Hero Vs Bajaj Vs Enfield: India's Big Three Way Bike Battle

• <00:51> Indian markets hit new valuation highs, foreign investors tired of other countries.
• <02:43> How India's Flex Office Sector is Exploding with Viral Desai
• <11:53> The Big Bike Battle Starts, Bajaj Vs Hero Vs Enfield Now
• <16:57> An online pharmacy is set to take a massive surgical cut in valuation

---

TRANSCRIPT

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.

Good morning, it's Thursday, the 6th of July and I'm Govindraj Ethiraj coming to you from Mumbai, India's financial capital and most rocking city in the world!

Our top reports for today

• Indian markets hit new valuation highs, and foreign investors tired of other countries.
• The Big Bike Battle Starts, Bajaj Vs Hero Vs Enfield Now
• How India's Flex Office Sector is Exploding
• An online pharmacy is set to take a massive surgical cut in valuation

I met with a well-known fund manager yesterday who told me that most major investors particularly those who invest in emerging markets like India are now tired and growing impatient with big markets like China or even smaller ones like South Africa.

Last week, Goldman Sachs brought its 12-member board into India after around 10 years. The board also met with Prime Minister Modi.

The last I heard about a major bank or global corporation bringing its board into India was perhaps around that time too - which is a decade- and in any case sometime before the pandemic.

And I have already met two people from fairly diverse worlds who have interacted with the same 12-member board of Goldman who came visiting and who said the former seemed quite struck by the fresh set of India opportunities. Though both the people I met had concluded that India was benefiting on a relative scale more than an absolute.

Whichever way, foreign investors are pumping money into the Indian markets now, having bought $10 billion worth in the April to June quarter, the highest since the October to December 2020 quarter, going by reports.

All this is spiking prices and valuations. The market valuation of all listed firms on the Bombay Stock Exchange (BSE) hit a lifetime high of Rs 300 lakh crore for the first time on July 5.

Both in rupee and dollar terms, the total market capitalisation of all listed firms on BSE has risen almost 19% in the last three months.

The Sensex meanwhile snapped its five-day upward run and settled 33 points lower at 65,446 levels on Wednesday. The Nifty50, on the other hand, ended at 19,399 level, up 10 points rising for a seventh consecutive session.

How India's Flex Office Sector Is Exploding

Before I come to the big changes in office space, you may find it interesting to note that you have to be a crorepati to buy a house at least 30% of the time in India. Conversely, residential houses above Rs 1 crore accounted for nearly 30% of sales versus 25% in the first half of last year, according to a new report from real estate consulting firm Knight Frank. Thus, the premium residential segment is growing across India.

In general, prices are rising and so are sales in most parts of the country as are new homes being built. The highest price rise in the last six months was in Hyderabad so in case you want to buy and hedge against the next rise.

There are some very interesting trends in commercial space.

First, India-facing businesses or companies that do consumer-facing businesses in India are investing in new office space, including corporate headquarters in some cases.

Broadly, this reflects domestic economic growth and I reckon the perception that there will be more of it. This is obviously being driven more by larger companies. In keeping with this, office space vacancy has been reduced in many parts of India. Remember, in other sectors like traditional IT Services, big eaters of new space are not growing as much and are grappling with hybrid workforces as well as lower demand.

Though the global captive centres which are local arms of various parent companies in areas ranging from finance to retail mostly in North America and the Eurozone continue to grow.

But the big news is this. Flexible or flex spaces are showing dramatic growth, up 26% and have hit records in growth and volume numbers.

Now, Flex in some ways is the opposite of the above where people are not willing to plonk down in a permanent way, at least for some time. Or maybe you could call it a transition phase before you look for a glass and steel building atop which you affix your corporate logo.

To understand in some more detail what is going on in office space right now and where it is headed, I am joined by Viral Desai, Senior Executive Director at Knight Frank.

It's A Big Bike Battle

There is a new battle that has almost suddenly erupted and that is in what is known as the fast-growing middle-weight category in motorcycles or between 250cc and 750cc engine size.

I know it sounds like a boxing match but it could well become one.

There is another angle here, of a fight between brothers. More on that in a short while.

Bajaj tied up with iconic British brand Triumph in 2017, the same year it officially parted with Japanese bike major Kawasaki with whom it made smaller-sized engine bikes.

Bajaj and Triumph have now launched the Triumph Speed 400 and the Triumph Scrambler 400X in India.
The Speed 400 takes its styling inspiration from the Street Twin 900 and has been priced at Rs 2.33 lakh, which my automotive journalist friends say is a totally knockout price.

Meanwhile, Hero Motocorp who parted with Honda in 2010 has now launched the Harley Davidson X440, again a mid-size bike developed in collaboration with Harley Davidson. The price is Rs 2.29 lakh.

Why are the Triumph and Harley new launches priced so closely?

Well, because both are gunning for Enfield which as you know rules the 350cc segment with its Royal Enfield Classic 350cc and Meteor 350cc.

The Royal Enfield 350 cc motorcycles are the highest selling mid-capacity bikes in the country, and by a fair margin, or more specifically over 90% of the market and we will come to that too in a moment.
From a manufacturing standpoint, these are interesting shifts, even if they have been in the making for some time.

For both Bajaj and Hero, it is a firmer acknowledgement that there is a premium market that they see potential in and second, they are better off serving this segment through a branded joint venture.

