NEW DELHI : Hero MotoCorp Ltd, India’s largest maker of entry-level motorcycles, expects a “dramatic” drop in interest rates on two-wheeler loans offered by non-banking financial companies (NBFCs) in rural regions—typically marred by defaults—to boost demand for two-wheelers in three-four years, its chief executive Niranjan Gupta said on Tuesday.
Gupta said the company is considering adding connected features, which it offers in motorcycles in its premium portfolio, to its entry-level motorcycles, which can make repossessions and traceability easier for financiers.
This in turn could lead to lower interest rates and mitigate the impact of the double whammy of high inflation and high interest rates, which has crimped sales in the rural India. Hero MotoCorp also sees green shoots of revival in rural demand.
“As we move forward, we do see over the next coming quarters that this segment will be bouncing back and there are green shoots already,” Gupta told reporters.
The sales of entry-level motorcycles, typically defined as motorcycles with an engine capacity of up to 110cc, took a beating after touching peak volumes 2019 onwards. The switch to the Bharat Stage-VI emissions regime, addition of mandatory safety features and general inflation made two-wheelers significantly more expensive. Alongside, the covid-19 pandemic resulted in widespread job losses and income losses, especially at the bottom of the pyramid.
“What we see now from the data is that consumer confidence is moving up very rapidly from that (rural) segment. We have seen green shoots in the festive season, where the percentage of people participating from the rural segment has been higher as compared to the previous months after the pandemic. Moreover, the scale of the government’s capital expenditure programme that’s happening generates employment and income over a longer period of time. So, we see that coming back. The hospitality industry, for example, is growing fast. So, the informal sector employment is also going up,” Gupta said.
He said interest rates in rural India tend to be significantly higher than in urban parts because of the higher risk borne by financiers due to high rates of default and write-offs on two-wheeler loans.
“Now with fintech and digital inclusion, which ensure that the financial footprint of the customers is known at every stage and the vehicle can be tracked and re-possessed at any time, in the next two to three years, we should be seeing the interest rates charged in the rural segments on the two-wheelers coming down dramatically with these changes. So, that’s an opportunity to actually grow as finance and insurance costs come down. We should see that in the next three to four years it’ll create additional demand.”
Hero MotoCorp on Tuesday launched two new premium motorcycles, expanding its portfolio in the segment. These are a 125cc premium sporty motorcycle, the Xtreme 125R and the Mavrick 440 (built on the Harley Davidson X440 platform that it co-created with the American cult motorcycle maker). These are expected to strengthen the company’s portfolio in the intensely competitive segment, and one where Hero MotoCorp has yet to capture market share with new, strong brands.
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Published: 23 Jan 2024, 11:52 PM IST