Hero MotoCorp Ltd, the largest two-wheeler maker in India, is betting big on 125cc scooters and premium motorcycles to try and cut its reliance on entry-level motorcycles amid tepid sales in domestic markets.
Sales of two-wheelers especially in urban centres have remained damp as a reflection of overall market sentiments and an absence of jobs, coupled with an increase in vehicle insurance premiums.
On 20 September, the government raised compulsory personal accident cover for two wheelers to ₹15 lakh from ₹1 lakh. At the same time, the Supreme Court directed an increase in third-party premium for vehicles to five years, to be collected upfront from buyers. Hero has been trying to get a foothold in the overall scooter market for quite some time now. In FY19, the company also re-entered the premium motorcycle segment.
Though overall scooter sales were flat in FY19, those in the 125cc segment grew by 50%. This segment now makes up 25% of the wider scooter market, which is expected to grow to 50% in the years to come, according to a senior executive at Hero MotoCorp.
“After the launch of our 125cc scooter Destiny, Hero has managed to capture 20% of this segment and the company plans to deepen its focus by launching its second product Maestro Edge in the near future. The 125cc products also attract higher margins compared to the entry-level ones," added the executive requesting not to be identified.
In the entry-level segment, typically with a 90-100cc engine size, Hero has only a 10% market share and the company will continue to offer products in this sub-segment since as the volumes are much higher. The 125cc segment, however, is more profitable for manufacturers compared to the entry-level segment.
Apart from 125cc scooters, which is the premium segment in scooters, Hero will also increase its offerings in the premium motorcycle segment and, at some point, will also cater to the middleweight category, which is dominated by Royal Enfield.
The company has hired 800 consultants at its dealerships to promote its premium products and is also revamping its dealerships.
Traditionally, Hero has been a leader by a distance in entry-level motorcycles with a market share of more than 60% with products like Splendor, Passion and HF Deluxe. Almost 50-55% of the total motorcycle sales of the company come from the rural areas. “We are now in the process of building a product portfolio in the premium segment and by launching four products in a span of just six months we have made our intent known. Once we have a range of products in our portfolio, market share will increase as well. We either wanted to be number one or should be in the position to challenge the number one in the long run," said the person mentioned above.