The share of premium bikes for India’s largest two-wheeler maker has been rising, establishing its positioning in the premium segment through Karzima and Harley-Davidson bikes. The premium variant in the 125cc bike segment Xtec contributed about 30% to its total portfolio in the September quarter driven by its largest selling bikes Splendor and Glamour.
Due to the rising share of premium variants and higher product prices, the company’s average selling price per unit was Rs 66,680 in the second quarter of FY24, the highest ever and around Rs 7,000 per unit from the beginning of the last fiscal year. The company plans to strengthen its position in the 125cc bike segment with new model launches in the next two years.
The focus on premiumisation helped the company to deliver one of the highest operating profit per vehicle despite 1% drop in the total volume in the September quarter. In addition, the company is revamping its existing stores to ‘Hero 2.0’ showroom to give more premium experience to customers. The store count in this format has reached 200 stores, which is expected to increase to 500 in the next six months.
In the premium segment, the company has received bookings of 25,000 units for Harley-Davidson 400x in the first four months after launchand 14,000 units for Karizma. It has delivered around 2000 units of 400x bikes so far. Amid an encouraging response, the company plans to take production capacity of these bikes to 10,000 units a month from the current capacity of 1,000-2,000 bikes.
The volume of more than 125cc and Harley Davidson bikes is expected to touch 1,30,000 units in the next fiscal year compared with 70,000 units in FY23. This would further boost the company’s average selling price. Even though the company’s total volume is 26% lower than the peak level seen in FY19, the average selling price expansion has helped in achieving revenue in FY23 similar to the pre-covid period.Analysts expect the company’s average selling price to touch Rs 66,200 and Rs 67,800 in the current and the next fiscal years with a volume growth of 7-9%. This is likely to result in 15-16% earnings growth annually over the medium term.At Friday’s closing price of Rs 3,546.9, the stock was traded at 17 times one-year forward earnings, a 5% premium to the long-term average. The stock offers a dividend yield of 5% thereby reducing the cost of acquisition for an investor.