Despite sluggish rural demand, the domestic two-wheeler industry reported a growth of 17 percent in FY23 at 15.7 million units, after facing three-consecutive years of decline due to the pandemic and muted economic growth.
14 Jun 2023 | 3112 Views | By Shruti Mishra
The country's largest two-wheeler maker, Hero MotoCorp expects the two-wheeler industry to see another year of double-digit growth on the back of a healthy demand scenario and favourable base effect from the last year. With macroeconomic indicators looking positive, strong replacement demand, and ample finance availability, the company expects the ...
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The country's largest two-wheeler maker, Hero MotoCorp expects the two-wheeler industry to see another year of double-digit growth on the back of a healthy demand scenario and favourable base effect from the last year. With macroeconomic indicators looking positive, strong replacement demand, and ample finance availability, the company expects the two-wheeler industry to grow beyond 10 percent, driven by buoyancy in both urban and rural sentiments in the current financial year.
"The macro indicators are really looking good, on the back of government-led capex push, strong Rabi crops, robust GST collection, good water reservoir levels, etc., which should not only help consumer sentiment but also employment and thereby benefit the overall two-wheeler industry," Hero MotoCorp’s newly appointed Chief Executive Officer (CEO) Niranjan Gupta said in an analyst call.
Despite sluggish rural demand, the domestic two-wheeler industry reported a growth of 17 percent in FY23 at 15.7 million units, after facing three-consecutive years of decline due to the pandemic and muted economic growth. A look at the current economic indicators signal that the recent increase in minimum support price (MSP) for Kharif crops such as paddy, maize, and moong for the current marketing season will benefit farmers at a time when retail inflation is showing a downward trend. This coupled with a normal monsoon forecast, is likely to aid farm income, which will thereby support the rain-dependent sectors like two-wheelers and tractors. Notably, rural demand contributes 50-60 percent of two-wheeler sales in the commuter segment, where Hero MotoCorp is the largest player.
Underlining specifically the growth prospects of the company, Gupta highlighted that the company plans to deepen the penetration of two-wheelers by attracting first-time buyers, increasing retail financing penetration, and leveraging its wide network.
On the recent price hikes, he said, “Commuter segment customers faced significant challenges due to substantial cost inflation and the impact of the Covid-19 pandemic. As a result, prices in this segment have increased by over 30 percent. It would take time for customers to absorb and adjust to the new pricing levels. However, with the gradual recovery in consumer confidence, the company expects growth in this segment.”
He further said that retail finance penetration has been improving and now stands at 60 percent as compared to 47 percent in FY20. “This has helped dilute the impact of cost inflation and also enable sales of more premium variants within the same brand,” Gupta added. Besides, the company is also looking to upgrade its existing retail format. It has already established 20 pilot stores with a new retail identity and plans to transition 500 stores to the new format in the next two years.
Business Expansion
Hero MotoCorp is actively working on expanding the categories in its core business of commuter 100cc-125cc motorcycle segments and recovering market share in the 125cc segment. This is primarily due to the limited potential for further growth in its already dominant market share of 80 percent. The company is banking on XTEC variants, which are feature-rich, and already comprise 25 percent of the portfolio, with models like Super Splendor XTEC that have gained a 3 percentage point market share within three months of launch.
On the scooter front, the company has received a positive response for its new model, Xoom and it is looking to introduce several new models in both the 100cc and 125cc scooter categories with an aim to increase its market share in the scooter segment in FY24.
Another prime domain where the two-wheeler major needs to up its game is the premium segment. The company has just a 3 percent market share in the premium segment, and it is focused on building product portfolios across sub-segments. The company has lined up a series of upcoming launches, which include a collaboration with Harley Davidson in the 440cc segment. Further, it is also planning to elevate the buying experience by launching over 100 exclusive stores for premium products in the next 12 months.