A bicycle kick

India’s largest cycle manufacturer is bringing down the price of the country’s largest-selling model, roadster, to produce “the cheapest bicycle”. The industry is worried, but with demand low and China threat looming, is the Hero Motors move only way to break the cycle?

Written by Raakhi Jagga | Updated: July 1, 2018 12:18:45 pm
At Unit 1 of Hero Motor Company’s bicycle assembly plant in Ludhiana 19,000 bicycles of all types are assembled daily. Of these 10,500 are of one kind: roadster. (Express photo by Gurmeet Singh)

At Unit 1 of the Hero Motors bicycle assembly plant in Ludhiana on a recent weekday morning, workers are putting together blue women’s bicycles. The 22” bicycles are to be shipped off to Chhattisgarh to be distributed free of cost to Scheduled Caste girls in Classes 9 and 10. The workers are attaching the tag ‘Mukhyamantri Yojana’ on each bike.

For all the metal parts being fixed and fitted, and the bicycles being packed, Unit 1 is not a noisy shop floor. But it is the backbone of Hero’s plant. The unit, with 400 employees, works round the clock, in three shifts, and assembles 19,000 bicycles of all types daily. Of these, 10,500 are of one kind: roadster. Unlike Roadster cars, which are fancy two-seater sports numbers, the roadster bicycle is your sturdy, workaday, utility, gearless bicycle, a far cry from the Bianchis and the Schwinns of the world. It’s also the bicycle of choice for India — its dependable black frame a part of the landscape in cities or villages, dusty mud trails or waterlogged tracks — often with a person riding pillion, or with a lunch box or a tool bag strapped to it.

According to the All India Cycle Manufacturers’ Association (AICMA), of the 1.65 crore bicycles made in 2017-2018 in India, 90 lakh were roadsters. Most Indian bicycle brands make roadsters. Rajinder Shukla, shift in-charge at Unit 1, says roadsters are now available in other colours, including purple. “But there is no doubt that black is the most popular.”

A picture at the United Cycle & Parts Manufacturing Association (UCPMA) office which shows the transformation of the bicycle over the years. (Express photo by Gurmeet Singh)

However, it’s another change in India’s highest-selling cycle that has set this industry — with Ludhiana accounting for 90 per cent of it — on edge. On April 24, Pankaj Munjal, Chairman, Hero Motors, announced that his company was planning to bring out a roadster that would be cheaper by at least Rs 500. The largest manufacturer of bicycles in the country, Hero Motors made 50 lakh bicycles last year; 26 lakh of these were roadsters.

For years now, across companies, the price of a roadster has been in the range of Rs 3,200-3,500, including the GST and dealer’s margins, with some going up to Rs 5,000. Hero’s own ex-factory price for the basic roadster has held largely steady at Rs 2,900. While the bicycle industry increases prices of models every two-odd years, in case of roadsters, the raise is the minimum.

Hero has said that its new roadster model (as of now, for men only), being finalised in secrecy at its ‘global design lab’ in Manchester, England, would be priced at Rs 1,999, bringing it just below the psychological watermark of Rs 2,000, a sheer drop of Rs 1,000. Add on 12 per cent GST, accessories such as lock, stand, carrier and bell, and the price will be about Rs 2,400. With the dealer’s margin, it could be Rs 2,500-2,600 — in other words, “the cheapest bicycle in the country”.

Inderjit Singh Navyug, President of the United Cycle & Parts Manufacturing Association. (Express photo by Gurmeet Singh)

To the outside world, the difference of Rs 500 or thereabouts may not mean much. But in an industry working with narrow margins, and struggling to boost numbers, Hero’s move has the potential to change revenue models, and has left competitors worried. Hero Motors, in turn, argues that with China on the move, the only way out of this bleak cycle is to remain in the saddle.

In 2007-2008, the Indian industry produced 1.25 crore bicycles. In 2017-18, this number stood at 1.65 crores — or a mere 40 lakh increase in 10 years. S K Rai, the Managing Director of Hero Motors, says that at the moment, roadster bicycles are standing only on the strength of government tenders. “In the last financial year, of the 1.65 crore bicycles manufactured, 40 lakh were under tender schemes of different states (like the Chhattisgarh scheme on which Hero is working now). What if these schemes are stopped? That is why we are asking the industry to create a market for themselves, to find our own customer.”

