Hero bets on premium 125 cc segment for scooters despite slowdown in market

Despite a slowdown in the market due to poor demand, Hero is betting on the premium 125 cc segment to take a leadership position in the scooter segment. 

Hero launched on Monday two new scooters to cater to both, domestic as well as international markets. It introduced Maestro Edge 125 with fuel injection technology priced at Rs 62,700. The company claimed Maestro is India's first scooter with fuel injection technology.

Scooter sales have dropped for the first time in 13 years, as customers from urban and semi-urban are going slow on purchase due to poor sentiments. Scooters, which account for nearly one-third of total two-wheelers sold in India, reported a 0.3 per cent drop in sales to 6.7 million units from 6.72 million units in the previous year.

“People have asked me that there is a slowdown going on. Why are you launching new products? But my theory is through these product launches we will be able to stimulate the market and encourage buyers. The leader always bats on the front foot,” said Sanjay Bhan, head of sales and after sales at Hero, in an interview.

Last year, Hero entered the 125 cc scooter segment launching Destini in order to ring fence itself from the strong challenge posed by Honda’s Activa. Bhan said that the premium segment of scooters has seen a phenomenal growth of around 50 per cent which is encouraging the company to invest in it. 

“In urban markets, scooters have already reached penetration levels of around 50 per cent. We will continue to build the 110-cc scooter segment as it constitutes 75 per cent of scooter sales. But it is the 125 cc scooter segment which we will focus on,” said Hero's Chief Financial Officer Niranjan Gupta.

Explaining the reason behind the premiumisation trend in scooters, Gupta said that customers are looking to upgrade to slightly more powerful and feature-loaded propositions. “In urban areas, which are the primary market for scooters, the college going students who are a big chunk of buyers of scooters. I believe 100 cc scooters are not offering them the excitement anymore and they searching for that in the 125 cc segment. Quite a few models, not just from Hero but also from the competition, have energised that segment,” Gupta said.

The company is following a similar strategy of premiumisation for motorcycles where its strength lies primarily in the entry level segment of 100-110 cc. It recently expanded its offering in the premium 200cc segment by launching three new motorcycles — Xtreme 200S, XPulse 200, and Xpulse 200T.

“We are working on a complete portfolio plan where there would be offerings in all segment. The 100-110 cc are here to stay due to its affordability,” Bhan said.

The company has earmarked a capex of Rs 1,500 crore this financial year - almost double of Rs 750 crore in FY19 which will be primarily used for new product development and BS VI upgradation.