Motorcycle makers dial up the CCs to do a Royal Enfield in India

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Mumbai: Following the success of Royal Enfield, Indian two-wheeler makers are chasing higher margins by launching bigger and more powerful bikes. According to a Mint analysis, over nine out of 10 new models launched during the year were above 150cc. Also, a greater number of scooter launches took away the limelight from sub-150cc commuter bikes.

The strategy of launching big bikes is in line with the Indian consumer’s preferences, which is evident in the two-wheeler sales figures for 2017.

The premium segment, comprising motorcycles with engine displacement between 150cc and 500cc, grew the quickest, posting sales of 2 million units, up 20.5% from a year earlier.

Within the premium segment, the pace of growth was fastest in 250-350cc bikes segment, popularized by Royal Enfield’s Classic 350 and Bullet 350, with sales jumping 29% to 680,000 units.

The sub-segment, accounting for a third of the premium segment, did not see a slowdown following last year’s demonetisation, unlike the executive and broader premium segments.

Demographics and psychographics are expected to support robust growth in the 150cc and above category as disposable incomes grow, said a top executive at Hosur-based TVS Motor Co. Ltd. The company expects the segment to grow by 15% over the next two years and plans to expand the segment instead of competing for market share, according to Arun Siddharth, vice-president of marketing at TVS’s premium motorcycles division.

“The premium segment contributes 15% to our overall two-wheeler sales. It is a focus area for us as the Apache brand’s good performance gives us the confidence to make greater inroads into this segment,” Siddharth said over the phone.

According to analysts, buyers will upgrade to higher-engine-displacement bikes in the coming years. Therefore, the focus on launching such motorcycles indicates greater purchasing power on the consumers’ part as these bikes command a greater premium owing to novel technology and aesthetics, they said. However, the change in strategy by bike makers, which involves more high-value products, will not necessarily translate into higher margins and profits, analysts said.

“Margins always depend on volumes and pricing. Unless volumes grow enough to cover the costs of development, OEMs cannot expect to make better margins,” said Priya Ranjan, vice president at Systematix Institutional Equities, a Mumbai-based brokerage house.

Volume growth cannot be quantified at this point in time, he added.

For the September quarter, New Delhi-based Eicher Motors Ltd, the manufacturer of Royal Enfield motorcycles, posted the highest margin among OEMs of 31.5%. Bajaj Auto Ltd came second with 20.8%, followed by Hero MotoCorp Ltd and TVS with 17.4% and 8.6%, respectively.

According to wholesale data provided by the Society of Indian Automobile Manufacturers, an industry lobby group, sales in the broader two-wheeler segment grew 7.96% year-on-year to 19,793,260 units in January-November.

In the premium segment, launches were driven by TVS, Bajaj Auto and Suzuki Motorcycle India Pvt. Ltd, with the launches of the TVS Apache RR 310 (313cc), Bajaj Dominar (373.3cc) and Suzuki Intruder 150 (155cc) respectively.

In the segment above 500cc, Honda Motorcycle and Scooter India Pvt. Ltd, Triumph Motorcycles Ltd, BMW Motorrad and Ducati led the way in terms of launches. Royal Enfield showcasing the highly anticipated Interceptor 650 and the Continental GT 650 at the EICMA Motorcycle Show at Milan in November. The bikes will make their way to India by mid-2018, according to Siddhartha Lal, chief executive and managing director at Eicher Motors.

New Delhi-based two-wheeler market leader Hero MotoCorp plans to launch two premium motorcycles and one scooter in 2018. At EICMA, Hero showcased its adventure brand Xpulse in an attempt to project a more premium and sporty brand image.