Honda set to overtake Hero in India, the world's largest 2-wheeler market

Respected Members,
This might be a conflicting article but please bear with me.
Yesterday I was reading an article on the Morning Context. That article was kind of a contradiction to the sales numbers that Hero has been reporting. The link to the article
https://themorningcontext.com/busine...wheeler-market

It was quite an interesting read. As per Vahan data which in essence captures the actual retail numbers, the difference between Hero & Honda for the first six months of the financial year is wafer thin i.e 5%.

It is alleged in the article that the Hero is doing lots of channel stuffing i.e. pushing lots of inventory to its dealers. It is even alleged that dealers are forced to resort to discounted selling. They have doubled the credit limits but are made to utilize the entire limit. My own take on the same is as follows

I: Things that work in Hero's favor
This is where contradictions start for me on the recent trends for Hero.
a). They have started to gain traction in a premium where they were absent earlier.
b) The launches in the premium segment will continue for the next 6 quarters as indicated by their CEO.
c) They would be coming with premium sporty commuters in 125 cc spy shots which are already available.
d) Shine 100 has been launched with only a tube option & I don't know how many of them will prefer tube tyres in this day & age. Also, the xtec variant of Splendor is a big hit. It denotes only one thing: People prefer fully loaded variants of a particular product. I hope Hero's mgmt also listens & does away with the spoke variant of the X440.
e) The doubt that Hero would not be able to develop products without Honda-Tech would not be competitive no longer exists.
f) The company claims to have retailed 1.4 million bikes in the festive season. We don’t know how much percentage of it is discounted sales. Any dealer doing discounted sales would face incremental losses as the volume goes up. We don’t know to what extent the Company would compensate the dealer on that front.

But: all said and done: Hero needs to raise its game big time in the 125 -200 cc segment. It is struggling big time. It was an undisputed leader in that 125cc space just 2 years back and is now facing prospects of being relegated to 4th position. Even TVS which was not historically strong in that segment has rattled Hero with it's Raider. Bajaj is further eating in that space with its pulsar 125 variants. This segment was contributing to 1 lakh units to Hero's sales tally on a monthly basis. It is only contributing 25-30k units a month now. That's a huge blow.

Hero's image of reliability and trust is built on a single 97.2 cc engine platform of Hero. If we take monthly sales of September 2023, that one engine platform which is close to 40 years is contributing to 84.66% of total domestic sales. It is downright scary. They have to de-risk their cash flows by introducing products so exciting that they can be sold on their own without much marketing i.e. a product that forces you to make an impulsive purchase.

Hero has to either choose value game ( Net sales value) or volume game( No. of units.) I personally feel that it would be better for Hero to give up on No.1 by volumes and rather aspire to be No.1 by value. Also by loosing that tag there would be lesser baggage as the management wont be assessed by only the volume growth. They would have nothing to brag about. They would be held accountable by the shareholders. That would also bring the feet of Promoters i.e. Munjals crashing back on the ground. He has had habit of making egoistic comments like: I’m dead sure of sustaining our leadership. Nobody can take away our leadership. It is no joke. https://timesofindia.indiatimes.com/...w/21353402.cms

The problem with Hero is that they are very much obsessed with volumes game. In that process, they just spent years in just pushing more Splendors, Passions, and Glamours. They were having chal raha hai, chalta hi rahega attitude. They never felt that as leaders they had to disrupt the market. They were such a comfort zone that they were never forced to wake up until the last 2-3 years. Now they are forced to run. It’s a good sign that the new CEO of Hero recognizes the fact that Hero has to pull up socks as far as revenue growth is concerned. Their revenue has been more or less flattish during the last 4 years. ( 0 to negative growth) To achieve revenue growth they need high-value products.

This is an exciting as well as nervous phase for the Company as well as investors.

The other pain point is brand passion. The brand which was again doing 1 lakh units is struggling to do 25-30k units. It had fallen below 10k levels monthly. The numbers of that brand have stabilized to 25-35k after they were forced to reintroduce Passion with OG styling.

In Tier 2 & Tier 3 towns Hero was the undisputed king, but now the change is happening at a fast clip. People are no longer risk averse. They are ready to experiment with products of other brands. Basically, the rural customer is equally aspirational. That’s where Hero is losing market share to its peers. It lacks products in its stable that are aspirational or at least evoke emotions. I have personally seen this happening in my native place Karwar in Karnataka.

I don’t even know why Hero focuses on 110-125 cc scooters. They just don’t have any meaningful market share in that space. It would be better if they focus on making Xoom 160 a successful niche product.

Hero after CBZ OG never had a product that outdid its competition be it in looks or performance in the 150-200 cc segment. Also, I feel they have used the brand Xtreme a bit too long. That brand was never strong. It is not even a shadow of how iconic the CBZ was. They should have launched a new brand with a new design language & engine character. However great the new 160 4v might be but it’s still derived from the unicorn OG engine. One can understand it by looking at the engine head and the orientation of the engine.

