As the U.S. motorcycle industry slows down and Harley-Davidson’s (NYSE:HOG) loyal consumer base ages, the company is looking at international markets for growth. It is expanding in regions such as India, Indonesia, and Thailand where demand for motorcycles is high. However, competition in these markets is high, which will make it tougher for the company to penetrate into these regions. Recently, Indian motorcycle giant Royal Enfield (owned by Eicher Motors) launched a 650cc twin engine bike in the region, which would compete directly with Harley-Davidson’s Street 750. While India is currently not a very big market for Harley-Davidson, the company is trying to expand into the region. It is banking on the Street Rod model to drive international growth, as the luxury motorcycle expands in these economies. Research suggests that the Indian luxury bikes market is likely to double to 20,000 units by 2022 and Harley-Davidson is looking to grab a higher market share in this segment. However with Royal Enfield entering the heavy bikes segment, it will be a tough road ahead for Harley-Davidson. Royal Enfield is a local brand and has a strong distribution network in India with nearly 700 outlets. Harley-Davidson’s total sales in India are around 3,700 units with its small distribution network. These numbers clearly reveal that even if each of Royal Enfield’s stores sell 5 bikes every year, they would match up with Harley-Davidson’s total sales. This indicates that with direct competition from Royal Enfield, Harley-Davidson will find it difficult to grab a higher market share in the country.
Harley-Davidson’s revenues from motorcycles have been declining since 2014 and we expect this decline to continue until 2018, post which we expect a gradual increase in these revenues. Based on this forecast, our current price estimate for the company is $ 45, which is lower than its market price. A faster pace of increase in these revenues can lead to an upside to our price estimate.
Click here to analyze Harley-Davidson’s motorcycle revenues and its impact on the company’s stock price.
International markets including India are crucial for Harley-Davidson’s long term growth as the U.S market stagnates. Royal Enfield is a strong competitor in India and the company is likely to expand internationally, including the U.S., impacting Harley-Davidson’s market share in these regions. For Harley-Davidson, which is struggling to grow sales, this is a significant obstacle and the company will need to innovate in terms of product launches and marketing and distribution to build a competitive edge.