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Corporate Sep 17, 2012

Doing away with Honda name not hitting sales, insists Hero

By Sindhu Bhattacharya

New Delhi: The two-wheeler market is slowing down but Hero MotoCorp continues to be bullish. The company, which began a brand makeover to 'Hero' from 'Hero Honda' (which was being used for over a quarter of a century) in April, says it has accelerated this process by two years! So all its products would carry the 'Hero' brand name by the end of this month itself against the earlier plan of 2015.

Is Hero being over optimistic? Doesn't leaving behind the Honda legacy mean some loss of customer trust? Anil Dua, Senior VP (Marketing & Sales) at Hero MotoCorp told Firstpost that two of the company's largest selling bikes - Splendour and Passion - were the first to be subjected to the brand makeover and their sales remain robust. "Customers have been extremely positive to this change. Passion and Splendor continue to sell well over a million units individually per year." A Bloomberg story earlier this month indicated a new Passion motorcycle would be launched before Diwali.

Dua's assertion rubbishes analysts who said recently that Hero MotoCorp's sales have been suffering because it dropped the Honda tag from its motorcycles after it split with the Japanese partner of 26 years. For many people in smaller towns and villages, a Hero Splendour still means 'Honda ki Gadi' and they have not taken too kindly to the Honda name being removed, Ashish Nigam and Kunal Jhaveri of Antique Stockbroking had said. They quoted unnamed Hero dealers saying that after the 'Honda' tag was dropped from the Splendor Pro and Splendor Plus motorcycles, conversions (which mean number of people who inquire after the bike actually buying it) have been impacted by 5-10%. They also said that these two models account for about 35% of Hero's total volumes.

Hero MotoCorp's sales have been suffering because it dropped the Honda tag from its motorcycles after it split with the Japanese partner of 26 years.

Sources in Hero pointed out that the analysts spoke to a few dealers but not a majority of Hero's dealerships so their views may not be based on a large enough sample size.

Meanwhile, Dua said the brand transition was begun in April and already three new models have been launched under the brand name "Hero" - Impulse bike, Maestro scooter and Ignitor (also a bike). "These new brands have received tremendous response, and we are augmenting their production capacity," he said.

But the threat from Honda, which is present in India as Honda Motorcycle & Scooter India (HMSI) cannot be taken lightly even if Hero is doing fine till now. The Bloomberg story quoted earlier pointed out that shipments (factory dispatches) HMSI have surged 49 percent in the five months through 30 August from a year earlier, compared with a 1.8 percent rise in deliveries at Hero. Revenue at Hero may increase at the slowest pace in five years in the 12 months to March, according to the median estimate of 63 analysts compiled by Bloomberg, as competition between the former partners intensifies.

Hero accounts for 45% share of the domestic market so by its sheer size it presents a formidable competition to once-partner-now competitor HMSI. And for the next 2-3 years, Hero's dominance in motorcycles may remain unchallenged as Honda gears up to attain scale.

Dua said that Hero is expanding production of scooters and also of 125 cc bikes because consumer response has been encouraging in these two product segments. So scooter capacity will be increased by 50% to over 60,000 units a month (40,000 units).

"We have also been gaining share in the 125cc segment. Growing at over 30 per cent in this segment, we now have one-third of segment share with contributions from strong brands such as Super Splendor, Glamour and Glamour FI. This is now going to get a further boost with the recent launch of Ignitor. Encouraged by the overwhelming response to Ignitor, we have now scaled up our overall production capacity of 125cc models to over 75,000 units a month, up from about 60,000 units about a year back."

He said further investments in Ignitor through a new communication campaign, which will premier during the coming T20 World Cup, are also on the cards.

Hero is changing its brand identity and foraying into overseas markets at a time when the overall two-wheeler market is slowing down. Edeweiss Research said in a note to clients this morning said that overall two-wheeler sales declined 5% for the first time in the past three years and inventory levels are high.

"Hero MotoCorp is losing market share to Honda and Bajaj Auto as it attempts to clear the inventory:"Dua said retail sales for the industry in July and August have been slow and "we expect this trend to continue even in the month of September. From the month of October, however, we expect to see a retail pick-up during the festive season." He said Hero has adjusted production plans to meet this slowdown but would ensure that sufficient stock is available at the dealerships during the festival season.

by Sindhu Bhattacharya

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