Hero Lectro Estimated To Grow 100 Per Cent For Three Years: Aditya Munjal

Electric mobility seems to be coming of age in India, and one of the categories which is often overlooked in the EV space is the e-cycle category. E-cycles serve as the starting point for green mobility, and in fact, makes up for a big chunk of the electric vehicle space, with China leading the global market share. Aditya Munjal is the CEO of Hero Lectro, the market leader in the e-cycle category in India. He is the son of Pankaj Munjal, and grandson of Om Prakash Munjal of the Hero Group. In a candid conversation with carandbike, Aditya talks about the growth of the e-cycle category, its future and growth prospects.

Hero Lectro is the market leader in the Indian e-cycle category

Aditya Munjal: Initially, most of us, including myself, were opposed to the idea, saying that this was too expensive, who's going to buy it. My father, he was exposed to the trends in Europe and the US, more than all of us. He was experienced in this kind of products. Four years ago, he called our head of R&D and said let's make a prototype, let's make a good bike, let's make a prototype and let's put it out in the market and see. We really started with a very basic "let's see" approach. Again, my father's view was, let's make it affordable, that was the key.

We started with the state of Punjab, and we did some pilots. We set up a small team around this, and from inception, two years hence, this was the only e-cycle brand in the country. We overlaid this over our current cycle network and expanded to other states. Two years later, we had around 100 stores who had this product. We were really focused on a good sales experience, good after sales experience, so we restricted the availability of this.

Two years ago, when I joined, during this time, e-cycle as a category has taken the whole EV space by storm. The largest volume vehicle within the EV space, which includes two-wheelers, three-wheelers and four-wheelers across the world was the e-cycle. China was the leader, and in fact, now China has volumes of over 10 million e-cycles every year. The rest of the world is sitting at 10 million combined. Europe is a leader, the US post that. So we saw these facts, we saw large potential. We got key points from our pilots in India, as well as from markets abroad. And we figured that this was attracting first cyclists, as a cycle 2.0. It's the new era of cycling, technology making the cycles smarter, making the cycle go longer.

Hero Lectro e-cycles boast of premium components

Aditya Munjal: Interestingly, what we saw was a new category of people coming in to buy cycles, which we've never seen before. And these were commuters, these were cargo users and so on. What we now saw was a new era of e-cycle players coming in. These were not legacy cycle players, but new guys, new brands, true start-ups with amazing DNA, obsessed with product, tech and customers. These brands brought new life to the cycle industry. So, this whole thing adding up, our pilots in India, new customers, and seeing that a new culture business can be built here.

We focused on innovating products, localizing products, in India. We tied up with auto suppliers which was never seen in the cycle industry. We co-developed components, which was never seen, cycles were usually buy off the ramp. We converted this category from a mere assembly, where you buy parts and assemble it, to an integrated promise, which two-wheelers do, sort of one product solution. We had a component dominant solution. You go to buy a cycle many times your purchase will be influenced by which component does it have. Shimano, Velo, SRAM, these are some key brands.

Aditya Munjal, CEO, Hero Lectro estimates the e-cycle category will grow 100 per cent year-on-year at least for the next 3-5 years.

carandbike: What would be the current size of the e-cycle market? And what kind of growth has it seen in recent years?

Aditya Munjal: The overall e-cycle markets size in India would be 1,00,000 bikes roughly ending this year. Hero Lectro still has lion's share which is 70 per cent odd, of this market. In the past few years, we've seen the business doubling year-on-year. We are estimating the same to go on for the next three years. In future we're taking this category from a low speed to a high-speed category.

The average price of Hero Lectro e-cycles is between Rs. 30,000-50,000

carandbike: In terms of pricing, many would say that the price of an e-cycle would be comparable to an entry-level electric scooter. So, how does that comparison work out?

Aditya Munjal: There are two types of customers who come to e-cycles. One is the cyclists; they don't look at scooters or other EVs for comparison. They are just recreational cyclists who want to graduate to the next new cycle. That has been the majority of our customers. So, we're giving them better and better solutions. Second, over the last year, three out of ten customers bought an e-cycle bought it to commute. Now, this is where the comparison comes with low-speed e-scooters.

