To be the next crat?

The second largest two wheeler market in the world is gearing up for a battle of its life, and how! Be it the world’s best automobile brands like Honda, Yamaha, Suzuki or Indian companies like TVS and Kinetic etc, all and sundry are fighting to grab the maximum share of the two-wheeler market. But the fact remains that the age old rivalry between the old horses Hero Honda and Bajaj still rules the roost.

For those who didn’t believe in the fact that history repeats itself, here’s a real life example for you. What Hero Honda did to Bajaj a few years back, Bajaj is presently doing to Hero Honda. The market share of the company nosedived by 4.3% to 47.3% for the period of April-August 2006, as compared to the corresponding period, previous year, while the market share of Bajaj rose by 2%, taking its pie to a total of 31.4%. The country’s third largest two-wheeler company, TVS also managed to increase its market share to 13.7%. In FY06, total sales figure for the two-wheeler segment stood at 5,815,417 units, a prodigious ground clearance of 17% in contrast to the previous year. The export story also blossomed by 39%.

As Dipali Shah, VP, Planman Media enunciates, “Clearly, with a majority of players delivering good to great performances even in the current financial year, and with the market growing overall, the question becomes louder as to why is Hero Honda failing to increase its market share, despite being a ponderous number one.” Janish Shah, Head of Research, Networth Stock Broking, argues, “The major difference is in the product offering. On the technology front, Bajaj is the clear cut leader and is well accepted by customers; but on the other hand, Hero Honda has failed to deliver a strong product at the executive end of the market, which is growing at a sonic speed and is dominated by Bajaj.” Words that might be questioned by even industry experts, but strong views nevertheless!

Truly, combining the executive and premium segment, Hero Honda’s sales for the period of April-August 2006 stood at 21,710 units, a decline of 7% as compared to the previous year. While deliberating with 4Ps, Pawan Munjal, the mercurial MD of Hero Honda, parried, “We are not worried about the recent developments as we are confident of recovering the loss in this forthcoming festival season.” This competitive company, which has been consecutively ranked as being amongst India’s most valuable, can well go ahead and prove these words right. But the time is fast running out, and the likes of Bajaj are no more the new kids on the block. If it doesn’t act might fast, Hero Honda might just be left with one word in their name... and we don’t know which one!

Hamara Bajaj; The resurgent hero!

Rajiv Bajaj emblematizes the next generation of leadership and has given a new dimension to the timeworn corporate animosity that once prospered between Rahul Bajaj and Brijmohan Lal Munjal. Although Hero Honda is still the leader in two-wheeler sales, it is almost impossible to ignore the growth that has been exhibited by Bajaj Auto.

And to lead this turnaround, Rajiv Bajaj – after having dramatically exited the geared scooter segment – has followed a well thought and well executed two pronged attack strategy. On one hand, he has decided to play on the price factor; and on the other, he has challenged Hero Honda even on the technology front with a critically superior twin spark (DTSi-Digital Twin Spark Ignition) technology – a technology which ensures radically better fuel efficiency. Urmil Negandhi, Auto Analyst, Parag Parikh Financial Advisory Services Ltd, furthers, “The main advantage of Bajaj is that over the years they have (themselves) mastered this technology and are not dependent on some other partner,” thus helping them save oodles of cash (that might have been paid as royalty).

Apart from this, Rajiv ruthlessly raided the 100cc segment with the aggressively priced Boxer, gave a stiff challenge to Hero Honda’s all time best seller Splendor, invaded the 125cc segment with bikes like Wind and Discover to uproot the dominance of Hero Honda’s Passion and created a niche for Bajaj in the 150cc and above segments with bikes like Pulsar DTSi and Avenger. As a result, today Bajaj has a much respected & well diversified portfolio of bikes that are taking the competition head on, literally.

The fact is that premium segment is the hot-spot for the marketers and to go with the tide, Bajaj is the unchallenged leader of this premium segment with its best selling bikes like Pulsar DTSi-150 & Pulsar DTSi- 1 8 0 . While Bajaj sold a whopping 306,826 units in the premium segment for the period April-August 2006 (as compared to Hero Honda’s 21,710 units).

