Hero Sales Slump May Have Been Worse If FAME-II Subsidy Was In Place
Hero's motorcycle sales fell but scooter sales rose in June on a low base and widening price differential with electric scooters.
The dip in monthly sales of India's largest two-wheeler maker may have been worse if the subsidy on electric two-wheelers was still in place, according to experts.
Sales of Hero MotoCorp Ltd. dropped 10% year-on-year to 4,36,993 units in June, according to an exchange filing on July 1. While motorcycle sales fell 12.63% to 4,04,474 units, scooter sales rose 38% to 32,519—primarily on a low base and partly due to buyers opting for fossil-fuelled scooters over battery-operated alternatives, said Mitul Shah, head of research (institutional equity) at Reliance Securities Ltd.
"The price differential between ICE (internal combustion engine) scooters and electric two-wheelers has widened after the removal of the FAME-II subsidy," Shah told BQ Prime, during an interaction on Monday. "So, a portion of buyers must have shifted to ICE as they wouldn't wait for EV [prices to come down organically]."
The removal of subsidies under the second phase of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles reduced electric two-wheeler sales by nearly 60% in June from a record high in May this year, Autocar Professional reported, citing VAHAN data. Electric two-wheelers now enjoy a subsidy of Rs 10,000/kWh as against Rs 15,000/kWh earlier. The cap on incentives has been set at 15% of the ex-factory price, as opposed to 40% earlier.
That, however, doesn’t explain the dip in Hero MotoCorp’s motorcycle sales. The culprit here is the patchy recovery in India’s rural economy, according to Shah. "About 50% of Hero MotoCorp's domestic volumes come from the rural market, where untimely rainfall and heatwaves are affecting farm output."
That has a bearing on Hero's motorcycle sales. Once normal rainfall starts and agricultural output rises, the rural economy will revive, which will support Hero's entry-level portfolio, he said.
In an exchange filing on July 1, Hero MotoCorp said: "The onset of monsoon in most parts of the country and overall economic indicators bode well for a growth in demand, and industry volumes are expected to pick up leading into the upcoming festive season."
Hero MotoCorp didn't respond to queries sent by BQ Prime.
The Harley Factor
(Photo: Company website)
Hero MotoCorp Ltd. and Harley-Davidson Inc. unveiled their first co-developed premium motorcycle on Monday, in a march towards premiumisation of India’s largest two-wheeler maker that derives much of its earnings from sale of entry-level commuters.
But the journey from the Splendor to the Harley-Davidson X440 may have come a little too late as the motorcycle enters a crowded arena dominated by Eicher Motors Ltd.’s Royal Enfield and populated by Bajaj Auto Ltd.-made KTM and Triumph 400 cc motorcycles.
Still, the single-cylinder X440—priced at Rs 2.29-2.69 lakh—will find more takers than the now defunct H-D Street 500 and 750 that failed to grab a share of the fast-growing 250-750 cc middleweight motorcycle market.
“The volume impact and financial impact [of the X440] will be minimal on Hero MotoCorp’s books,” Shah said. “The bike, however, will help Hero garner brand equity and position itself as a global brand, riding the coattails of Harley.”