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Strife in the fast lane

Surajeet Das Gupta | March 15, 2003

On a test track in Pune, Rajiv Bajaj, the new joint managing director, Bajaj Auto, is plotting a comeback. Rajiv loves nothing better than spending hours on the track testing each new Bajaj prototype -- and these days he has plenty to test. Bajaj Auto currently has a measly 8 per cent of the key executive segment in the motorbike market.

But it is about to unleash a slew of new models and it aims to capture an ambitious 25 per cent of the executive category in one year's time. Says R L Ravichandran, vice president marketing of Bajaj Auto and a key man of Rajiv's crack team confidently: "Our aim is to strengthen our position in the executive segment were we have till now been only a small player."

Drive south and another fast-moving challenger is stepping on the gas once again. TVS has had a runaway hit with its 18-month-old Victor.

But it isn't resting on its laurels. In the next few months TVS will be launching new variants of the Victor -- one will have a sleeker and more stylish look while the other will be a rugged version targeted at the semi-urban market. Says a company spokesperson: "We are planning to push volumes of the Victor from 40,000 a month to 50,000 a month in June."

For years, Hero Honda has been the unstoppable champ of the motorcycle industry. With a giant 50 per cent share of the market, it has lapped its nearest rivals several times. Now, as a clutch of rivals move into higher gear, it's facing a real battle for the first time. Broking firm Motilal Oswal reckons that Hero Honda's market share will fall from 50 per cent in 2002 to around 44 per cent by 2004.

That supercharged challenge will come from about 12 new bikes that are scheduled to hit Indian roads in the next six months. Bajaj, for instance, is at the start line with three new bikes that will be launched in swift succession. Last week, the company opened throttle with the re-launch of the Caliber which has been completely redesigned and offers more mileage and extra power.

Then, there's TVS which will launch two versions of the Victor plus another new bike that is still under wraps. Not to be outdone, Kinetic Engineering will soon hit the roads with a bike code-named Velocity. And, from September, LML is planning to push up production of its Freedom -- priced at Rs 40,000 -- from 15,000 to 25,000 a month.

It isn't tough to understand why all the motorbike manufacturers are stepping on the gas. Between 2001 and 2003, the market has grown at a speedy 40 per cent per annum. Now analysts and the companies predict that growth may slow to about 15 per cent to 20 per cent in coming years.

"What we will witness now is lower incremental volumes but more competition with everyone looking to grab market share," says Sandeep Neema, head of research, UTI Securities.

A second battle is also underway as new categories emerge in the motorcycle industry. Till a few years ago, the executive category -- dominated by Hero Honda and its bread and butter model, the Splendor, and the newer Passion -- constituted practically the entire market.

Now new segments have emerged -- and each one is being bitterly fought over. In the premium end Bajaj is under attack from rivals. The company must fight tough new vehicles like the Hero Honda Ambition that sells for between Rs 48,000 and Rs 52,000.

Then, there are other upmarket two-wheelers like the Yamaha Enticer. There's also the TVS Fiero scheduled to hit the roads in September. In the entry segment (below Rs 35,000), Bajaj again has to contend with a bevy of new bikes waiting to be launched.

But the biggest battle is still in the middle-level executive segment (Rs 35,000-Rs 45,000) which constitutes 55 per cent of the 3.5 million motorcycle market and which is dominated by bikes like Hero Honda's Splendor and the Passion selling at Rs 42,000.

But taking them on will be two new Bajaj models in 125cc that will race against the Passion. Says R L Ravichandran, vice president, Bajaj Auto: "Our immediate aim is to ramp up our volumes in this segment from 10,000 a month today to at least 25,000 bikes a month."

Ravichandran hopes to get those numbers from the revamped Caliber. The bike's mileage has been raised to 90 km per litre compared to 80-85 km offered by competition. And if that is not enough, it is offering more power at 9 bhp compared to 8 bhp offered by competitors.

Each company is gearing for the battle ahead. And Hero Honda is fighting back. Ask Atul Sobti, vice president, marketing, and he insists that Hero Honda won't be on the defensive in the coming months.

The company concedes that the Victor has taken a slice of its market share but executives say they are fighting back. Says Sobti: "Passion has become victim of its high sales and popularity. As the stress is on style and contemporary looks, Victor, which was launched later, took that positioning, as it was a newer model."