The reality is that Rajiv Bajaj has been successful in turning the tide towards Bajaj. The year 2005- 06 marked the fifth consecutive year of increase in market share for Bajaj. It also exhibited a growth rate of 31.9%, which is significantly higher than the sector growth rate of 18.8%. Industry experts like Janish Shah even expect Rajiv to launch up to six dynamic models in the near future. Toweringly, this spat for masterdom between these two bike maestros will surely continue for years to come; but the fact remains that Bajaj has been able to challenge the tiger in its own den, a task that was once considered inexecutable for any scooter manufacturer in India!

From probiking to rural-biking

After pushing the adrenaline of the young generation with ultimate bikes like Pulsar and Avenger, Bajaj is now trying an innovative way to grasp the essence of premium biking by setting up the Bajaj Probiking Showrooms all over the country. The effort is to provide an excellent retail and post sales experience to the probikers so that they can relate better with the Bajaj brand name. At the same time, normal bikers would perceive Bajaj as being ‘up there’ on the technology front. It will also allow the customers to test the bikes for torque, speed and accelerations, things which are not possible in a normal showroom. On another end, Bajaj is trying to tap the rural segment, using a very innovative and different kind of rural dealership system designed to address issues (like credit, loans) specific to rural customers. But then, is this rural foray even required for Bajaj? Well, with an extremely low current two-wheeler penetration of around 7%, it makes more than sense, it makes Bajaj sense!

If Emperor Alexander had an Indian name...
...it could well have been Hero Honda!

The company that changed the two-wheeler landscape, firstly by making geared scooters extinct, and secondly by its two-pronged strategy with its legendary products, Splendor and CBZ, is finally, like Alexander, succumbing to challenges thrown by its own kith.

At the moment, Hero Honda is busy charting out its battle plans and has also Announced major expansion plans. The company with much patience is waiting for a nod from the Rajasthan Government to set up its third plant in the state. But with Hero Honda going ahead with plans for a new plant in Haridwar, are the Jaipur ambitions closed? Pawan Munjal, MD, Hero Honda, holds forth, “We are not putting off the Jaipur production plan... we are hope- ful of getting a government clearance; and as soon as we get it, we will go ahead with the project.”

For starters, the Haridwar plant will have a capacity of around 1.5 million in three years and the first product is expected to roll out by the next year. The expansion plans are in sync with this forever growing industry. While Rajiv Bajaj is shooting from his hip by planning to launch a plethora of new models, Hero Honda is not far behind in biting the bullet, with Pawan Munjal parrying strongly, “We are going to launch seven new models this year; and this (trend) will continue for years to come.”

The expansion seems exciting, but the million dollar question is, will Hero Honda be trounced this time around by the wannabe champs? Kalpesh Parekh, AVP Equity Research, ASK Raymond James, disputes agitatedly, “Hero Honda is a great company and it has the ability to bounce back strongly. The need of the hour is to focus on new products, innovative designs & on the pricing strategy.”

As Hero Honda is gearing up for new launches, the company should be looking forward to plug different price points and give the consumers, much wider choices to gain the maximum.

But if Alexander was poisoned by his own kin, Hero Honda seems no exception. Opines Urmil Negandhi, “Honda on its own has launched bikes in 125cc segments. This is clearly going to create direct competition with Hero Honda.” It seems Honda doesn’t require the Hero group even for distribution. With trepidation, it just seems that instead of competitors, Hero Honda should be more worried about “all the king’s men!”

Hero of the day?

With the government providing impetus to the growth of rural and semi rural areas, and as Bajaj still plans rural distribution channels, Hero Honda has gone way up – not only is it designing finance schemes and supply chains to tap the rural market, but the company is also looking ahead to increase its customer touch points to 3,000 (which span both urban and rural space) from a current level of 2,400 by the end of this running financial year. Further, the company is taking concrete steps to resolve recent labour crises (for example, by signing a three year wage agreement with workers at the Dharuhera plant). But with Bajaj selling 162,132 more bikes than last year to Hero Honda’s 80,920 additional, the “Hero” question still remains open!