Two-wheelers are likely to continue trailing four-wheelers in terms of growth during the fiscal, an industry report released by Credit Suisse revealed today.
27 Apr 2016 | 2931 Views | By Autocar Professional Bureau
Expectations of good monsoon and a pickup in the pace of the economic recovery should augur well for auto volumes in FY17, but two-wheelers are likely to continue trailing four-wheelers in terms of growth during the fiscal, an industry report released by Credit Suisse revealed today.
“There will be ...
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Expectations of good monsoon and a pickup in the pace of the economic recovery should augur well for auto volumes in FY17, but two-wheelers are likely to continue trailing four-wheelers in terms of growth during the fiscal, an industry report released by Credit Suisse revealed today.
“There will be a cyclical rebound in industry volumes over the next two years if the monsoon is good and economic recovery continues. However, we note that PV growth normally tends to bounce back much more than two-wheelers growth in the event of a recovery. The cyclical correction this time around also has been much deeper for PVs with only a 2% CAGR in the past,” the brokerage said.
Exports to remain weak
According to the brokerage, two-wheeler exports are likely to come under pressure during FY17.
“For listed 2W players, exports have a significant contribution to volumes and they are likely to decline in FY17. Currency in some of the large export markets has depreciated by 30-50% in the past one year. Whilst Indian companies take payments from distributors in dollars, it does result in prices going up in local markets hence impacting demand. Also, foreign exchange availability has become an issue and hence Bajaj (largest exporter) has guided for a 10% decline in exports in FY17,” the brokerage said.
Scooters to constitute 40% of two-wheeler sales by FY20
Over the past five years, the share of scooters has increased from around 20% to roughly 30% and in the same period the share of lower executive bikes (priced around Rs 50,000) has shrunk from nearly 35% to around 25%.In more developed states, scooter share has already crossed 40% and is still increasing, based on the trend , the brokerage expects that the share of scooters could reach 40% by FY20.
This significant shift in market share will directly benefit players like Honda, which completely dominates the space.
According to the brokerage, Hero MotoCorp has broadly maintained sales of its lower executive segment motorcycles by growing market share from 70% to 85% at Bajaj's expense.
Bajaj has responded by aggressively priced products in the economy segment leading to both market share increase and segment growth, it added. The brokerage also highlights that the share of premium segment motorcycles is increasing, especially with cruisers from both RE and Bajaj doing well.
In terms of performance estimates for the top two wheeler companies, the brokerage said: “Hero has high exposure to the weakest growth segments and hence will have the lowest volume CAGR of 6% over the next 5 years; we expect Bajaj to have an 8% CAGR, and TVS and Honda to post 10% CAGR over next 5 years.”