Sobti says the company will continue to sell 100,000 Splendors a month despite new competition. It is restyling the Passion so that it has new looks and features to take on the Victor.

Hero Honda's Sobti also insists that it can take on the Bajaj challenge because its rival has made serious marketing mistakes. "Bajaj has always played on price and reduced bike prices. They have done it with the Caliber so there is no resale value of the product. Our market study shows that anyone who has even a 10 per cent hesitation on what bike to choose in the executive segment, goes for the Splendor."

The market leader will also soon launch a new 200cc bike at the premium end of the market. It hopes this new roadster will boost its image as a hi-tech bike maker. It hopes to sell at least 1,000 of these bikes a month. Most importantly, Hero Honda has also put its own house in order as it readies for the battles ahead.

It has extended its technical collaboration with Honda for another 10 years -- an issue that worried some analysts because the Japanese company will start manufacturing on its own by 2005. Nevertheless, it will be Honda holding the handlebars and deciding which bikes and technology to offer its joint venture.

Finally, and most importantly, Hero Honda is aggressively attacking the segments where Bajaj, its main challenger, is strong. The Ambition is being pushed through a high decibel advertising campaign during the Cricket World Cup.

Says Sobti: "Ambition is targeted to take market share from Bajaj's Pulsar which has a problem on fuel efficiency. We offer 60km on a litre compared to the competition, which offers around 55km. Our bike has combined fuel efficiency with power and styling and is an all-rounder."

But it is in the entry-level segment that Bajaj is most vulnerable. For one, this is an area where Hero Honda was only a small player -- with only a 19 per cent market share behind even TVS -- but is now planning to make a major push. For another, competitors like LML and Kinetic are also moving in and are hoping to sell large numbers.

What's more, this segment is expected to grow very slowly compared to the others, at about 5 per cent to 6 per cent annually. The reason: 50 per cent of all bikes are sold on hire purchase.

That means there's only a Rs 50 to Rs 100 difference on the monthly instalments between some entry level bikes and executive category vehicles. Another feature slowing sales of the cheaper bikes is the fact that there are 16 million used bikes on the roads, and it is reckoned that about 30 per cent are up for sale at any given time.

Says Sobti: "While most of our competitors' bikes are at around Rs 27,000, our product in this segment is at Rs 37,000. So there is a large opportunity which we have not tapped." Sobti isn't showing his hand yet, but Hero Honda is likely to launch several new bikes this year aimed at the lower end of the market.

Adding to the pressure on Bajaj is the fact that other players are also moving in. Kinetic, for instance, hopes to launch a new product in this category and leverage on the success of the Boss, which is priced at Rs 32,000.

Kinetic reads this market very differently. Says Sulajja Firodia Motwani, joint managing director, Kinetic Engineering: "We expect significant growth will come from the economy segment. The sub-Rs 30,000 launches will expand the category and rural areas will push growth." The company hopes to hawk over 12,000 bikes a month in this category.

LML cites a different reason for entering this category. Says Deepak Singhania, managing director, LML Ltd: "In this business, you must have a bouquet of products in every segment so that the customer who comes to your showroom has something to take home."

But Bajaj is aware that it could be crowded out in the entry-level segment and that sales of its Boxer (priced at Rs 32,000) may fall.

Ravichandran concedes that Boxer volumes will fall from 45,000 to 40,000 a month. But Bajaj insists that it isn't worried because it expects to sell more of the recently launched Byk, which cost less than Rs 30,000. The Byk is targeted at moped buyers looking for an upgrade but can't afford higher prices.

It expects Byk volumes to climb  from 10,000 a month to 15,000 a month. What's the prediction for the future? A report by Motilal Oswal Securities points to a bumpy road ahead. "What we will see is fragmentation of market share and higher segmentation. We anticipate diminishing pricing power and significant market share shifts."

Others believe that Hero Honda will lose steeply. Motilal Oswal reckons that the company will hang on to 44 per cent of the market. Another auto equity analyst in a leading merchant bank is more pessimistic. "Our estimate is that their market share will fall to 40 per cent by March-end 2004."

The key question is whether Hero Honda's counter-strategy will enable it to ride through the storm of competition? Or, will new challengers like Bajaj, TVS, LML, Yamaha and others be cutting the distance between themselves and the champion of the motorcycle industry?

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