There was a time when the waiting period for the Chetak could be more than a year. The scooter, from the Bajaj Auto stable, modelled on the Vespa Sprint, was coveted not just by every young man wanting to make an impression but also by fathers for their prospective sons-in-law; indeed, the company struggled to cope with the demand but in 2009 it decided it didn’t want to make scooters anymore.
To be sure, it’s motorcycles that men want to drive these days; while 1.07 crore bikes were sold in FY15, the number for scooters was far lower at 45.05 lakh. In FY14 too, the number of motorcycles bought was 1.04 crore, compared to just 36.02 lakh scooters. Nevertheless, scooters are becoming popular and sales have been gaining pace, one reason for which has been the increasing number of women drivers. Approximately 50% of the purchases are made by women, according to industry experts. Kevin Dsa, CFO, Bajaj Auto, told analysts recently that in the three months to June, the contribution of motorcycles was minus 2% while for scooters it was probably in excess of 10% pushing up the share to about 30%.
Among the bigger beneficiaries of this trend has been the Japanese two wheeler manufacturer Honda Motorcycle and Scooter India (HMSI); from 14.20 lakh in FY12 when its market share was 61%, sales in FY15 more than trebled to 45.05 lakh units. In the five months to August, volumes rose 12.39% year on year to 82,801 units with the market share hitting 59%, a three-year high. In July, HMSI became the first company to sell 2.5 lakh scooters in a month; in August it sold a similar number. Compare that with the 3.5 lakh units of Chetak that Bajaj Auto sold in a year!
HMSI sold more two wheelers than Bajaj Auto in October–November, 2013, becoming the second largest manufacturer in the domestic market. According to the data available with the Registrar of Companies (ROC), net sales of the company in FY14 increased by 32.18% to R14,154.08 crore when compared to R10,321.8 crore in FY 13 while the net profit increased by 37.63% to R535.81 crore from R383.31 crore in FY13. Operating margins for the period stood at 8.9%.
Yadvinder Singh Guleria, senior VP, sales and marketing, HMSI, says the firm has grown market share to 59% in the scooter segment in the four months to July and plans to expand the dealership network to 900-925 by March from 850 currently. Touch points which include sub-dealers and service stations will go up to 4000 by the end of the year.
Abdul Majeed, partner, PriceWaterhouseCoopers says HMSI plans to hit the rural market by growing the dealership network. “Customers are changing and are looking for vehicles which can be driven by every family member and also can be used for various purposes,” he explains. HMSI is building a 12 lakh per annum scooter plant in Sanand, Gujarat, which will take the production capacity to 58 lakh units. “We have invested around Rs 1,100 crore and it will be the world’s largest scooter manufacturing plant,” said Guleria. The three other manufacturing units of the company are situated in Manesar in Haryana, Tapukara in Rajasthan, and Narsapura in Karnataka.
HMSI claims that the utilisation capacity in its three plants is 99% to 100% and the company also plans to sell 4.6 million vehicles this financial year. According to the company, Activa constitutes 54–55% of the total annual production.
A dealer in the western suburbs of Mumbai says the waiting period for Activa 3G, Activa I, Aviator and Dio ranges between one and half to two months. “We have four showrooms in Delhi and each showroom sells 45-50 units of Activa everyday,” said a HMSI dealer in Delhi.
Competitors like Hero Motocorp lost market share of 400 basis points to 14% in Q1FY16 as the Maestro could not sell enough volumes. The Gurgaon-based company will launch two new models for the festive season. “We will launch two new scooters as that segment is growing faster than the motorcycles,” said Pawan Munjal, chairman, Hero MotoCorp at SIAM’s fifth annual convention. Jupiter, made by Chennai-based TVS Motors is the closest competitor of Activa; its volumes in July increased by 43.22% to 43,617 units but Scooty Pep plus and Zest failed to cross the 10,000 units mark in July.
Manufacturers are pricing products aggressively in the light of intense competition. HMSI’s Activa 3G and Activa I are available at price of Rs 48,852 and Rs 43,809 respectively, while Hero’s Pleasure and Maestro come for Rs 44,500 and Rs 48,350 respectively, (ex showroom Mumbai). TVS’s Jupiter, Zest 110 and Pep plus are available at a price of Rs 48,000, Rs 45,000 and Rs 44,000 respectively. Only Activa 125 and and TVS Wego cost more at Rs 51,000 to Rs 58,000.
“Honda always had the first mover advantage. The metal body, higher mileage and low maintenance costs helped create a strong brand. It also focused on after sales service. Customers do not want to experiment these days and stick to the recognised brand,” said an automobile consultant with the big four accounting and business consultancy firms.
According to analysts, apart from quality of the product, brand loyalty was the most important reason behind success of products like Hero Splendour and Passion and Bajaj’s Pulsar series of premium sports bikes and that holds true for Activa as well.
HMSI had made the manufacturing facility flexible to handle both scooters and motorcycles. “We have been able to produce more scooters at the cost of motorcycles, rather than continue to push the motorcycles against the natural demand in the market,” explained Guleria. HMSI’s share of two-wheelers in the southern and western states is high at 33% whereas its share in the four zones (north and east) put together is 26%. Majeed of PwC points out that HMSI focused on the educated urban working woman right from the beginning. “The higher level of education and employment among women along with increasing urbanisation in southern and western states made scooters an attractive and convenient vehicle for them,” he added.
Little wonder then that scooters now constitute 64% of the total two wheeler volumes of HMSI given sales of motorcycles fell by 24% y-o-y to 1.12 lakh units in July and by 14.76% y-o-y to 1.26 lakh units in August.