Premium consultants are fully skilled with deeper knowledge and are capable of handling customers who have a different set of questions than a typical commuter bike customer,” Bhan said.
By Pritish Raj
Hero MotoCorp has decided to speed up launches of both scooters and premium bikes to fill product gaps that are hurting margins and market share. The Gurgaon-headquartered firm will hike capital expenditure, almost doubling it to `1,500 crore in 2019-20, and overhaul its dealer network. Funds will be used to develop products, commission the Andhra Pradesh plant and add BS-VI engine lines. The company, at present, has a dismal 9% market share in the scooters space while sales of premium bikes account for less than 2% of the market.
Hero’s operating margins have been declining for four consecutive quarters now, impacted by high discounting since the second half of FY19 and dearer commodity costs. Besides, lack of products in the scooter and premium bike segments has hurt its performance. In Q4FY19, margins fell to 13.6% versus 14% in Q3, 15.2% in Q2 and 15.6% in Q1.
CFO Niranjan Gupta said on Wednesday the company will bolster its presence in the premium bikes and 125cc scooter segments, gradually scaling up production of bikes with bigger engine capacity of up to 450cc. These steps the company believes will boost margins and market share. “Margins went down partly due to commodity cost, discounts and operating leverage. When you sell lower volumes, you cannot lower your fixed cost proportionately. So, if volumes are falling, fixed cost will grow with inflation,” Gupta told FE.
He also said since commodity costs are on the softer path and the currency is no longer depreciating, margins are likely to improve on the back of the fastest-ever launches of premium bikes and 125cc scooter.
The company, which launched three 200cc bikes – XPulse 200T, XPulse 200 and Xtreme 200S – has a portfolio of four premium bikes within six months and is gearing up to launch the 125cc Maestro Edge next month. It already has a Destini 125cc scooter, which Gupta claims has garnered nearly 20% market share in six months.
FE had in January reported that the management met to discuss future strategy to build product portfolio in these two segments.
Though Hero has maintained its leadership position in the overall two-wheeler market, it has been unable to win a big chunk in the scooters space, which is led by Honda Motorcycle & Scooter India (HMSI) with a staggering 55% market share. In the premium bikes segment too, the company is far behind players like Bajaj Auto and Royal Enfield, who together control more or less equal shares of around 26-28%.
According to Gupta, the company is relatively new in the scooter and premium bike space. “We will need a lot more hard work to build the portfolio,” he said.
Sanjay Bhan, head of sales and after sales, said part of the funds would be used to change the “touch and feel” of the dealerships.
The company has for the first time inducted 800 consultants to sell its premium bikes and scooters. “Our showrooms are getting premium in nature and more will happen in the next 15-20 months as we enhance the look and feel of our showrooms. Premium consultants are fully skilled with deeper knowledge and are capable of handling customers who have a different set of questions than a typical commuter bike customer,” Bhan said.