Eight years after split Honda leads India race while Hero lags

Eight years after breaking ties with Hero Motocorp, Japanese giant Honda has beaten its erstwhile partner in each of the business segments. The Indian company though continues to grapple with intense competition from other players.

Data from the Society of Indian Automobile Manufacturers of the last eight years show Honda has expanded market share in the motorcycle and scooter segments in the domestic market as well increased exports growth.

During these eight years, sales for two-wheeler market leader Hero Motocorp declined in all the segments on lackluster demand for some products and delay in new product launches.

Honda Motorcycle and Scooter India (HMSI) has doubled its share in the domestic two-wheeler space to nearly 28 percent this year (October end) from 13.3 percent in 2010 when the companies split. Share of the Munjal family-promoted Hero Motocorp has eroded to 36 percent this year from 44 percent at the time of the split, as per the SIAM numbers.

Last year, Honda dislodged Hero in 15 states including Maharashtra, Karnataka, Gujarat and Tamil Nadu and two union territories to emerge as the market leader in those markets. A large chunk of buyers from these states favoured gearless scooters over motorcycles for their ease of riding.

Hero did hold on the agrarian belt in states such as Uttar Pradesh, Bihar and Rajasthan. These states are the largest buyers of budget bikes like Splendor and Dawn, both being the backbone of Hero’s volumes. Since April this year, Pune-headquartered Bajaj Auto started a price war in the Splendor segment by dropping rates by Rs 2,000 on its cheapest bike CT100.

The maker of India’s largest selling two-wheeler brand Activa Honda increased its share in the scooter space to nearly 57 percent from nearly 44 percent through an unchallenged streak.

Despite multiple launches backed by a retail reach twice that compared to Honda, Hero has not been able to capitalise on robust demand for scooters. Hero’s share in the scooter segment stood at 10.6 percent this year down from nearly 16 percent at the time of the split.

Though Honda faced its toughest challenge in the motorcycle segment where it pushed a number of models fruitlessly to gain entry into the segment the company did manage to gain market share. Honda’s share in the motorcycle segment was 15 percent in 2018 from 7.5 percent in 2010.

Hero’s share in the motorcycle segment came under a strain at 50.4 percent in 2018 down from 54 percent in 2010. Hero has struggled to make any headway in the premium (150cc+) and commuter (125cc) segments.

In exports too, Hero has struggled. Hero is over-dependent on the domestic market which accounts of 97.5 percent of its total production (exports at 2.4 percent). This share was largely the same eight years ago. But, for Honda exports accounted for 6.3 percent of total production this year from 5.7 percent eight years ago.

Hero, however, continues to invest in new capacities in India and overseas as well as investments in new technology.

Speaking to analysts, Niranjan Gupta, Chief Financial Officer, Hero Motocorp said, “We still see demand growing at 8 to 10 percent, because the macro fundamentals of the Indian economy in general and two-wheelers in the auto sector in particular, still remain intact. One could talk about the MSP increase, more income with the farmers, underlying growth of Indian economy at 7 percent plus, consumer credit, financing opportunity, under penetrations. All those are macro stories and they all remain intact despite whatever the short-term headwinds could be. So, in a nutshell, we still have confidence in the demand growth, and therefore, the capacity expansion will continue, so we are not going to push back any of the capex."

The two companies agreed to part ways in December 2010 bringing curtains to an extremely fruitful alliance that lasted 26 years under the joint venture company Hero Honda which gave birth to India’s most well-known best seller Splendor.