As part of these government schemes, bicycles were supplied by Ludhiana factories to West Bengal, Assam, Madhya Pradesh, Tamil Nadu, Gujarat, Karnataka, Chhattisgarh and Bihar in 2017-2018. This year too, the Ludhiana industry is expecting similar orders. “Tenders from different states are indeed a lifeline of the bicycle industry,” says K K Seth, the owner of Seth Industrial Corporation, the manufacturer of the Neelam brand.

Cycles being manufactured at one of Hero Motor’s units in Ludhiana. (Express photo by Gurmeet Singh)

Hoping for government support, an AICMA delegation has met NITI Aayog thrice to push for making bicycles affordable. Says AICMA secretary general Dr K B Thakur, “NITI Aayog has formed an inter-ministerial committee to identify issues relating to the supply and demand of bicycles, how to make it a product within the reach of masses.”

Rai says that in its presentation to NITI Aayog, Hero pointed out that it was unusual that in a poor country like India, of the 2.3 crore vehicles added annually to the market, only 1.7 crore were bicycles. “As per data with us, the current usage of bicycle is just 9 per cent of the total population,” says Rai. “Banks should offer loans for bicycles, just like cars.”

Confirming the meetings with the bicycle manufacturers, Jagdish Khattar, Chairman of the inter-ministerial committee of NITI Aayog, says, “We are going to study as to why bicycle sales are slow in rural areas, and what needs to be done as this can help boost rural economy. Secondly, the bicycle industry is not progressing the way it should be, we need to study the reasons. Thirdly, there is not much R&D, how can this be provided.”

Workers assemble parts of the cycle at one of Hero Motor’s units in Ludhiana. (Express photo by Gurmeet Singh)

Khattar incidentally is the man who gave the Indian middle-class affordable cars as Maruti managing director. On the day Munjal announced his plans for a cheaper roadster, he was accompanied by Khattar. At the event as well, Khattar stressed on the need to focus on the rural market. “While the annual growth of cars is at 10 per cent per annum, the bicycle industry is growing at just 2 per cent. In India, over 32 crore people still walk 6-10 km to reach their workplace (as per Census 2011). The bicycle needs to be reached out to such sectors, and needs to be affordable.”

Factory workers on their way home in Dhandari Kalan in Ludhiana. (Express photo by Gurmeet Singh)

Munjal echoed Khattar. “India stands out as the second largest bicycle manufacturer in the world after China. However, while China offers bicycles at just 3 per cent of its annual per capita income, in India, bicycle prices make up 15 per cent of the average per capita income. Further, 95 of every 100 households own a bicycle in China, while only 46 do so in India. We need to tap new markets, for which prices need to be slashed to attract rural poor.”

But while bicycle manufacturers agree that they need new markets, they are doubtful if reducing prices is the answer.
“In a country of 130 crores, if annually only 1.65 crore bicycles are produced, clearly there is a great scope of tapping new markets. But as per my experience in the bicycle industry of more than three decades, slashing prices is next to impossible,” says K K Seth, who is also Chairman of the Federation of Industrial and Commercial Undertakings.

Unit 1 has a total of 400 employees, who work in three shifts of eight hours each. (Express photo by Gurmeet Singh)

In fact, the industry has been struggling to keep costs down with prices of steel and other raw materials rising. Soon after it said it was cutting roadster prices, Hero itself joined other manufacturers in announcing a Rs 100-150 increase in prices of all other bicycle models. Seth points out that prices of steel, the main component of a bicycle, are up Rs 14,000 per ton since demonetisation. Nickel anode, priced at Rs 730 per kg at the time of demonetisation, is now Rs 1,050 per kg. The price of tyres is up Rs 4 each while tubes are expensive by Rs 1.5 more.

 

This has also resulted in a boost in demand for lighter, cheaper Chinese parts. Pointing to this increase in prices of components, I D Chugh, the Director of Atlas Cycle Industries Limited, which controls 20 per cent of the bicycle market, says, “No doubt Hero’s new model will create competition, however let us see what the impact is. As of now we have no plans for bringing out a new model on similar lines,” he says, adding that, he expects cost to only go up because of steel prices. Onkar Singh Pahwa, MD, Avon Cycles (20 per cent of the market), adds, “We have no plans for any economy model as of now. I can comment once Hero’s Rs 1,999 model is out.”

Then there is the other elephant in the room: China. In this industry as well, the manufacturing colossus is making deep and wide inroads, even while flooding the industry with lighter, cheaper parts. In the past two years, imports of bicycles its parts from China have risen 53 per cent (from 1.74 lakh bicycles in 2015-16 to 3.84 lakhs in 2017-18). On the contrary, since 2013-14, the exports by Indian bicycle industry have fallen by 5.7 per cent, as per AICMA figures.

AICMA office-bearer K B Thakur says that the cost of production is cheaper in China, where bicycles enjoy a 15 per cent government subsidy. The Chinese government offers this to encourage public bike sharing, and many of these ‘reconditioned’ cycles then make their way to other markets, Thakur says, calling it “a serious threat like a tsunami”.

After China started the public bike sharing scheme in 2014, too many bicycles flooded the market. With the government now trying to control the numbers, many of these are making their way to markets across the world. Days before the low-cost roadster announcement, the bicycle industry had gone public with its concerns over the entry of Ofo and Mobike, the big Chinese public bike sharing companies, and demanded that the government impose a 60 per cent tariff on them.

While the industry has no data on how many such bikes have entered India, it estimates they are in “thousands”. Says Thakur, “Ofo and Mobike bikes have already reached smart cities such as Mysuru, Coimbatore, Pune and Bhopal. We met the Union Minister, Housing and Urban Affairs (Hardeep Puri), and, after the representation from bicycle associations, the ministry recently passed a circular saying the domestic industry should be given priority.”

While Thakur admits that “no domestic company has yet finalised a deal with any smart city for providing public sharing bikes”, he adds that it has the potential to change the fate of the industry. “One such bicycle replaces 20 retail bicycles, so it is indeed a serious threat to India, where in smart cities in the coming two years, two million public sharing bikes would be needed. Make in India can save our domestic industry.”

Besides, Thakur adds, with India only making a limited number of high-end bicycles, China is filling this gap too. Right now, apart from Hero, which also purchased Firefox two years ago, only large-scale firms like TI (No. 2 and based out of China), Avon and Atlas make high-end bicycles in India. Calling it a “technological gap”, as a number of parts of such bicycles are imported, Thakur says that this will be bridged soon. An upcoming government project in Ludhiana is focusing on high-end bikes.

Till then, exports too are not the answer to the Indian industry’s woes, with AICMA pointing out that European and US markets ask for superior material and premium ranges. Most of the exports from India, of low-end bicycles, are currently to Africa and Asia.

What happens to the Indian bicycle industry is also closely linked to what happens to the manufacturers of cycle parts — generally small-scale industries to which most bicycle manufacturers outsource their work. Each roadster bike, for example, is made up of 127 parts, including ball bearings, screws and bolts and nuts. Hero outsources 35 per cent of its bicycle parts. According to AICMA, there are 4,000 such parts-making units, sustaining an estimated million livelihoods.

“After the announcement of the cheapest model by Hero, dealers too are waiting and going slow in booking orders. So all eyes are on this model, because the largest manufacturer of bicycles has a great say in moving market forces. We simply cannot ignore it,” says Inderjit Singh Navyug, President of the United Cycle & Parts Manufacturing Association.

When Hero and Avon set out making bicycles in Ludhiana in 1956, the 60-year-old reminisces, the roadster was much coveted. “A bicycle used to be a luxury. In the late 1950s, it cost around Rs 100 while in the 1970s, when I bought a bicycle, its price was nearly Rs 1,100,” he recalls. “Initially, it used to be 25-26 kg, but now with fine-quality steel, the weight is 17-18 kg.”

The Sales and New Product Development departments of Hero Motors say the country’s cheapest bicycle will be marketed separately. Insiders say the new model might be out by end of this month, in time for Munjal’s 60-day deadline. Meanwhile, at Unit 1 of the Hero factory in Ludhiana, it is 2 pm, shift-ending time. Workers are ready to depart for lunch. After a security check, most of them head to the cycle stand to pick their bicycles to head home. Soon, they are on the road, a streak of black.

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