Commuter bike market in cruise mode; uncertainties may put brakes on growth

With most businesses slowly moving back to work-from-office mode, the commuter bike segment – motorcycles with engine sizes between 75 cc and 125 cc – should be ready to accelerate. Instead, the segment, which accounts for 80 per cent of the motorcycle market, is expected to see moderate growth at best.  

Uncertainties over the recovery of the rural market, which typically accounts for 70-75 per cent of total bike sales, and rising retail prices are expected to put the brakes on faster growth.

At the same time, the demand for premium motorcycles (with engines above 125 cc) is also cutting into the market share of commuter bikes. In FY23, domestic sales of commuter bikes rose 10.5 per cent year-on-year (Y-o-Y) to 7.92 million units. In the same period, domestic sales of the entire two-wheeler segment increased 13.86 per cent, indicating that the sales of more premium motorcycles is rising faster.

Rohan Kanwar Gupta, vice-president & sector head - corporate ratings, Icra Limited, predicted that the commuter bike segment volumes could grow 6-9 per cent in the current financial year.

"Even as an improvement in rural demand over the recent past has supported a recovery, concerns regarding occurrence of El Nino and its impact on the monsoon persist and may constrain recovery," he noted.

But stringent government regulations on emissions, which meant manufacturers had to modify their offerings accordingly, and rising input prices have also pushed up prices significantly in the last few years, narrowing the gap between commuter bikes and the mid-segment machine. "This means that the companies are looking to provide high value products even within the entry-level motorcycle segment so that the customer feels he has got his money's worth. A college student who is buying an entry-level bike would prefer to go for a high-level variant that is better in terms of looks and drivability," said Puneet Gupta, director - mobility, S&P Global.

No surprise, slower growth in this segment is worrying the major two-wheeler makers. Earlier this month, Hero MotoCorp, which commands 60 per cent of this market, had announced plans to expand this segment by pushing out high-value products and boosting retail financing options across the country.

On June 15, Ranjivjit Singh, chief growth officer, Hero MotoCorp, told reporters that getting a few more percentage points of market share in this segment is not going to cut it. "The point is how do we go and bring in new customers, getting more and more first time buyers,” he added.  

Increasing penetration of retail finance is being viewed as one route, given that rural customers are feeling the heat of inflation. Hero's financing penetration was 47 per cent in FY20; this has jumped to 60 per cent by FY23. “Retail finance is very important for us. It allows people to break costs into monthly EMIs. That is definitely bringing people to our stores,” Singh said.

Indeed, given the sharp rise in prices of entry-level vehicles retail financing options have become critical. "Retail financing penetration for two-wheelers was about 50 per cent five years ago. This has gone up to 60-65 per cent now. However, it is still below the 80 per cent retail financing penetration that we observe in the case of cars," said Puneet Gupta, director - mobility, S&P Global.

Singh said that Hero plans to bring in more customers in the commuter segment by building more value -- such as higher acceleration and handling -- in its products. “Indian customers look for value,” he explained. He gave the example of HF Deluxe, an updated version of which was launched this year, offering more power and a sturdier structure. “There will be another 125cc motorcycle that we will come up with. It will be more on the commuter side. It will be a high-volume product,” he added. 

Hero MotoCorp is expecting "balanced" growth between the rural and urban sector this year due to better kharif season, rising penetration of retail finance options, and strong festive period sales. 

Hero's growth in this segment stood at 10.7 per cent in FY23. Its competitor Honda Motorcycle and Scooter India (HMSI) grew 5 per cent. To boost its presence in this segment, HMSI in March launched a 100cc bike called Shine 100.

Atsushi Ogata, president, managing director, and chief executive officer, HMSI, had in March said that the company is addressing rural customers and trying to offer them a "better experience" over other 100cc bikes available in the market. He added that he was confident of selling 300,000 units of the Shine 100 in the first year and scaling that up to 600,000 units by the third year.

Rakesh Sharma, executive director, Bajaj Auto, had in April said that it is not easy to build share in the 100cc segment without severely compromising profitability standards, so the company is attempting it based on meaningful "fit-for-purpose differentiation".

"The Platina 110 ABS (launched in December 2022) is an outcome of this approach. It was launched to significantly improve the safety performance of the vehicle and is the first 110cc in the world to have an anti-lock braking system (ABS). This has been accompanied by a massive test ride campaign, demonstrating the breaking prowess to over three lakh users already," he added. Bajaj Auto's domestic commuter bike sales jumped by just 4.1 per cent Y-o-Y in FY23.

In April, Sharma said post-pandemic, people have opted for higher value bikes in the commuter segment. "People are thinking...let me just buy a better value bike and that is one of the reasons that at the 125cc (plus) level, we are seeing greater interest," he added.

"So I feel that in the next at least one year or so, we will continue to see this lopsided distribution of the economic recovery or economic progress in favour of slightly higher salaried class, which generally prefer the 125cc plus segment. And I see a recovery, but much, much lower than the sub-100cc consumers," Sharma mentioned.

Sridhar V, partner, Grant Thornton Bharat said the increased cost of financing has led to postponement in buying decisions. And with the hybrid mode of work becoming common, “there was no reason for customers to invest in a commuter vehicle," he said. 

"We are also seeing a consumer shift to premium segments and some portion of the shift also has been towards electric two-wheelers, especially the scooters leading to less demand for two-wheelers in the commuters segment," he noted.

He predicts that demand could rev up in 12 to 18 months as prices and interest rates cool. Manufacturers in FY24, therefore, could be in cruise control.