The joint venture is symbiotic because importing at scale to go after a larger market is not feasible for a foreign brand like Triumph or Harley and the Indian partners, Bajaj or Hero want to extend their brand, marketing and distribution reach.

You may remember then-US President Donald Trump said in 2019 that 50% tariffs on Harley Davidson motorbikes in India were unacceptable.

Interestingly, for Bajaj, this is the second such partnership for Bajaj. It joined hands with KTM, an Austrian bike company it took a 14% stake in 2007 and then took it up to 49% in coming years.

Obviously, Enfield will fight back to protect its turf and presumably also grow. The company will launch the Royal Enfield Himalayan 450, built on a completely new platform.

Also, remember that many of these battles are also global battles as Enfield for example is fairly strong with its older Bullet brand and its newer Interceptor 650 and Continental GT650 in international markets.

A veteran auto journalist I spoke to told me he was impressed with the Triumph's pricing and of course the bike. He was a little less sure of the Harley, including the looks of this avatar and would rather wait and see how it did on the roads. He also felt that Enfield's response would be strong though how much was early to tell.

Brokerages like Jeffries and Nomura have broadly given Hero a thumbs up, also because of the premium segment move, which is believed to be 90% controlled by Royal Enfield.

By the way, Nomura says that the high gross margins of 43% for Enfield or Rs 75,000 per bike make the segment attractive for new players. Yes, 43% gross margin for a motorcycle.

If you are an investor - or not - in Bajaj Auto, Eicher Motors which owns Enfield, or Hero Motor, this is your moment to start looking at them closely.

Eicher has been down 7% in the last 5 days to Rs 3133 as of yesterday's close.
Bajaj Auto was up around 6% to close at Rs 4,900 yesterday in the last 5 days
And finally, Hero was up 10% to close at Rs 3,135 yesterday, also in 5 days.
Now, coming back to the fight between brothers.

"I am motivated in no small measure by the great success of my younger brother Siddharth (Siddharth Lal of Eicher)," Bajaj told CNBC-TV18 in an interview.

Earlier, Siddharth Lal apparently referred to Rajiv Bajaj as his elder brother in an interview a few years earlier.

"When we were tiny, and we needed guidance, he (Rajiv Bajaj) opened his doors."

But he also closed off his comments to The Economic Times by saying we always had an amazing friendship, there is no doubt about that. But at the front end, it is all competition,"

A Pharmacy Is Set For A Surgical Cut

Online pharmacy company PharmEasy is set to raise fresh funds at a staggering 90% discount to its last valuation at $5.6 billion.

Put differently, this is a sharp down round and of course, reflects both the state of the market and the state of the company, which is losing value and is debt-ridden.

The company has informed its board and investors that it plans to raise around Rs 2,400 crore through a rights issue, at a 90% discount to its stock price, to repay a loan from Goldman Sachs, sources told The Economic Times Tech Supplement.

Existing shareholders TPG and Temasek are apparently leading the rights issue, sources told the ET.

PharmEasy's parent API Holdings will issue new stock at Rs 5 per share in the rights issue, according to documents seen by ETtech. In contrast, the company had raised funds at Rs 50 per share. The Mumbai-based platform which also owns diagnostics firm Thyrocare, was valued at $5.6 billion in 2021.

Like many other e-commerce businesses, I have grappled with the valuations that have been associated with this sector.

But possibly others know more than me or knew them.

The larger point is online pharmacies. From my own experience, they work very well for some products which is quite likely you will get them on other sites as well.

But increasingly, more and more medicines need prescriptions and these are medicines we are used to buying over the counter at the local pharmacy. I am sure every listener of this podcast in India has one within walking distance of her or his home.

The reason for the prescriptions is because the authorities are breathing down the online pharmacies necks and asking them to ask customers to upload prescriptions and so on.

The reason they are breathing down their necks is that the offline pharmacies - the ones within walking distance - are raising hell about these online guys. From what I can see, their protests seem to be working and will continue to.

By the way, almost every pharmacy within walking distance of my home in Mumbai also delivers home. And sometimes they also discount the prices of some drugs.

So whether there was a business case at all, ever, does not really matter when you set up a business that is essentially taking on a well-entrenched system that was not exactly crying for reform.
Should someone have thought that through?

Long Term Vision

Global lens major Carl Zeiss is investing 250 million Euros to build a spectacle lens production facility in Bangalore, which apparently will be the German company's largest vision factory in the world, a senior executive told the Mint Newspaper.

Construction will start next month on the land procured two years ago. Work is expected to be completed by October 2024.

"Once the facility is operational, we will be able to manufacture 260,000 lenses every day," the company said.
​​ZEISS India is not new to India. It employs over 1,000 people, has 3 production facilities, R&D centre, Global IT services and about 40 Sales & Service offices in almost all Tier I and Tier II cities across the country.

And before I go, here is a message from M Kiran Kumar from Bangalore I got on LinkedIn yesterday.

Kiran who began his career in the Indian Air Force and now works for an aerospace company, writes..I heard the podcast first a couple of weeks back and already it's part of my morning routine.. I like the varied subjects that you pick and the discussions that you have on these topics with experts. Thank you very much, you are doing a great job!
Best Regards, Kiran

Thank you Kiran for your encouraging words and thank you to everyone for listening and taking our podcast to the Top 100 in India across genres. See you tomorrow and look forward to your feedback.