Clash of Titans: Can Bajaj-Triumph and Hero-Harley rival Royal Enfield's dominance?

India is currently the youngest nation in the world, with more than 55% of the country's population falling within the vibrant age group of 25–35. India's youth-driven population, characterised by their aspirational mindset and a penchant for superior biking experiences, resulted in a significant rise in demand for premium bikes.

In recent years, the demand for premium bikes in urban and semi-urban markets has witnessed remarkable growth, surpassing the sales of budget motorcycles. Following the Covid-19 pandemic, the urban markets swiftly bounced back, while the recovery in rural areas has been comparatively slower.

Notably, urban consumers have shown a preference for motorcycles with larger engine capacities, signalling a shift in their buying patterns. As per industry estimates, domestic motorcycle sales in FY23 have shown signs of improvement, with total domestic sales reaching 10.2 million units compared to 9 million units in FY22. However, it is important to note that despite this growth, domestic motorcycle sales are still at a nine-year low.

However, there has been significant growth in the market share of motorcycles with engine capacities above 250. This segment has witnessed a rise in share from 6% in FY22 to nearly 8% in FY23. This growth is even more remarkable considering that the market share was merely 2% in FY14.

Currently, the premium bike market is largely dominated by Eicher Motors' Royal Enfield, which holds more than 90% of the market share in motorcycles with engine capacities greater than 250.

Eicher Motors launched the Royal Enfield Classic 350cc model and Bullet 350cc in 2009, which soon became popular models in the Royal Enfield lineup, due to their vintage-inspired look and dependable performance.

Over the years, Royal Enfield has expanded its product portfolio in the >350cc segment with the launch of new models such as the "Continental GT," "Himalayan," "650 Twins," and "Meteor 350."

These additions have garnered immense popularity among bike enthusiasts, solidifying Royal Enfield as a formidable brand in these segments. Furthermore, while competitors have focused on budget motorcycles, Royal Enfield's strategic focus on higher engine capacity bikes has contributed to its gradual expansion of market share.

Before facing challenges posed by external factors like the COVID-19 pandemic and supply chain constraints in FY20, FY21, and FY22, the company witnessed a strong volume growth of 41% CAGR between CY-2010 and FY-2018, according to the company's regulatory filing.

For FY23, Royal Enfield reported its highest-ever overall sales in history with 8,34,895 units, a 39% increase over the previous year. In the domestic market, Royal Enfield registered sales of 7,34,840 motorcycles, which is a 41% growth over the previous financial year.

In addition, during the first quarter of FY24, Royal Enfield sales in the domestic market increased by 22% to 2,27,706 units as compared to 1,87,205 units recorded in the same period last year.

Going forward, the expansion of the middle-class and high-income segments will have a transformative effect on future consumption patterns, leading to an incremental consumption of $4 trillion by 2030, according to analysts. This projection signifies a significant opportunity for the premium bike market to thrive and grow.

New Competitors in the Premium Bike Market

Recognising the potential of India's premium motorcycle market, the country's two leading 2W manufacturers, Bajaj Auto and Hero MotoCorp, have made their entry into the premium bike segment.

On July 05, Bajaj Auto launched Triumph Speed 400 and Triumph Scrambler 400X in association with British bike maker Triumph in India. Similarly, Hero MotoCorp, in partnership with iconic American brand Harley-Davidson, launched first co-developed model of the Harley-Davidson X440.

Triumph Speed 400 and Triumph Scrambler 400X are priced at an attractive price of ₹2.4 lakh and ₹2.8 lakh, respectively. Harley-Davidson X440 has an introductory price of ₹2.29 lakh.

All three models, Triumph Speed 400, Triumph Scrambler 400X, and Harley-Davidson X440, fall under the cruiser bike segment, directly competing with the dominant player in the 300cc+ market, Royal Enfield, in India.

The X440 comes with a 440cc engine, and its peak torque and power are 35–40% higher than Royal Enfield's top-selling Classic 350cc. With an introductory price of ₹2.29 lakh, the X440 is just a 20% premium over the RE Classic 350cc.

“Despite a strong global brand, Harley has historically not been able to scale up volumes in India due to high vehicle prices, which were not supportable by Indian consumers. Harley's erstwhile lowest-priced vehicle in India was a 750cc Street motorcycle, which still cost 4x the price of Royal Enfield's 350cc Classic,” said global brokerage firm Jefferies.

With a smaller-format X440, developed and manufactured at Indian cost efficiencies, the brokerage highlighted that customers would have the option to evaluate a Harley bike at just a 20% premium to the RE Classic 350, it added.

Meanwhile, the price of the Triumph Speed 400 and Triumph Scrambler 400X is higher than Harley-Davidson X440, Royal Enfield's Classic 350cc, and Royal Enfield Scram 411. However, when compared to the Triumph bikes, which are currently available in India at a price range of ₹8 lakhs to ₹20 lakhs, these prices look attractive and affordable.

Given that Triumph has been a combination of classic, iconic style and modern technology, the affordable-priced Triumph would attract a new set of aspirational customers for Bajaj Auto, said domestic brokerage firm Sharekhan.

The Triumph Speed 400 and Triumph Scrambler 400X are both powered by a 398.15cc liquid-cooled engine that produces 39.5 bhp of power and 37.5 Nm of maximum torque, competing with RE classic 350cc and Royal Enfield Scram 411cc.

The market response to these new launches has been phenomenal, with recent media reports indicating that the Bajaj-Triumph Speed 400 and Scrambler 400X have received over 10,000 bookings within just 10 days of their launch.

Impact on Valuations

Brokerage firm Phillip Capital believes that Hero MotoCorp's collaboration with Harley-Davidson and the launch of their jointly developed products will enable the company to gain a significant market share in the premium segment. This strategic move will also pave the way for Hero MotoCorp to explore further opportunities in both the domestic and export markets for premium bikes, it added.

According to Jefferies, the volumes of Hero MotoCorp's jointly developed products with Harley are estimated to reach 10,000 units per month. This is a significant number considering Royal Enfield's total domestic volumes of 61,000 units per month in FY23 and an estimated 77,000 units per month in FY25.

Jefferies further projects a growth rate of 14% for Hero's volumes and a 26% CAGR for its earnings per share (EPS) over the period of FY23–25E.

For Bajaj Auto, venturing into the iconic premium motorcycle segment marks a strategic move, given that it has already been a leading player in the mass premium motorcycle segment. With a diverse range of brand portfolios across multiple segments, Bajaj Auto aims to fill the gaps in its portfolio and cater to a wider customer base, said Sharekhan.

"Initially the focus of the company would remain on stabilising the new products under a global brand in the market and volume ramp-up and hence customers acceptability at ground is the key thing to watch out for in the near term rather than volumes," the brokerage said.

On the other hand, HDFC Securities has pointed out that Royal Enfield would need to revisit its product and pricing strategy as prospective RE customers are likely to consider brands like Harley-Davidson and Triumph as very formidable alternatives.

The brokerage expects Royal Enfield to recalibrate its strategy based on the impact competition may have on its market share, and it believes margins are likely to remain under pressure in the interim.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.