Slowing motorcycle sales could dampen India two-wheeler industry growth

Faltering sales of motorcycles are likely to act as a speedbreaker to the overall growth of the Indian two-wheeler industry.

Notwithstanding the strong revival witnessed early in FY15, volume growth in the Indian two-wheeler (2W) industry has reported deceleration over the last few months dragged by declining motorcycle volumes.

The monthly growth – which averaged 16.3 percent YoY during H1 FY15 and peaked at 23.8 percent YoY in September 2014 has since seen substantial deceleration in the following months dragging the average monthly growth rate to 10.4 percent YoY during 10M FY15. This is largely attributed to de-growth in motorcycle volumes during Q3 FY15 and January 2015 even as scooters continued to cushion the overall volume growth of the 2W industry. Nevertheless, the volume growth during YTD current fiscal stood higher than that of the last two years supported by improved consumer sentiment and new model launches. During 10M FY15, the overall two-wheeler industry grew by about 10 percent YoY to touch volumes of 13.5 million units.

Accounting for over 65 percent of two-wheeler industry volumes, performance of motorcycles has a significant bearing on the two-wheeler sector. Consequently, with sluggish volumes in the segment, the overall industry volume growth was also dragged down during the last four months despite continued strong performance of scooters. Though the segment grew by 11.6 percent YoY during H1 FY15, growth faltered during Q3 FY15 with motorcycle volumes posting a decline of 5.4 percent YoY and 6.0 percent YoY in January 2015. With a view to arrest the same, OEMs have lined up launches of several new model / refreshed variants which are expected to aid in spurring the demand for motorcycles.

Scooters, which have acted as the bulwark of the Indian auto sector for the past two years,  continue to uplift overall industry volumes. According to an ICRA Ratings report, the scooters segment – accounting for 27.7 percent of total two-wheeler sales volumes in the domestic market in 10m FY15 – has been the primary driver of the industry growth over the last few years. More recently too, the volume growth of scooters segment for 10m FY15 stood at a healthy 27.4 percent YoY.

Over the last few quarters, growth in scooter volumes has outpaced that of the industry by a healthy margin supported by improving penetration of scooters which continues to remain relatively low. This has also been supported by an increasing number of model launches. As a result of the relatively larger size of the addressable market, strong push factor from OEMs (by way of new model launches) and improved supply situation (with enhanced capacities coming on stream), scooter volumes are poised to sustain a healthy growth trend over the next 12-18 month timeframe.

Between April 2014-January 2015, the domestic two-wheeler industry grew by 8.71 percent with sales of 16,551,018 units. ICRA says volumes are estimated to grow by 8-9 percent in 2014-15 driven by increasing penetration of scooters even as motorcycles continue to post modest growth supported mainly by replacement demand.

However, as per the ratings agency, two-wheeler demand growth will decelerate from this level in 2015-16 to around 1-3 pecent in view of limited flow of first-time buyers whose disposable incomes are unlikely to expand till India’s economic growth turns more reassuring. Over the medium term, the industry is expected to report a volume CAGR of 8-9 percent to reach a size of 22-23 million units (domestic + exports) by 2016-17.

HOW THE COMPANIES FARE

Hero MotoCorp continues to remain the market leader with a share of 40.3 percent in 10m 2014-15, with a stronghold in the motorcycles segment where it enjoys a market share of over 50 percent. The company’s overall leading position in the motorcycle segment is primarily the outcome of its dominance in the 100cc bike segment (which accounts for about 64 percent of the motorcycle market) where it enjoys an over 70 percent market share.

On the scooters front, Hero MotoCorp has plans to launch two new models in the coming months. This, together with capacity expansion of about 240,000 units per annum to come on stream in Q4FY15, at its existing plants could provide a leg up to its volume growth in the near term and hence aid market share gains in the scooter segment.

While Bajaj Auto continues to enjoy strong market share in the 150cc segment with its Pulsar series, it has been losing overall market share over the past two years due to a decline in sales in 100cc and 125cc bike sales as a result of increased competition in these segments. Bajaj, however, plans to launch six new products in CY2015, with a new model to be positioned between the Platina and Discover series along with new models under its flagship Pulsar brand to re-gain its lost market share in the domestic motorcycle market.

Honda Motorcycle & Scooter India remains steadfast on a growth path in FY14 and FY15 on the back of market share gains across most of its addressable product segments. It maintains its leadership position in the scooters segment through its flagship brand Activa, enjoying a market share of 54.9 percent in 10m FY15 (up from 52.8% in FY14).

TVS Motor Co, which is riding of the success of the Wego and Scooty Zest scooters, has somewhat recouped its domestic market share in the scooters segment which recovered to 15.4 percent in FY15 from 12.7 percent in FY14. It is learnt that the company plans to launch two motorcycle models in the domestic market in H1 FY16.