Two Wheeler industry: Slower growth expected in Q4

30505 Investors following Hero Motocorp. Share this News with them.

0

Like this story, share it with millions of investors on M3

Two Wheeler industry: Slower growth expected in Q4

ICRA Ratings has come out with its report on Indian two-wheeler industry. The research firm expects the domestic 2W industry to report a volume growth of ~13% in 2011-12.

Post your opinion here

 

0

Tweet

Share on Tumblr

Hero Motocorp BSE | NSE 29/05/12 Are Mutual Funds betting on Hero Motocorp?

Indian Two Wheeler Industry: Volume growth decelerates in Q3, 2011-12; slower growth expected in Q4, 2011-12 as well

ICRA Ratings has come out with its report on Indian two-wheeler industry. The research firm expects the domestic 2W industry to report a volume growth of ~13% in 2011-12.

The Indian two-wheeler (2W) industry recorded sales volumes of 3.4 million units in Q3, 2011-121, a growth of 11.0% (YoY) but flat (QoQ). Although the YoY volume growth of the industry remained in double digits, the pace of growth during the last quarter was at its lowest gear in the last three years. The deceleration in growth was contributed mainly by the motorcycles segment which grew at a much lower rate of 9.2% (YoY) in Q3, 2011-12; even as the scooters segment continued to post 20%+ (YoY) expansion. Overall, ICRA expects the domestic 2W industry to report a volume growth of ~13% in 2011-12 as we expect growth to fade further in Q4, 2011-122 due to base effect.

In an environment where the northward movement of inflation, fuel prices and interest rates has been the nemesis of the Indian automobile industry at large, the 2W industry has been the most resilient reflected in its healthy volume growth of 15.0% (YoY) in 9m, 2011-12. The growth has been supported by various structural positives associated with the domestic 2W industry including favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization and expected strong replacement demand, besides moderate share of financed purchases. ICRA expects these strengths, coupled with the OEMs' thrust on exports, to aid the 2W industry to report a volume CAGR of 10-12% over the medium term to reach a size of 21-23 million units (domestic + exports) by 2015-16.

Sales Volumes Analysis - Motorcycles: The domestic motorcycles segment recorded a volume growth of 9.2% YoY in Q3, 2011-12 and as has been the trend over the last several quarters, the >125cc segment of motorcycles grew much faster than the 75-125cc segment. With this, the contribution of the >125 cc segment to the total motorcycles segment increased from 26% in 2009-10 to 29% in 9m, 2011- 12.

Market Share Trends: The Indian motorcycles segment continues to be dominated by Hero MotoCorp which has maintained its market share at over 55% in the domestic motorcycles segment over the last five quarters (Refer Chart 2). The top three players accounted for 89.5% of the industry's volumes in Q3, 2011-12 (92.0% in 2007-08), with Honda Motorcycles reclaiming its spot as the third largest player, a position which it had lost out to TVS in the previous quarter after having retained it since Q4, 2009-10. In the 75-125cc segment of motorcycles (that represented 71% of total motorcycles sales volumes in 9m, 2011-12), Hero MotoCorp continues to be a strong market leader with a share of 74.2% in 9m, 2011-12 (70.4% in 9m, 2010-11). In the >125cc segment of motorcycles, while Bajaj Auto continues to account for nearly half the segment's volumes (49.1% in 9m, 2011-12), Yamaha has been the fastest growing having improved its market share from 8.1% in 9m, 2010-11 to 10.1% in 9m, 2011-12.

Short to Medium Term Outlook:

• ICRA expects the entry segment (bikes having price less than Rs. 40,000) volumes in the domestic market to grow at a much slower pace than the overall 2W industry and volume growth in this segment to be driven mainly by exports. This is because the segment is no longer a key focus area of OEMs due to limited scope for margin expansion and high interest rate sensitivity.
• While the executive segment (bikes in the Rs. 40,000-50,000 price range) is expected to maintain its steady growth, competition is likely to intensify following aggressive model refurbishment and new model launch plans of most OEMs.
• The premium segment (bikes having price greater than Rs. 50,000) is expected to remain the fastest growing over the medium term, given the strong growth in purchasing power in the hands of middle-class urbanites, especially in the age group of 20-30 years. This should also translate into superior profit margins for players that are stronger in the premium segment.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment