HMSI sets up rural business vertical to boost growth

Rural India is beckoning Honda Motorcycle & Scooter India (HMSI) with the strong business prospects it offers. That’s why it has set up a new business vertical dedicated to taping new markets it. The OEM currently gets 30-32 percent of its sales from rural markets.

Currently, the market leader and Honda’s former partner Hero has a strong rural presence. HMSI’s penetration into semi-urban and rural markets will be key to helping it achieve its target of being numero uno in the domestic two-wheeler industry by 2020.

“We are going step by step. The 15 employees of this new vertical will handle communications and strategy,” explains Y S Guleria, senior VP, marketing and sales, HMSI. The vertical will also handle network expansion as 600-700 of the 1,000 new outlets planned for 2014-15 that will come up in Tier 2 and Tier 3 markets.

If the visit of Honda Motor Company’s CEO Takanobu Ito’s visit to the gullis of the rural areas of Varanasi, Agra and Jaunpur and meeting potential buyers here last month is any indication, one can guess the seriousness of Honda’s focus on such markets. Its presence in semi-urban and rural India is crucial for growth, given its stated sales target of selling 4.5 million two-wheelers for 2014-15, 22 percent more than its 2013-14 sales of 3.7 million units.

HMSI decided to set a rural business vertical following lessons it learnt after entering the competitive 100-110cc bike segment with its Dream Yuga and Dream Neo commuter bikes. For example, it found that many rural buyers travel 30-40km to buy a new vehicle but don’t want to travel more than 10-15km for aftersales or spares. Addressing such issues is part of the new vertical’s mandate. And while a rural market can be defined in various ways, for HMSI, population and market size are key defining parameters. The rural business team will also relay back consumer feedback and product references to HMSI’s technical centre at Manesar. Whether HMSI considers developing another entry-level product based on such feedback remains to be seen but it “will not comment on any future model plans”.

Honda’s rural push is also aimed at increasing its market share – currently 18 percent – in motorcycles, far below its market-leading 53 percent market share in scooters.

Meanwhile, Honda has added a fifth model to its portfolio of automatic scooters with the 125cc Activa. This India-specific offering costs Rs 56,607 for the standard variant and Rs 62,588 for the deluxe variant (ex-showroom, Mumbai). “The Activa 125 is also a reflection of some customers’ voice that expressed a desire for a more powerful scooter,” says Keita Muramatsu, CEO, HMSI.

With the Activa 125’s price positioning, there’s overlap with the existing Aviator scooter which may lead to cannibalisation. “We don’t know whether it will be to 5 or 10 percent. There will be some overlap with the 110cc Activa too and then we will see where it will settle,” says Guleria. He won’t complain as long as he sells more scooters, even in rural markets where he says the acceptance of scooters is growing. Currently, the sales ratio of bikes to scooters in rural India stands at 9:1.Given the company’s market track record, and the success that peers like TVS and Yamaha have tasted in the scooter segment, Honda will have more in store to protect its turf and achieve its ambitious goals.