Harley-Davidson Targets Tenfold Growth in India Through Aggressive Expansion

Harley-Davidson (NYSE:HOG) is increasingly looking towards international markets to drive growth. In 2011, around 32% of the company’s motorcycle revenues were generated from international sales. It plans to increase this to 40% by 2014 through aggressive expansion in countries like India and China.

The iconic motorcycle manufacturer has seen rapid growth of its motorcycle business in India since entering the market in 2009. The company reported sales of over 1,000 units in the country between July 2010 and the end of 2011. It expects to sell around 2,000 units in 2012, and targets a tenfold increase to 10,000 units by 2016. ^[1]

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India’s Premium Motorcycle Market Growing but Competitive

India has a burgeoning market for premium motorcycles, which includes both superbikes as well as heavy duty cruisers. The market size for 800 cc+ bikes in the country was around 1,600 units in 2011 and is expected to grow at a 40-45% rate going forward, driven by a positive response to new entrants such as Harley Davidson.

The company is expected to face stiff competition in the Indian market, both from superbike manufacturers such as Yamaha and Kawasaki, whose base models are available at lower prices than Harley’s. It also faces competition from the heavy duty motorcycle manufacturers such as Royal Enfield, which has a well established brand and network in the country, and it has to contend with volatile tax laws, which may have adverse effects on pricing. For example, customs duty for important components such as pre-assembled engines and transmission was recently raised to 60%, and later revised to 30%.

Assembling Motorcycles Locally Enables Favorable Pricing

Harley-Davidson currently sells sixteen models in India, five of which are locally assembled at a plant built in 2011. The assembly plant, located in Indian state Haryana, is one of only two such facilities located internationally (the other is in Brazil). Assembling products locally has helped the company circumvent high import tariffs and lower prices on motorcycles sold in the country by 20-25 percent. This has enabled it to reduce pricing and target a larger market of buyers.

Wider Reach Through Dealer Network Expansion

Harley-Davidson has set up eight dedicated showrooms in the country. Most of these are located in large metropolitan cities such as New Delhi and Mumbai, but the company plans to expand its presence in other cities as well, considering that smaller cities currently make up around 30% of total sales, despite limited presence in these regions. It plans to continue the expansion of its dealership network in India, with a target of 17-20 showrooms by the end of 2015. Since 2009, the company has opened 74 dealerships in international (non-US) locations.

We forecast Harley-Davidson’s non-US & Europe Motorcycle segment to reach 52,000 units sold by 2019, from around 37,000 in 2011, growing at a CAGR of around 4%. If the segment grows at 10%, in which case non-US sales will make up 37% of total sales by 2016, there would be a 5% upside to our price estimate.

We currently have a price estimate of $56 for Harley-Davidson, which is around 25% above the market price.

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1. Harley Davidson targets ten-fold jump in India sales by 2016, Economic Times, May 2012 [↩]