2-wheeler demand grows in Q1 FY23 on rural demand recovery | Hero Motocorp remains the key beneficiary

The 2-Wheeler demand rose significantly in Q1FY23 and is being driven by rural demand recovery, which has picked up in regions where crop output has been good and farmers have received good realizations for the same. One other demand driver was the opening up of schools and colleges pan-India.

While 2W demand is seeing a growth in Q1, another thing to note is that the motorcycle demand is stronger than scooters, as rising fuel prices have seen consumer preference shifting to motorcycles, and given the EV transition in scooters, ICE scooter demand has been impacted at the margin. Even within motorcycles, entry-level motorcycle sales have done better than premium motorcycles. It is also key to highlight that 125cc and above motorcycle, sales have been severely impacted by supply constraints due to chip shortages.

The single major beneficiary is Hero MotoCorp, as it is the key beneficiary of the rural revival with Bajaj Auto withdrawing its CT100, Hero’s HF kick start is the cheapest 100cc motorcycle available for customers in the entry segment. All the players are seeing supply constraints in the >125cc segment due to chip shortages with Bajaj Auto and TVS dealers currently getting just 25-30% of their demand for these models. However, within listed peers, Bajaj Auto is the hardest hit as its contribution from this segment is higher and also since it discontinued the CT-100 recently.  

Royal Enfield supply constraints are now over. Royal Enfield has a very healthy product pipeline in place and is now gearing up for one new product launch each quarter. The next product launch expected is the Hunter350cc, which is likely to be positioned between Classic350 and Bullet 350. 

With Bajaj recently withdrawing its entry model CT-100 from the market, the cheapest entry-level bike now available in the industry is the HF kick start. This has helped Hero MotoCorp gain market share in the entry-level segment in many regions.

Further, within the 100cc segment, they have now launched X Tec variants of Splendor Plus and Passion with enhanced features like projector LED headlamps, digital instrument cluster with Bluetooth connectivity, etc. This might help revive demand for Passion, which has seen a visible fall in market share, especially post BS6.

Hero MotoCorp:

In the 125cc segment, Hero MotoCorp has recently launched the Super Splendor X Tech with enhanced features like digital screen, connected features, etc. This new model is currently very well accepted in the market. Both Glamor X Tec and Super Splendor X Tec would help recover lost share for HMC in the 125cc segment

In the premium segment, Hero MotoCorp is seeing good demand for its X-Pulse. But there are some supply constraints for this model. However, given that it is a niche segment, it is not a volume driver for the company. Also, the Xtreme 160R is not seeing any major pick-up in demand.

Bajaj Auto: 

Bajaj Auto hopes to capture lost sales from CT-100 in the CT110 variant. However, the CT110 kick start variant is actually positioned at par with Platina and hence is not able to garner much volume. Further, CT 100 ES is actually more expensive than even the Platina. The CT family segment sales have dipped by 50% post this discontinuation. Part of the lost sales was retained in Platina, but the company has lost most of it to competitors.

Despite the chip shortage, Bajaj Auto has recently launched the Pulsar N 160. It features a dual-channel ABS, which is uncommon in this segment. This model is likely to help Bajaj Auto recover back some of the lost share in the premium segment for Bajaj Auto. But Bajaj Auto Ltd has launched this model without spending too much on advertisement and hence customers may not be aware of the same.

TVS Motors:

Scooter demand has picked up in the last few months QoQ largely led by the opening up of schools and colleges.  However, like Bajaj, even TVS has faced sharp supply constraints in both 125cc Raider and its Apache models. However, TVS was relatively lower impacted than Bajaj auto as it has a well diversified mix of products and these 2 models contribute to about 20% of domestic sales.

The Raider was seeing very strong customer acceptance before it was hit by chip shortages.  Even the Jupiter 125cc is helping boost TVS scooter sales  TVS is now expected to launch a 220cc motorcycle on 6 July, which is expected to compete with the Avenger220. This will be yet another new product launch by TVS in a segment where it was not present. This is expected to help TVS further gain market share in the motorcycle segment.

Royal Enfield:

Over the last few months, supplies for Royal Enfield have been much better.  MoM pick-up in supplies was seen in Q1FY23.  One of the factors that has helped the company manage supply constraints in some models is that they are being launched without some features. For instance, Royal Enfield is no longer giving the Tripper navigation feature in the Himalayan/Meteor models as a standard fitment but it is now available as an optional accessory. In effect, they have reduced the price of these models by around Rs.5,000. there was an unnecessary push from the company to sell at least Rs.10k worth of GMA (accessories) to customers.