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Indian Two Wheeler Industry
Credit Analysis & Research Limited, Sep 2010, Pages: 62
Indian two-wheeler industry: Rural India to drive industry's growth
The Indian two-wheeler industry has come long way since its humble beginning in 1948 when Bajaj Auto started importing and selling Vespa Scooters in India. Since then, the customer preferences have changed in favour of motorcycles and gearless scooterettes that score higher on technology, fuel economy and aesthetic appeal, at the expense of metal-bodied geared scooters and mopeds. These changes in customer preferences have had an impact on fortunes of the players. The erstwhile leaders have either perished or have significantly lost market share, whereas new leaders have emerged.
Rising income levels, reducing excise duties, higher loan tenure and loan-to-value offered by the financing companies have all fuelled the growth of two-wheeler demand. Besides, mounting traffic chaos and limited parking space has also increased the demand for two-wheelers from households that can afford or actually do own a car. Furthermore, with increasing women working population, changing social philosophy and broad-mindedness, the penetration of two-wheelers in target population has increased significantly during last one decade especially in urban areas.
However rural areas and smaller towns still remains considerably underpenetrated market. The authors foresee rising income levels combined with increase in finance penetration in rural areas and smaller towns, the demand for two-wheelers will grow swiftly in short to medium term period. Sighting this huge growth opportunity two-wheeler manufacturers have started launching models catering to the needs of rural demand.
The authors have developed a statistical model that attempts to forecast the domestic two wheeler sales on the basis of ownership cost and the target population that includes young populace that can afford but do not own a two wheeler. Other qualitative factors like macro-economic outlook, consumer confidence, willingness of vehicle financers to finance TWs, etc. have also been quantitatively built in demand forecasting model.
After a strong recovery industry posted in FY10, which was continued even in first quarter of FY10, the authors foresee the high growth levels witnessed currently would stabilise in next 2-3 year period. Nevertheless the industry would register a healthy growth during FY10-FY15 period. According to this report, rural India would drive the growth, whereas the opportunity in urban India, especially bigger cities, would become limited in days to come.
In FY10, almost all the manufacturers reported healthy rise in their top-line, driven by growth in both volumes and realisation. Operating margins also observed improvement owing to drop in raw material prices. However, the authors foresee that industry would face challenge of rising input cost and rising competition levels which would strain margins considerably in short to medium term period.
The domestic two-wheeler industry has been able to recover strongly from the economic crises of FY08. Rising income levels, ease in liquidity scenario and return of consumer confidence owing to revival in employment rates were the key drivers for this growth. The authors foresee the short to medium term outlook of the industry will remain healthy, majorly driven by rising demand from rural areas and smaller towns.
‘The Indian Two-Wheeler Industry' gives valuable insight of the industry encompassing its evolution in India, its characteristics, demand drivers, Government regulations, commentary on industry players and competition and the trends in domestic sales and exports. The trends are analysed in depth for various vehicle segments, namely motorcycles, scooters, mopeds and electric two-wheelers, further sub-classified based on the engine capacity. Various segments and sub-segments are appropriately associated with the relevant products and companies for enhancing the understanding of the competitive scenario in the industry. The cost analysis presented in the report will help the reader identify the critical cost items and their trends. The company section in the report provides detailed profiles of the top three players in the industry, including information on their financial and operational parameters.
The report presents forecasts of domestic as well as export sales for each of the next five years till FY15, separately for all the segments. The authors have developed a robust model for forecasting domestic sales. It takes into account the cost of owning a two-wheeler, age demographics and income distribution of the populace. It also attempts to quantitatively adjust for qualitative factors like current economic scenario and outlook, consumer confidence level and persuasive sales techniques of dealers and vehicle financers.
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