Five years after split, Honda rides strong but Hero remains No 1

Hopes of normal monsoon this year likely to drive up motorcycle sales and Hero with its 52% market share could come out as its primary gainer

Japanese automobile major Honda has consolidated its two-wheeler presence in the five years since its split from Indian partner Hero while remaining away from the coveted numero uno slot. The company was aspiring to overtake Hero by 2015/2016. Hero's solo journey has been marked by higher profitability but a declining market share, a function of its dependence on motorcycles. Against a flat to low-single digit growth performance by motorcycles, scooter sales have grown by double-digit for three consecutive years, benefiting Honda.

It was in end-March 2011 that the two partners effectively ended their 26-year partnership. Both had their unique challenges. Hero had all along depended on the partner for technology and had to focus on developing in-house research and development (R&D) capabilities. For Honda, developing mass products and expanding of network was key. While having a partnership with Hero, Honda had started selling scooters about 15 years ago independently. In subsequent years, motorcycles were also launched under its own brand.

Both have moved ahead. Honda has expanded from about 800 sales outlets to a reasonably strong 4,500 touch points. The wider product portfolio, improved network and booming scooter market have helped Honda move up from a share of 15 per cent at the time of split to 26 per cent. Honda's biggest gain seems to have come from Bajaj Auto, which also vacated the No 2 slot for the Japanese firm. In the past five years, Bajaj's share in the domestic two-wheeler market has slipped from 20 per cent to 11.5 per cent.

Hero has seen its market share dip from 44 per cent to 39 per cent, as rural uncertainties and successive sub-normal monsoons impacted motorcycles sales. But, the company has made significant progress on the R&D front. It has set-up its first dedicated Rs 850-crore R&D centre last month. The 247-acre facility near Jaipur will have 600 engineers by the end of this year. Hero had a tiny three-acre R&D setup before the Jaipur centre came up. The centre will be led by Hero's chief technology officer Markus Braunsperger, who came from BMW in 2014 after a 25-year-long stint in R&D, production and strategy roles.

Hero has also taken steps to improve its share in the fast-growing scooter space. In September last year, Hero expanded its scooter offering with the launch of two in-house products - Duet and Maestro Edge. Until then, the country's largest two-wheeler maker had only two scooters to offer: Pleasure and Maestro. Chairman, managing director and chief executive officer Pawan Munjal said in September that the company's aim was to 'gun for leadership in scooters'. "I know it is not going to happen overnight," he added.

The new products helped its scooter segment grow nine per cent last year and take its market share close to 20 per cent in most months after September. Munjal said early this month the five-year solo journey has been satisfying. "The journey from here promises to be even more exciting as we gear up to launch our in-house developed products." Hero has improved profitability as raw materials remained benign and efficiency improvement measures helped.

Honda claims its operations are profitable, too. "We have reinvested the money earned from India operations in expansions," said the company's senior vice-president (sales and marketing), Y S Guleria. Outlining the challenges, Guleria said the company has a long way to go to ensure the last-mile connectivity as nearest competitor (Hero) has around 6,000 sales points. "While we have expanded to 4,500 points. Any new network needs to create its own connect with the local population before it starts performing at an optimum level."

Predictions of an above-normal monsoon this year is expected to drive up motorcycle sales and Hero with its 52 per cent market share could come out as its primary gainer. Honda's motorcycle share is at 14 per cent while it enjoys a 55 per cent share in scooters. "Fortunately, the scooter segment now happens to be the fastest growing. We are as much serious about the motorcycle business," said Guleria.

For Honda, the focus is not on getting to the No 1 slot but consistently growing the volumes. "Our target is on expanding volumes. As a company, we want to be on top of customers' mind and market share will be a consequence," said Guleria. Munjal, on the other hand, recently said the company aspires to command a 50 per cent share in the domestic two-wheeler market.