Bajaj closing gap with Hero in 100cc bikes

A rather interesting shift is happening in the motorcycles market. While Hero Honda retains the number one position in the 100cc segment with its Splendour and Passion brands, Bajaj Auto has begun snapping at its heels.

According to analysts, though Hero Honda has lost only marginal share in this segment in the last 6-8 months, all the incremental volumes have been snapped up by Bajaj after it launched the Discover 100cc in August last year.

In the second half of 2009-10, 33,264 units were added per month to the 100cc motorcycle pie against the first half. And Bajaj Auto claims that its 100cc sales were up 34,867 units per month during these six months, despite the fact that it launched Discover only in August last year.

Hero Honda officials could not participate in this story because they were travelling.

S Sridhar, Bajaj’s CEO- two wheelers, said his company’s 100cc market share rose by six percentage points to 23% in the October-May period, while Hero Honda’s share in 100cc segment fell from 69% to 64%.

“Even in terms of profitability, Bajaj has made rapid strides. Our
target is to bring down the share of entry level (lowest priced bikes) in our portfolio to 16% by the end of this fiscal against 42% in 2008-09. This will ensure better profitability.”

Pramod Kumar and Mitakshi Ashar of JM Financial expect Hero Honda to continue to cede market share to a resurgent competition (Bajaj Auto and TVS Motor) and due to entry of Honda Motorcycles and Scooters (HMSI) into the executive motorcycle market. “We expect Hero Honda to register 10 per cent CAGR during FY10-FY12E against estimated industry growth of 13 per cent,” the duo noted in a report.

Kumar and Ashar further said that while the increase in Hero Honda’s market share in FY08 was “due to wrong strategies (of exiting the 100 cc segment) adopted by home grown competitors (Bajaj and TVS), it gave Hero Honda a free run for over two years during which it increased its market share from 48% to a high of 64% in August 2009… But Bajaj re-introduced the Discover brand with a 100cc engine in August, 2009 and has since then been able to regain market share from Hero Honda. Discover 100 has rapidly grown to become the third-largest selling brand in the industry, quashing the myth that Hero Honda’s dominance in this segment is invincible.”

Another widely held notion —- that Hero Honda dominates the rural space —- could also face some challenge in the coming months. Sridhar says 55% of his company’s 100 cc bike sales come from the hinterland and these are the customers looking for change and therefore turning to the relatively new product such as Bajaj Discover. He also made it clear that the incremental sales continue to happen in 100 cc for Bajaj despite the fact that the Discover is at least Rs 4,000 more expensive than Hero Honda Splendour.