Riding On Scooters

While the world is thinking about motorbikes, the Rs 3,500 crore Hero group is talking about scooters. This is more in keeping with the plan of emerging as a full-fledged two-wheeler outfit.

This month, Majestic Auto, a subsidiary of Hero Puch, a group company, embarked on its scooter ride with the launch of EZ, a 75 cc scooterette. If the Rs 225-crore company's managing director Pankaj Munjal, 38, is to be believed, this is just the curtain raiser. Over the next three years, it will launch 11 two-wheelers including step-through bikes, mopeds, a 150cc four-stroke maxi scooter and six other scooters and scooterettes.

 

By the end of the quarter, Hero Puch expects the turnover from the non-moped business will overtake the revenue earned by the moped segment. Things in the first month have certainly gone the way Munjal wanted them to.

The 1,500-odd EZs that have been dispatched have already been sold, claims Munjal. In fact, he says that in certain markets like Uttar Pradesh, the 75 cc scooter has overtaken Scooty.

But the feather in the cap has been the export order that EZ has bagged. Last week, the Rs 225-crore company, which was earlier called Hero Motors, signed a memorandum of understanding to supply some 30,000 EZs to Indonesia. "This number is bigger than what the entire Indian scooterette industry exports," he boasts. Obviously delighted with the windfall, Munjal is talking of revising his projections upwards from 40,000 scooters in the first year to about 55,000.

If things go on track, the company's two plants in Ludhiana (manufacturing about 35,000 mopeds a year) and the recently built Dadri, U P, plant set-up with an investment of Rs 100 crore in gross block to manufacture 2.5 lakh two-wheelers a year will be working at near full capacity by end of 2002.

Hero's projection for the current fiscal stand at 1.4 lakh two-wheelers _ a tough task to achieve as the company has only sold 82,349 mopeds in the first eight months of the current financial year. Next year, it hopes to sell 1.7 lakh two-wheelers (50,000 scooters and 1.2 lakh mopeds), followed by 2.1 lakh in fiscal 2002 and three lakh the subsequent year.

Competitors, however, snigger at these projections. They claim that Hero is only overestimating demand as "any new product is picked up like hot cakes". "Hero could face problems in sustaining those figures and achieving the sales targets. Besides, scooter have fared badly in the last few years," says a competitor.

While the scooter market grew by a little over a per cent in 1998, sales declined by about 1.5 per cent last year (see chart). During the same period, the motorcycles market was in overdrive, growing at 27.74 per cent in fiscal 1999 and 20.08 per cent the previous year. In the same period, even the moped market grew by 4.64 per cent and 3.72 per cent, respectively.

So why is Hero driving scooters now? "Hero Puch and Hero Honda have merged into the Hero group, and Hero Honda already manufactures motorcycles. Besides, the scooter business is large," argues Munjal. He points out to the projections made by various agencies, who claim that the demand for bikes will come from rural areas, while scooters and scooterettes will sell in urban areas. The mopeds are expected to hold on to their traditional markets of south and west India.

But in all the fanfare about scooters, the company could be ignoring its already suffering moped business. Even during the times of growth in the moped segment, Majestic Auto fared badly with sales decreasing by 2.35 per cent in 1998. Last year, it decreased 14 per cent since 1998.

As a result, Hero's marketshare skid from nearly 21 per cent in 1997 to 19.7 per cent in 1998 to 16.2 per cent last year.

"We made a mistake because we manufactured Shah Rukh Khan or Amir Khan mopeds for the urban kid who now wants a plastic (bodied) scooter. We lost out in the divide between a bike for a student and a utility bike," Munjal admits. But the company is now making amends by launching three models of the Shakti range of mopeds. "These are workhorses, rugged performance bikes, more in the Govinda mould," he adds.

What Munjal refers to as mopeds are actually step-throughs that haven't fared well in India. Analysts say step-throughs are in fact motorcycles, in terms of engine capacity, power, wheel base and hence the price tag. But the problem lies in the looks. These two-wheelers look like mopeds, hence consumers perceive it as downmarket, and are not willing to spend as much for a bike. As a result, Bajaj's M-80 is confined to the rural areas while Hero Honda's Street which hit the road three years ago has been a virtual non-starter.

Another perception hurdle that threatens Hero is with the new scooters. That's because the new launches will be plastic clad scooters on metallic frames. The company hopes to exploit this for the export market. Though plastic-clad scooters are the in-thing in foreign markets like Europe, the Indian customer does not fancy them.

This was one of the reasons attributed to the parting of ways between another two-wheeler player, LML-Piaggio. While LML believed that plastic-bodied scooters weren't for the Indian market, erstwhile partner, Italian two-wheeler major, Piaggio thought otherwise.

Munjal, however, has his own views: "Sheet metal is a dated technology. But over the years, there has been tremendous technological advancement and we are getting new generation products."

But launches are not the only agenda for Hero Puch. It has decided to restructure its business into three different areas. Hero Briggs and Stratton, a joint venture company between Hero and the $1.3 billion company which is also the worlds largest producer of air-cooled gasoline engines, Briggs and Stratton, will look after development of engines for the vehicles that are being readied for launch, a design centre near Delhi is planned to exclusively design two-wheelers. Another wing will handle the production of bikes.

There are also plans to acquire overseas plants to fuel growth in the scooter business. And the much talked about tie-up with a foreign player is still being "aggressively pursued". In the past, Hero has been talking to various scooter manufacturers that include Piaggio, Peugeot, Aprillia and a few Korean companies. Just last month, the Munjals were in Europe to meet Peugeot's top brass, in what was expected to be the final round of negotiations, but not much headway was made.

For the time being, the company is trying to sell its latest offering EZ. So gung ho is Munjal, that he pulls out a schedule that lists the telecast time and channel on which the new product commercial will be aired. With a Rs 13 crore ad outlay, he plans to spend close to Rs 3 crore on every launch.

But if Hero's own experience with Hero Winner and that of TVS with its 150cc Spectra is anything to go by, the future does not look too bright for Hero. Munjal, disagrees. "TVS launched a scooter that was too bulky for a lady and too feminine for a man. It was simply too radical. Product positioning is what one has to look at and I am devoting my entire time on product development, cost-benefit analysis and bill of material," he says. This optimism could come in handy for the scooter ride.

The Two-wheeler Parade

Two-wheeler sales over the last three years

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Scooters Motorcycles Mopeds

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Jan-Dec '99 12,72,416 16,62,653 7,02,281

Jan-Dec '98 12,91,356 13,01,576 6,71,141

Jan-Dec '97 12,77,774 10,83,910 6,47,039

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Majestic Auto Ltd

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Sales Growth %

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Jan-Dec '99 1,13,792 -13.95

Jan-Dec '98 1,32,243 -2.35

Jan-Dec '97 1,35,438 --

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Moped Marketshare

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Company Sales

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Bajaj 62,786

Escorts 3,156

Kinetic 1,53,963

Majestic 1,13,792

TVS-Suzuki 3,68,584

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Total 7,02,281

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