Now, when it comes to price comparison, our average price is between Rs. 30,000-50,000. E-scooters, L1 (low-speed) would be about Rs. 50,000 - 60,000. In my view, that is a low-quality solution, quite a dumb solution in terms of smartness of the vehicle. It has its own set of problems. That comparison always exists for the value customer, and for practicality that customer will tend to take to the L1 e-scooters, above and beyond an e-cycle right now. More storage, more robust, known form, higher range, all these factors. And then there are the high-speed scooters, which are well-placed. So, an entry point e-cycle with a 25-30 km range which goes to a top speed of 25 kmph is priced at Rs. 30,000, and if someone wants to compare that to an e-scooter, that will be at Rs. 50,000.

carandbike: What are the demographics of the customers of Hero Lectro?

Aditya Munjal: So far, we've established that our typical customer is about 30 years old. Now, 60 per cent of our sales come from Tier II and Tier III cities. And Tier I contribute to 40 per cent of sales. But then again, our distribution is only 500 stores. So, you can see this, sort of, 30-year-old working professional, male, early adopter. So, he's an adopter of technology, he will have a smartphone, his needs are from a healthy fit life, loves technology, wants to be the new cool guy. These are the guys coming first. Our next audience would be 35-45 years of age, then we get to teenagers, post that, then we have women.

carandbike: What is Hero Lectro's competition like, and how does Hero Lectro view its competition?

Aditya Munjal: There are a few good players, and they have good products. My constant efforts are to make a consortium. We have little groups, we have WhatsApp groups, we're constantly exchanging notes and ideas. There's good talent, good teams. In terms of market share, the closest second would be quite far right now. So there's no one who's really close in terms of market share yet.

Hero Lectro is projected to grow at 100 per cent CAGR, for the next 3-5 years, according to company estimates.

carandbike: There have been many small start-ups which announced products in the e-cycle category but have not been able to follow through with launch of the products. What are the challenges that new players face?

Aditya Munjal: First is the basic barriers to entry. You don't require too much capital. The easiest way to get into this, is to buy stuff from China or Taiwan, and order. Now, the problem is if you order a whole bike, you face a large import duty. So, you order a CKD (completely knocked down) bike, where the duty is less. One is your first seed working capital, investment to stock. Second would be a distribution play, and third would be a brand play. Now, this is a very basic start, where you're giving an Average Joe product, you just placing it out there. Now, the problem with this is that most of the people tire out in the working capital journey. You got to pay your suppliers advance money, you got to give the trade credit. So, by the time you recover money from the customer, this working capital crunch, people die out, because you're not able to manage cash.

Second, this is a very basic placement play. The customer today is looking for a true, great promise. Now, when you get into product innovations, when you want to create technologies, that is the barrier to entry, in my view. When you look at really seamless ways of selling, in true investments in e-commerce, into post-sale satisfaction, and if you're truly looking at a really good cycle, then comes true barriers to it. Cash and managing cash, I've seen people die out, in the first two or three years. So, they are not able to get to the next level of investing into really amazing products, building sales channels, building cult-like brands. So, that is the second hurdle, if you succeed in the first. So, those are the first two challenges I see for new players in the market.

carandbike: What are your projections for growth in the segment over the next 5 years or so?

Aditya Munjal: Our takeaway is that we're seeing this whole market double every year. You can say the CAGR (compounded annual growth rate) to be 100 per cent year-on-year. So, in 5 years, you could see the segment growing to a million.

carandbike: How is your partnership with Yamaha shaping up?

Aditya Munjal: We've just signed the first formal paper, it's a joint venture with Yamaha. It's to set up motors for e-cycles for India and abroad. It's shaping up well, we see a lot of promise in component play, but it's early days yet. But I see a bright future. This business will supply to Hero, as well as other brands, and so on.

carandbike: Where does Hero Lectro go from here?

Aditya Munjal: My major challenge is how to make a cult-like brand. How do we make a X-factor brand for the youngsters today, and make it a truly value-for-money brand. So, how do we not become mass, how do we have that x-factor? So, that's a very tough space to play, but that's the movement we're looking at for the Hero brand.