Commuter bike segment sees moderate growth in FY24 as challenges continue

High commodity costs, stringent rules and uncertainty about rural recovery remain major factors for this segment

The commuter bike segment, which includes motorcycles with engines between 75 cc and 125 cc, is expected to post moderate sales growth this fiscal year as it continues to be affected by factors such as uncertainty about rural recovery, preference for premium vehicles, and higher prices due to high commodity costs and stringent government regulations.

Domestic sales of commuter bikes in FY23 increased by 10.5 per cent year-on-year (YoY) to 7.92 million units. However, domestic sales of the entire two-wheeler segment were up 13.86 per cent YoY in FY23, indicating that the sales of more premium motorcycles (with 125 cc plus engines) is rising faster.

Rohan Kanwar Gupta, Vice President & Sector Head-Corporate Ratings, Icra Ltd, told Business Standard that commuter bike segment volumes are expected to continue to chart a recovery trend, and are likely to grow by 6-9 per cent this fiscal. "Even as an improvement in rural demand over the recent past has supported a recovery, concerns about occurrence of El Nino and its impact on monsoon precipitation continue to persist and may constrain recovery," he noted.

He said increased prices of commuter bikes continue to curtail demand "to an extent" even as a recovery in the macroeconomic environment has aided a recovery in segment volumes in FY23. Slower growth in  commuter bike sales has been worrying major two-wheeler makers too. Hero MotoCorp, the leader in this space, with about 60 per cent share, had earlier this month announced that it plans to expand the segment by pushing out high-value products and boosting retail financing options across the country.

Ranjivjit Singh, Chief Growth Officer, Hero MotoCorp, told reporters on June 15 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 options is one way to boost rural customers who are also feeling the heat of inflation. “The retail finance is a very important part for us. It allows people to break costs into monthly EMIs. That is definitely bringing people to our stores,” he mentioned. Hero's financing penetration was 47 per cent in FY20 and this has jumped to 60 per cent by FY23.

As the prices of entry-level vehicles have significantly risen during the last few years, the retail financing options have become very important. "The retail financing penetration in case of two-wheelers was about 50 per cent some five years back. This has risen to 60-65 per cent now. However, it is still below the 80 per cent retail financing penetration that we observe in case of cars," Puneet Gupta, director-mobility, S&P Global, told Business Standard.

Singh said Hero plans to bring in more customers in the commuter segment by building more value in its products, such as higher acceleration and handling. “The Indian customer looks for value,” he explained, giving the example of HF Deluxe which is a "bigger and bolder" product than its competitors and has more power and 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 noted.

Hero MotoCorp expects "balanced" growth between the rural and urban markets this year due to a better kharif season, rising penetration of retail finance options and strong festival period sales, Singh said. While Hero's growth in this segment stood at 10.7 per cent in FY23, the growth of its competitor Honda Motorcycle and Scooter India (HMSI) was 5 per cent. Therefore, 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.

Gupta of Icra said any steps undertaken by auto firms to enhance the value proposition and affordability (such as expanding retail financing) of the vehicles should aid in boosting sales in this segment.

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 our profitability standards. Hence, the company is attempting it based on meaningful "fit-for-purpose differentiation".

"The Platina 110 ABS (launched by Bajaj in December 2022) is an outcome of this approach. It was launched to significantly improve safety performance of the vehicle and is the first 110cc in the world to have an ABS braking system. This has been accompanied by a massive test ride campaign, demonstrating the breaking prowess to over 300,000 users already," he added. Bajaj Auto's domestic commuter bike sales jumped by just 4.1 per cent YoY in FY23.

Due to rising commodity prices and stringent government rules on emissions, the prices of entry-level vehicles have risen significantly during the past few years. "This means 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," Gupta of S&P Global said.

The overall cost is anyway rising and the price gap between the entry-level motorcycles and mid-level motorcycles is shrinking, Puneet Gupta noted.

Sharma had in April stated that after the pandemic, people are preferring bikes with higher value 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 favor 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 that firstly, price rise and increased cost of financing led to postponing of the buying decision, secondly, hybrid mode of work has become prevalent. "There was no reason for customers to invest in a commuter vehicle," he added.

"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.

As most businesses are slowly moving to work from office mode, the commuter segment can possibly see some revival in demand. "However the pricing and cost of financing is still at a higher level and say in 12 to 18 months’ time one could assume the cooling of price and interest rates leading to a much more buoyant demand for two wheelers," he added.

Domestic sales of 3 major players in commuter motorcycle segment (75-125 cc engine)
	FY19 unit sales (pre-pandemic)	FY21 unit sales	FY22 unit sales	FY23 unit sales	Y-O-Y increase in FY23 (in %)
Bajaj Auto	1495907	1206115	1227210	1277556	4.1%
Hero MotoCorp	6849835	5073282	4270214	4727399	10.7%
Honda Motorcycle & Scooter India	1415413	1231279	1295641	1360438	5.0%
Total sales in this segment	10370036	7809327	7170434	7922349	10.5%
Source: SIAM