Karizma 210 though is a breath of fresh air. Completely new grounds up. The same goes for X440. Many of us are waiting for LC bigger xpulse.
Also, we need to keep a watch on their next month's dispatch numbers now that the festive is over.

II: Things that are in Honda's favor
a) Even today despite such high competition nobody has been able to beat or even come close to Activa. Also due to the increased participation of women in the workforce and other commercial activities, Activa by default becomes a safe product for them. Activa is a synonym for scooters like how Colgate is for toothpaste. They sell almost 2 lakh of those monthly.

b) The shining star: The Shine even though was an average product when introduced in 2006 has now evolved into a competent product in SP avatar. That motorcycle is singlehandedly selling over a lakh units a month without any marketing. The introduction of the 100 cc variant can act as a double-edged sword. It might damage Hero to a certain extent if accepted well by the masses but can very well go the discover way by adding to the confusion of buyers.


c) The unicorn and SP 160 if marketed well and made niggle free in its BS-VI avatar have the potential to disrupt the commuter motorcycle segment. I know comparing splendor to a unicorn is like comparing apples to oranges. The established product is normally disrupted by a product that doesn’t belong to that segment. These products might very well start the trend.

d) Honda pays much higher sales commissions to dealers on each sale as compared to Hero. They would definitely employ this tactic to poach big disgruntled Hero dealers.

But: Honda has a history of dishing out not-so-successful commuters, Remember Twister, Dream Yuga, neo, and cd 110? All have been sales duds barring Shine & Unicorn.

The less we talk about Honda’s premium strategy in India the better it is . “ Pura Raita Faila ke rakha hai”. Honda is showing it’s arrogance in that segment. People will not buy shit just because it’s Honda. Competitors like RE & Bajaj in association with Triumph & KTM have taken the game to another level.

Even Hero who was lost in deep slumber is showing some eagerness to do something in premium. The latest paint jobs that Honda has given to CB 350 would pass off as 1st copy of RE Desert Storm. It is pathetic and an insult to the people who made Honda an icon of today.

The spare parts of basic commuter motorcycles are ridiculously expensive & availability of spare parts in the case of premium motorcycles is a big problem. I myself own activa125. The cost of a basic front fork is 3.5k. Even when I’m ready to pay, they are not able to source the same. This is the plight of the biggest dealer in my district. The service costs of their vehicles are also high.

Off late lots of Honda BSVI bikes have lots of engine reliability issues. This was unheard of for Honda. If they don’t clear this mess then becoming No.1 would be a pipe dream.

Assumption:
I have not considered Bajaj Auto in volume game as they always played profitability game. Their mgmt has also made the stance absolutely clear on the same. Hence I won’t consider Bajaj in this Analysis. It is the Co that generates the highest free cash flow every quarter. That is some feat.

Third wheel/ Catalyst: TVS Motor Company:

TVS Motor Co has had a phenomenal run in the Indian market for the last 3 years. They were a distant no .4 in 2016-17. They invested heavily in product development and got the right products at the correct price. The quality of their products is great. They have come a long way on that front. The fiber panel quality on some of their products is even better than in Japanese. Recently the gap between Honda & TVS had started to decrease in non-festive months. They were very close( Dispatch to dealers & not retail).

They have got a headstart in the electric scooter segment. That product is a workhorse. Very reliable. It might not be the fastest but is a very effective scooter. IQube sells close to 20k a month now. That's something.

TVS has managed to trouble Hero in the form of Raider, though Jupiter does around 60k units a month it’s a very distant second from Activa. The volume gap is 1.5 lakhs units monthly. Another product from TVS on the motorcycle side would only end up eating into the volume of Hero. That would only aid Honda. The introduction of Raider & Pulsar 125 didn’t have any impact on the monthly sales of Honda Shine. But those two products have brought Hero to its knees in 125 cc space.

It’s not that TVS is doing everything perfectly. Their quality of service i.e. after sales is a huge problem. They have the least approval on that front. They have to pull their socks in that aspect if they aspire to be within close distance of Hero & Honda.

The coming 6-12 months are going to be extremely interesting.

Guys, Would love to know your thoughts on the same.
Till then ride safe & Take care.

Regards
Pranav

Wonderful analysis and articulation. Worthy of being in a B-school case study.

Earlier I used to think that Honda will eat up Hero. Now I don't see any reason why Hero Motocorp should be worried. Let's see a product vs product comparison -

• Splendor vs Shine100/CD110/Livo - Shine with it's 17inch wheels and frail chassis looks puny in front of Splendor. The ~ 40 years old Honda Super Cub based 97.2cc slopper engine of Splendor still has better overall performance compared to Honda's latest 99cc engine on Shine 100. Hero's ride quality is sublime whereas Honda's are stiffly sprung. And the XTEC variant of Splendor is so desirable, it's selling like hot cakes. CD110 has better performance but isn't near anywhere as desirable. Livo is overpriced.

