Bajaj Auto’s discounting frenzy in the entry-level bike segment has helped the company garner the best quarterly market share in three years, snatching the pie from its rivals Hero Motocorp, Honda and TVS Motor Company.
By the end of the first quarter ended June, Bajaj Auto’s market share in the motorcycle segment having engines of up to 110cc jumped to 15 percent from 10 percent in the year ago period.
The Pune-based company’s gamble with a price cut of Rs 2000 on the CT100 to Rs 30,714 (ex-showroom, Delhi) in April has paid off with the significant rise in share. The CT100 is now the cheapest 100cc motorcycle in the country and its nearest competitors from Hero Moto stable HF Deluxe and Splendor Plus are at least Rs 13,000 dearer.
Hero reported a fall of 100bps in market share to 75 percent in June as against 76 percent reported in same quarter last year in the budget bike segment. The Delhi-based company relaunched a bare-basic model HF Dawn at Rs 37,400 in January this year in Odisha. Hero had promised to extend the model’s sales to other parts of the country but as per the company’s website the HF Dawn continues to be sold only in Odisha.
Honda Motorcycle and Scooter India and TVS Motor Company have reported between 150-180 bps losses in market share in the entry bike segment, as per data shared by the Society of Indian Automobile Manufacturers. Honda sells the CD110 while TVS sells the Sport in this segment.
For Bajaj Auto, the entry bike segment (CT100, Platina and Discover) makes up 56 percent of its volumes but just 14 percent of its revenue, as per data shared by the company. It has been selling the CT100 and the Platina at a loss and with the Rs 2000 cut on CT100 price the loss has further widened.
It generates most of its margin from premium bikes sold under Pulsar, three-wheelers models and exports.
But Bajaj Auto is steadfast on its target of improving market share in the entry bike segment as it controls 60 percent of the total domestic bike market. The segment is also the single biggest contributor to Hero’s volumes making up 80 percent of its domestic two-wheeler sales.
While investors grow anxious over Hero’s response to the heightened competition due to Bajaj’s strategy, its management has not provided a clear guidance on its plans of a counter attack. Hero is unlikely to participate in the price war in the entry segment given the low margins as well as its strong presence in the segment.
Speaking to analysts Niranjan Gupta, chief financial officer, Hero MotoCorp said, “We are number one in the entry segment. The price differentials (between Bajaj and Hero products) have remained for more than a year by now. In FY18 we have gained share to 60 percent as against 55 percent in FY17. We don’t see this as something new”.
While Hero has remained focused on the entry segment with the Splendor, HF and Passion brands, TVS shifted its focus to premium bikes sold under the brand Apache. Company officials assured investors that like Hero it too won’t get into a price war to protect market share in the entry segment.
Speaking to analysts, K N Radhakrishnan, CEO, TVS Motors said, “Overall in the domestic motorcycle segment there is a challenge but (we) did not want to take part in the discounting war in the commuter segment as this will effect long term brand value. We will continue to maintain our value. The commuter segment is 15 percent of our business that is why we consciously did not take part (in discounting).”
“Bajaj Auto gained 180 bps market share in the domestic two-wheeler industry in 1QFY19 led by a strong push by the company to sell economy segment motorcycles to gain market share. Hero, TVS and Honda lost market share”, said a report from Kotak Institutional Equities.