Moneycontrol
Last Updated : Feb 20, 2019 01:34 PM IST | Source: Moneycontrol.com

Growth slowdown: Two-wheeler companies, dealers struggle to liquidate stock; inventories rise by 4 weeks

Some dealers are even carrying inventory, which are more than a year old

Swaraj Baggonkar @swarajsb
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Even as dealers of two-wheeler manufacturers struggle to attract buyers to their showrooms, they are desperately seeking an extension of credit days to pay for the rising inventory.

The trend of weak demand during the festive season extended into January, resulting in three consecutive months of subdued conditions. Demand was expected to improve in January as has been the trend in previous years. But despite the on-going marriage season retail offtake remains poor.

Not only has inventory days (average number of days goods remain in inventory before being sold) shot up to more than eight weeks, dealers are seeking as extension in credit days (number of days before payment is made for the goods purchased).

Niranjan Gupta, Chief Financial Officer, Hero MotoCorp, “We do keep doing this not just now but actually from time to time. Whenever the inventories build-up, then there is an extension of the credit period. The extension has also led to a bit of an increase in receivables. The latter has gone up by around 10 days.”

Hero MotoCorp is India’s largest two-wheeler manufacturer, controlling 36 percent of the domestic market. Its wholesale volumes dipped nearly 7 percent year-on-year to a million units during December and January.

The Federation of Automobile Dealers Association (FADA) said that two-wheeler inventory days have reached alarming levels of 50-60 days. Some dealers are even carrying inventory, which are more than a year old.

“We would like to highlight that the inventory of two-wheeler dealers still continues to be very high as retails are still under pressure. We hope that these companies will take a realistic look at the situation prevailing on the ground and reduce wholesale billing,” FADA said in a statement.

Honda Motorcycle & Scooter India (HMSI), the country’s second largest two-wheeler manufacturer, is the only company that does not offer credit to dealers. The company receives upfront payment from its dealers even before the stock is despatched.

This is the reason why Honda appeared to be the worst hit among all two-wheeler manufacturers, with sales dipping 17 percent YoY to 7.08 lakh units during December and January.

As per data shared by the Society of Indian Automobile Manufacturers (SIAM), retail two-wheeler sales during January stood at 1.18 million units, whereas wholesales were 1.59 million units during the same month, a shortage of more than 25 percent.

N Radhakrishnan, President, CEO & Additional Whole-Time Director, TVS Motor Company, said, “Our strategy is always to keep 4-5 weeks inventory and we adhere to that principle. The industry looks like it may be a little higher because everyone was looking at a better Q3. There was definitely a slowness in retail sales. However, we always look at carefully managing this inventory and looking at overall retail”.

Bajaj Auto remained the outlier in the industry, reporting high double-digit growth in December and January. As per its officials, the company has been able to manage its inventory better (currently around six weeks). The Pune-based maker of Pulsar and Avenger is now looking to build-up its inventory in anticipation of strong demand in April and May due to the marriage season.
First Published on Feb 20, 2019 01:34 pm
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