• Passion 100/110 vs Livo - the old design Passion 100 still has great fan following. It has size and substance for a 100cc bike. And the 110cc Passion XTEC offers more value than the overpriced Honda Livo.

• HF100/Deluxe vs Shine 100/ CD110 - Here the Honda's are better. But as a pure ultilitarian choice, HF100 is available at a lower price.

• 125cc segment - Shine 125 & SP125 are the better choices. Pulsar 125 sells because it offers the size and substance of Pulsar 150. Raider is the most VFM and fresh feeling product which offers everything except reliability. When bs6 era started, Honda persited with Shine's old design and Hero didn't. Hero has realised their mistake and now relaunched Glamour with old design. They are also readying Xtreme 125 to directly take on Raider & NS125.

• 150-160c segment - This right now belongs to Bajaj & Honda. Honda's SP160 is bound to be a success. Hero Xtreme 160 4v is a great product but it's design proportions are not quite right. They also need a family commuter 160 to take on Unicorn 160, bring back the Hunk or Achiever maybe. And an Xpulse/Impulse 160 4v would be icing on cake.

• 200cc segment - At least in Kerala, Xpulse is a smashing hit. More than 30k units have been sold in my state alone. Hero not only persisted with the product, but also perfected it. It still has niggles, but Xpulse is such a honest, desirable and VFM product. And they are very active with those 'X-tracks' off road events and stuff. Now with Karizma XMR 210, Hero has asserted dominance in the segment. Which other brand offers all that LC-DOHC, trellis hardware and performance at that price? And what does Honda offer? Hornet 2.0 and CB200X are good bikes, but they are overpriced and do not belong in the 200cc segment. It's just the beginning, Xpulse 210 and Xtreme 210 are on their way.

• 300-500cc segment - Hero's Harley X440 is such a great attempt. They didn't try to copy RE, instead created something different and unique. Bajaj's Triumph 400 is another great attempt. While the great Honda is busy copying the minute details of Classic 350's design, Hero is all set to expand their footing with more bikes on the 440 platform and not to forget the upcoming Xpulse 400. And CB300F, who asked for it? Why develop an underwhelming product and overprice it by 50-60k? Granted they slashed it's price, but now nobody wants it.

• Scooters - Activa may remain the sales king. But Hero Xoom 110 and upcoming Xoom 125 and 160 are way more desirable. They are on the right path by offering 14inch wheels and liquid cooled engine. I am sure Honda and TVS bosses are shocked by Hero's revelations. It's good because now they'll work on bringing even better scooters, thanks to Hero!

Honda is no saint. Heating, gear-slipping, oil leaks, high idle rpm... there are so many manufacturing defects and QC issues in their bs6 motorcycles. Just last day, there was a post describing multiple oil leaks in a brand new CB350 RS. And the worst part is, Honda offers zero support for such issues. Their customer complaints section and spare parts availability is pathetic. It took them 20 years to offer teslescopic suspension on Activa! Still they are giving puny 10 inch wheels at rear. All their mass market products are compromised in some way or other. Honda bosses don't think that Indian's deserve good products. And if they do launch an uncpromised product, they'll grossly overprice it. Honda will never let go of their superiority complex and ego.

Bajaj has become a joke of brand. Their profit over product approach suucessfully killed Discover and now ruining Pulsar. Their first concern is exports, domestic market is always given secondary treatment. It's ironic that the company with fastest R&D is using it for all the wrong reasons. They develop so many platforms and engines in such short time, but discontinue it at the slightest hint of low sales.

TVS is not what it looks like. With great paint quality and good plastics, their products appear to be of high quality. But their wiring, electricals and gaskets are compromised, making them unreliable. There are so many reliability issues with Jupiter and Raider. And the less said about their service, the better.

Yamaha and Suzuki are at least doing better than Honda. Yamaha kept evolving the R15 and Suzuki has still not given up on Gixxer.

Royal Enfield are on their way to become a global giant. Other brands need to seriously learn from RE.

Tl:dr - Splendor XTEC and Passion 100 are still highly desirable 100cc bikes. Hero needs stronger contenders in 125 & 160cc segments. Xoom 110 & 125 are great and fresh options in the scooter segment. They already have 3 proper, uncompromised options in the premium segment viz. Xpulse rally, Karizma XMR and Harley 440. And with upcoming Xoom 160, Xpulse 210, Xtreme 210, Xpulse 400 and 2 bikes on 440 platform, they are all set for a product offensive in the premium space. Hero's service reach and spare parts availability is ages better than Honda. They have started new 'Premia' chain of premium dealerships to take in Honda BigWing. Overall, I don't see any reason why Hero should fear Honda.

During my Masters, we did a strategy for TVS [2021].

A few points I remember are that TVS had the lowest RoS (return on sales), RoTA (return on total assets) and the highest Inventory turnover among TVS, Bajaj, and Hero.


They earned 40% less than Bajaj did per vehicle. Hero had 3X RoTA than TVS (the scale of Hero is huge)


We had concluded that it was a Sales problem which TVS needed to fix.