Niranjan Gupta: Absolutely and entirely developed by in-house R&D centre of Hero at our CIT Jaipur in collaboration with our German counterparts and of course, building on the same 440cc platform on which we launched the Harley Davidson X440.
In a short time, there has been nothing short of a magical turnaround for Hero MotoCorp. There were legacies of the past, which in a sense, had created multiple headwinds for the brand. But the company has managed to make a comeback as has the share price. I am sure you must be excited with market response
Niranjan Gupta: Absolutely excited. But I would still add that I am not yet satisfied.
Okay, why is that?
Niranjan Gupta: There is a legacy of 40 years which is very strong and that platform is so strong, the potential of the brand is so huge and a lot are untapped. The way we have embarked on our premium journey, launching four-five models in the last 12 to 18 months and more to come, there is a lot of story to pan out. We are focusing on brands, models, portfolios, focusing on stores, premia stores, a lot of action at our end. Effectively, given the strong platform that we have, it is about changing gears and moving with speed, powered by the four S – speed, scale, synergy and simplification.
Why did this turnaround happen in the last 18 to 24 months? I mean, it is a brand which understands the market consumer and has dominated the Indian two-wheeler market with more than 50-60% market share. But somehow things had plateaued. Now they are coming back like a J.
Niranjan Gupta: One is, of course, market led, where Covid had made an adverse impact. Customers are coming out of that, the sentiment is turning positive. We see the macroeconomic indicator powered by capex spending on one side by the government and the other side, by digital and financial inclusion. That is lifting the economic sentiment as well as the spending sentiment. But internally, as a company, we are changing the shape of our portfolio..
Can you explain that?
Niranjan Gupta: For instance, we were known so far mainly only for up to 125cc vehicles. At best in premium, we would have one or two models. Now, when you have a powerful portfolio, which we have on the commuter entry end, then you do need equally powerful portfolio in the premium end to be able to justify yourself as a premium player. We said that we will not go with one or two models, we will change the entire portfolio and therefore launch multiple models without waiting for success of one model and sequentially doing it.
The second change was brand association because as a lot of people have been saying that because you get known to be a commuter brand, how do you associate as a premium brand? So, we needed a brand association, which is where our partnership with Harley Davidson came in and created that change.
Third, stores had to have a different look. That is why we said we cannot do it sequentially because by the time you do those, the brands would die or the models would die. So, parallelly, we started revamping our stores, which we are calling Hero 2.0, with a speed that we have not seen before. We upgraded 370 stores in the last 370 days, almost one store per day.Just to clear the air, there is this whole historical data which says two-wheeler demand is a function of the rural economy. Now, the rural economy has not made a comeback. Consumer durables are growing but consumer staples are not. HUL is talking about a 2% growth, but you are committing to a double-digit growth for not only your company, but also for the sector. So is that old comparison of rural India has to do well, for two-wheelers to do well, passé now?
Niranjan Gupta: Absolutely passé, clearly passé. I also have this debate with my sales team. The whole division is a very simplistic division of rural and urban. India is a story of many Indias. For instance, the premiums segment has probably grown at 20% per annum in the last two years and that is not just coming from cities, it is coming from parts of so-called rural areas as well. So, I do not think you link two-wheelers to just the rural part of it, I think that is passé.
Of course, it is a key because it is a key enabler as well at the base. It is very important because if you look at it, we have defined our strategy. We have said there is a core, which is all the entry and this thing where still the penetration levels are low. I mean, if you simply say if I have to convert every home from cycle to motorcycle and if you go to the towns and the cities and in the villages on that, there is a huge opportunity. There we have to work on affordability, which is not about price reduction. It is about digitally including, financial inclusion, finance EMIs, all that sort of effort that you do; our role there is to grow the category.
The next category is about upgrades, aspirational demand. People want some amount of upgrade, premiumisation. The third is the premium category. It is these three types of customers and it is not that they are geographically split. They are in every geography which is why I do not think that in the future we can say that two-wheelers will do well only if rural does do well.
So, let us divide the revenue pie of Hero MotoCorp into your classification of bread and butter business, premium business and the new launches. How is that entire pie looking like now?
Niranjan Gupta: The pie will change in the next three to five years.
Three to five is a long time.
Niranjan Gupta: So, pie means from a revenue contribution point of view. But if you look at a model lineup point of view, we had let us say two models in the premium segment. Xtreme 160 and Xpulse. And if you look at our rest of the portfolio, we had Glamour, Super Splendor, Passion, and HF, four. Four and then two, two which were launched recently.
Now, on top of the two, we have added Karizma, Mavrick, HD X440. So, I have now got five models in the premium and five models in the up to 125cc category. It is now equally split from model lineup perspective and moving forward, you will see even more launches in the premium. Revenue from these will take some time to come up. We have had a great start to Harley Davidson X440 with 30,000 bookings to begin with.
These are impressive numbers?
Niranjan Gupta: That is an impressive number because in one month we got that and honestly, we had to make a decision to scale up capacity. The HD X440 is priced at a 35% premium to the other bikes that sell in that segment. So, again, we are focusing on the revenue part of it and what is interesting is that initially when we priced it, some people were saying that it is misnomer to take a price cut of the segment and say beyond 2.25 lakhs there is no segment or segment falls. It does not work that way. The models were not there. Now, even in Harley, we have got these three price segments. The highest one is Rs 2,79,000 and then below that is Rs 2,59,000 and Rs 2,39,000. You will be surprised that 80% of our demand for the Harley Davidson X440 is actually at 2,79,000.
Which is the higher end?
Niranjan Gupta: Yes, absolutely. That is the story of India now.
But if I look at the entire two-wheeler market and I am looking at incumbents, I am looking at Hero MotoCorp, Bajaj, TVS. Let us add what strategies they are following. Bajaj is export-dominated. Hero MotoCorp has a mixed policy on exports. You moved into electric vehicles as a late entrant and in scooters, also you started late. Was it a conscious strategy post split that you would only focus on the Indian market and that too the entry-level bikes and which is what you want to change now?
Niranjan Gupta: One of our portfolio plays is going to be moving up and therefore in the premium, which is almost one-third of the motorcycle. The second is geographically, like what you are asking. So, whereas in the industry, almost 25% of revenues come from international markets, in our portfolio it is just around just 5%. The reason is, of course, that earlier we were not exporting. Then, after splitting with Honda, we started entering the market. So, the first phase was about establishing a footprint in as many markets as we could because you do not know where you will succeed and where you will be failing. We actually entered 50 markets. Now what we have said is that fine, we will nurture those markets. Out of those, we will put disproportionate focus on the top 10 markets. That means 80% of our all resources which go into international business will go towards the top 10 and the balance will get 20% of the resources. We will nurture them efficiently and there will be new entries which are based on size of the price or strategy like Brazil, some parts of Southeast Asia also we are evaluating. We have announced exporting to the Philippines.
I would say the change is that phase one is done. Phase two is scaling up. One cannot scale up in all the markets at the same time. Therefore, it is more focused on prioritisation. Let us pick the 10 markets like Nigeria, Colombia, Bangladesh and some of the other markets which have got more size and better potential and put more resources there, more power there and that is the next phase that should contribute to the revenue shape of the portfolio.
So, exports will start kicking in. Right now, it is not there, but in two-three years it will.
Niranjan Gupta: Absolutely.
It could be 20% of the portfolio.
Niranjan Gupta: Absolutely. I would not give out a number, but I would say that the first step is to get to a 10% and then to a 15% and take it on from there.
The ambition is to grow.
Niranjan Gupta: Absolutely. The ambition is to keep growing, the shape of those revenues into the portfolio.
Bhavesh came on my show and he said the following that, Nikunj, you got to be cognizant of global warming. Be realistic here, ice has started melting. Is EV a real threat?
Niranjan Gupta: So, multiple forms of powertrain will exist. Now, coming to EV, if you see the structure of the market, 65% is motorcycles, 35% is scooter. Where are all the players coming into? Scooters, not motorcycles. Not because they just like scooters, it is because the current technology, the cost, the battery is only amenable for scooters.
The moment you put in a motorcycle, you will have 2x, 3x cost and increased weight. So, the whole technology has to change. So, right now we are talking about EV penetration in scooters. So, remember, ICE is 65% and then 35% and it is within the scooter that we are talking about. Again, India is a story of many Indias. There will be pockets of preferences because finally the customer has to decide. For scooters, actually we are under indexed in our ICE portfolio because we only have around 8% to 10% market share in scooters. So, EV in scooters is accretive for Hero. In a sense, the EV game suits us although the current technology is not much affordable. Therefore, we started working on performance motorcycles.
We have collaborated with Zero, we signed up a collaboration agreement and in two-three years, we will see the motorcycle coming on ground. But to write off ICE would require more understanding of the two-wheeler market.
You have given guidance that your growth will be higher than the industry average.
Niranjan Gupta: Yes.
What is the industry average according to you?
Niranjan Gupta: I will not put a number, what we have guided to is that we expect industry to grow double digit in revenue terms. I do not like a volume growth term myself and we said that we will grow ahead of that, which means that we should gain market share and the reason for that is very simple. I just talked about all the new models in the premium segment that we are launching. Also in 125cc, where we had lost market share for a while, we have now launched Xtreme 125R and deliveries have just started. People are really happy with that product. I think our new launches will power the market share increase which is going to happen along with parts of rural growth coming back.