sales volumes are at a more ‘modest’ 400,000+ units. With products like Bullet, Classic and Hunter in its armoury, Royal Enfield also grew its vehicle sales (in units) at an incredible 66.3 per cent in April-October, overshadowing even HMSI. While both Hero and HMSI are planning to take on Enfield, they will find it extremely tough to match the cult following that Royal Enfield has garnered over the years.

Hero is trying to make a fight of it by partnering with iconic American company Harley-Davidson. “In the premium segment, Hero is already in advanced stages of its first middleweight (300-550cc) premium motorcycle being co-developed with Harley Davidson. To be pitched directly against Royal Enfield, this motorcycle is likely to be launched before the end of FY24,” a company source tells BT. Says Aditya Welekar, Research Analyst at Axis Securities: “Eicher Motors (Royal Enfield’s parent company) with its Hunter 350 has received tremendous response from the market. Similarly, Bajaj and TVS also have a strong pipeline of premium products. So, it’s an uphill task for Hero.”

But the bigger competition is building up in the lower ‘premium’ categories—the 125cc and 150cc segments. Hero is targeting the 125cc segment where it has two products (Glamour and Splendor+ 125), decent volumes of 410,000+, and good growth of 20.3 per cent in April-October 2022. Reason: it believes 100cc customers are upgrading, and 150cc customers are downgrading to 125cc motorcycles. “There is likely to be a new Glamour motorcycle in the pipeline to take on Honda and the other competitors in this segment,” the Hero source says. Adds Welekar: “They will be focussing on the 125cc segment going forward with their launches in future quarters.”

As for HMSI, which leads the 125cc market with 48.2 per cent share, it will look to consolidate its position here. However, in the categories where it wants to promote itself as a premium bike maker—the 150cc and 200cc categories—it lags behind Bajaj Auto, TVS Motor Company and even Yamaha India. And in the even higher segments, it is no match for Royal Enfield. Ogata wants to change that. “Within next FY, we will have new launches in the 350cc class,” he says.

Livo can compete with Splendor, [but] Honda should have aggressively marketed it. To fight the market leader, you should have extra features and be price competitive

ASHISH PANDE
Dealer
Om Auto Honda

Building a premium portfolio and image will be a challenge for HMSI. Honda’s dealers say that barring the scooter category, they’re finding it difficult to establish themselves in the premium motorcycle category, which is mostly for the riding community. “We won’t be able to become a market leader in the premium segment, but we will definitely take some share off Royal Enfield,” a Honda dealer says on condition of anonymity. Brave words, but a Herculean task nonetheless.

The latest battle is beginning to play out in the EV space. India’s largest electric two-wheeler maker, Ola Electric, has publicly said it will target Activa, and has already launched a product, Ola S1 Air, this Diwali at a price point of Rs 85,000 compared to Activa’s Rs 73,534 (ex-showroom prices). Ola Electric sells close to 15,000 vehicles a month while Okinawa is a close second with around 14,000 units.

While the volumes are infinitesimal compared to the larger two-wheeler market, growth is inevitable, and the early starters have clearly left the big boys of legacy two-wheelers gasping. Bajaj Auto has launched an electric scooter, Chetak, which averages just 2,500 wholesale units a month. HMSI is yet to launch a product; nobody quite knows when the electric Activa will show up. And Hero has launched a new EV brand called Vida, with the first scooter V1—in two versions, Pro and Plus; deliveries begin in December—already receiving plenty of flak for being astronomically priced. “After the FAME incentive, its price is 10-15 per cent higher than its peers. While its battery capacity is higher, it is not offering anything very lucrative against its peers,” says Welekar of Axis Securities.

Clearly, these are interesting times for the two-wheeler industry. A time of transition. Of new challenges. In the midst of all this, the battle for pole position is clearly being fought between challenger HMSI and incumbent Hero MotoCorp. While conditions are against Hero currently, the tables could turn in a jiffy if rural demand returns.

For past presidents of HMSI, Honda becoming the largest player in India was a dream. Atsushi Ogata has brought the company to the threshold of realising that dream. “Tokyo headquarters has a dream to become No. 1 in the Indian market. It’s tough, but we can achieve it,” says Ogata, the calm confidence in his light smile and zen-like eyes indicating that when, and if, it finally happens, it will certainly not be an accident.