Two-wheeler may see growth of 8-9% in FY13: ICRA

ICRA Ratings has come out with its report on Indian two-wheeler (2W) industry. As per the rating agency, the domestic 2W industry is expected to report a volume growth of 8-9% in 2012-13 as base effect catches up with the industry that has demonstrated a strong volume expansion over the last three years at cumulative annual growth rate (CAGR) of 21.8%.

The Indian two-wheeler (2W) industry recorded sales volumes of 13.4 million units in 2011-121, a growth of 14.0% over the previous year. In a year wherein growth in other automobile segments particularly, passenger vehicle (PV) and medium & heavy commercial vehicle (M&HCV), slowed down to single digits - marred by demand slowdown due to northward movement of inflation, fuel prices and interest rates - the 14% growth recorded by the 2W industry remained steady. However, the momentum in the 2W industry’s volume growth too has been losing steam lately as evident from the relatively lower volume growth of 11.0% recorded in H2, 2011-12 (YoY) against a growth of 17.1% recorded in H1, 2011-12 (YoY). The deceleration in growth is largely attributable to the motorcycles segment which grew at a much lower rate of 7.8% (YoY) in H2, 2011-12 vis-à-vis 16.4% in H1, 2011-12; even as the scooters segment continued to post 20%+ (YoY) expansion during both halves of the last fiscal. With this, the share of the scooters segment in the domestic 2W industry volumes increased to 19.1% in 2011-12 from 17.6% in 2010-11. Overall, ICRA expects the domestic 2W industry to report a volume growth of 8-9% in 2012-13 as base effect catches up with the industry that has demonstrated a strong volume expansion over the last three years at cumulative annual growth rate (CAGR) of 21.8%. Over the medium term, the 2W industry is expected to report a volume CAGR of 9-11% to reach a size of 24-26 million units (domestic + exports) by 2016-17, as we believe the 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, strong replacement demand and moderate share of financed purchases remain intact. Demographic Advantage
In the age bracket of 20-40 years, which is the key target segment for 2W, around 77 million youth got added to the Indian population mix in the last decade, which has been the key contributor to the 2W industry’s volume growth over the last 10 years. India’s demography continues to remain favourably on its side with average age of 25 years, which is 9 years younger than China, and more than 12 years and 19 years younger than the US and Japan, respectively. Over the next five years, the incremental addition in India’s youth population  is estimated to be ~41 million, a fairly large number that is likely to sustain the strong demand for 2W. The 20-40 years age group is characterized by a combination of earning power and high spending propensity, which should increase the likelihood of conversion of potential ownership into actual ownership. Underpenetrated Market
The 2W penetration level in Indian households was 12% in 2001. This low 2W penetration provided the structural thrust to the domestic industry’s volume growth over the last decade whose annualized volumes expanded by a factor of 3.4x during this period. As of 2011, the 2W penetration levels in Indian households, while having increased to 21%, continue to remain moderate and much lower than in some of the other emerging markets such as Brazil, Indonesia, Thailand and Taiwan. Also, the penetration rates differ vastly between India’s rural and urban areas, with rural areas being under-penetrated by a factor of 2.5x as compared to urban areas. Additionally, the social trend in favour of nuclear families is expected to further increase the number of households which could be potential targets for the 2W industry. 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

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