By Rahul Oberoi
NEW DELHI: India is fast emerging as a market for premium products with rising per capita income and improving infrastructure.
Today, a customer does not mind waiting a couple of months for a premium motorcycle or paying a few extra bucks for better services.
And reading between the lines, analysts say companies that focus on premiumisation would be the biggest winners as the economy slips into the next stage of growth. Value growth will gather steam over volume growth in a couple of sectors, they say.
Premiumisation requires rarity, and demands focus on design ingredients, craft, customer service, status, performance and reliability.
Value investor Safir Anand believes rising income levels should be a good catalyst for businesses in multiplexes, consumer durables, auto, travel, hotels, tyres, wealth management, improved healthcare and even ready-to-wear clothes.
Even select footwear companies with premium products and high-end motorcycles may also gain market share in the coming years.
EdelweissNSE -0.98 % Securities says within the two-wheeler space, demand for scooters and motorcycles of over 250cc capacity will continue to grow at a faster clip given their low penetration, shift in consumer preference, rising female literacy and higher purchasing power.
The brokerage expects that 250cc-plus motorcycles to continue to gain share within 2W and scooters segment.
The brokerage expects Eicher Motors and Honda Motors and Scooters India (unlisted) to benefit from this shift in preference.
Other analysts say Hero MotoCorp is well positioned to benefit from the much-anticipated recovery in rural demand and strong brand equity in commuter bike segment. Rural sales constitute 50 per cent total sales for the auto firm.
However, sustainable market share gain in scooters and premium motorcycles segment will be key to any re-rating. The company has low presence in these segments.
Hero MotoCorp’s value market share loss over FY08-18 (around 1,400 basis points) has been much severe than its volume market share loss (around 800 basis points) due to weak presence in the expanding premium motorcycle segment, the brokerage said.
In the passenger vehicles segment, Edelweiss expects utility vehicles (UV) to continue to outpace industry with burgeoning demand for crossovers (replacing sedans). Traditional rugged UVs have been losing market share fast.
Tier-II and below cities are likely to be key demand drivers in this space. “Maruti, Hyundai, M&M and Tata MotorsNSE -0.50 % are well placed to capitalise on this opportunity with right products. How Maruti Suzuki plays the next leg of premiumisation will determine its course over the next five years,” it said.
In a strategy shift, Bata is focusing more on volumes and recalibrate its balance between premium and mass segment products to fuel its next phase of growth, Chairman Uday Khanna told PTI.
“To put it bluntly, our volumes have not grown because our focus was premiumisation. Therefore, we have a portfolio where we feel the emphasis will be on both premiumisation and volumes. That will be our next line of growth,” he said.
Nirmal Bang Securities said Bata India is getting into a virtuous cycle, where higher footfalls driven by advertising will lead to a higher pick-up in same store sales growth (SSSG) and the revenue mix would shift towards premium products. This will, in turn, help fund higher brand spend while still driving margin expansion.
The brokerage believes this should help push Bata India’s revenue growth to low-mid teens and earnings growth to mid-high teens on a sustainable basis.
Jitendra Gohil, Head of India Equity Research at Credit Suisse Wealth, says when per capita income goes up, consumption ability rises and this trend is clearly visible in India.