Future Outlook of Two-wheeler Sector
The dynamics of the Indian two-wheeler industry has changed significantly over the last five years.
There is a continuation of shift in demand towards motorcycles from geared scooters.
The two-wheeler industry comprising of motorcycles, geared scooters, ungeared scooters, mopeds and step-thrus has grown at a CAGR of 7.8% over the last six years.
In absolute terms, total industry volumes in Financial Year 20002 were 4.3 m units. As is evident from the graph below, motorcycles have got a lion’s share in a matter of just six years (66% of total two-wheeler sector volumes or 2.9 m units in FY02).
The factors that have prompted the change are
The first is affordability. This comes in two forms.
In 1996, the top selling models were Hero Honda’s ‘CD 100’ and ‘Splendor’, ‘Kawasaki Bajaj’ and TVS’s Max-100 R with an average entry-level model starting with prices above Rs 36,000 per unit.
But with the advent of competition, this has declined with entry-level of Bajaj’s ‘Boxer’ now available at less than Rs 30,000 per unit. Eventually, the price difference between a ‘boxy’ geared scooter and a ‘sleek-cum-trendier’ motorcycle has narrowed.
This has also aided the shift in demand.
The consistent fall in interest rates has also benefited the industry immensely. In an analyst meet of TVS Motors in mid 2002, the company said that, as much as 40% of its motorcycle sales are financed.
It will be safe to assume higher numbers for the industry as well. Just to put things in perspective, in absolute terms, two-wheelers bought through vehicle financing stands at around 1.7 million units.
Secondly, rising double income families and urbanisation have also led the change in consumer preference.
For quantification purpose, the NCAER estimate suggests that the consuming class as a percentage of total households in India in financial year 1995 was 29 million (17%).
NCAER expects the mix to change considerably with the consuming class expected to touch 91 million households in financial year 2007 (46%). This has also been a driving factor for the industry in the last few years.
The graph below, which shows the correlation between GDP and the two-wheeler sector, highlights this significance. But over the longer-term horizon of 3-5 years, we remain positive on the sector.
Growth in volumes will take place due to the following factors
Increasing contribution from the services sector
Urbanization
Double income families
Favorable interest rates
Improving road connectivity, which could unlock significant value from
the rural markets.
The two-wheeler industry is expected to post around 7.8% CAGR growth in volumes over the next five years.
Apart from motorcycle segment, ungeared scooter manufacturers will also see a sustained rise in volumes.
In the last one year, not even a single new model has been launched targeted at the geared scooter segment. Honda’s launch of ‘Dio’ and Kinetic’s ‘Nova’, are both launches in the ungeared scooter segment.
Bajaj Auto and TVS expect the decline in geared scooter and moped sales to stabilise in the near future.
The dynamics of the Indian two-wheeler industry has changed significantly over the last five years.
There is a continuation of shift in demand towards motorcycles from geared scooters.
The two-wheeler industry comprising of motorcycles, geared scooters, ungeared scooters, mopeds and step-thrus has grown at a CAGR of 7.8% over the last six years.
In absolute terms, total industry volumes in Financial Year 20002 were 4.3 m units. As is evident from the graph below, motorcycles have got a lion’s share in a matter of just six years (66% of total two-wheeler sector volumes or 2.9 m units in FY02).
The factors that have prompted the change are
The first is affordability. This comes in two forms.
In 1996, the top selling models were Hero Honda’s ‘CD 100’ and ‘Splendor’, ‘Kawasaki Bajaj’ and TVS’s Max-100 R with an average entry-level model starting with prices above Rs 36,000 per unit.
But with the advent of competition, this has declined with entry-level of Bajaj’s ‘Boxer’ now available at less than Rs 30,000 per unit. Eventually, the price difference between a ‘boxy’ geared scooter and a ‘sleek-cum-trendier’ motorcycle has narrowed.
This has also aided the shift in demand.
The consistent fall in interest rates has also benefited the industry immensely. In an analyst meet of TVS Motors in mid 2002, the company said that, as much as 40% of its motorcycle sales are financed.
It will be safe to assume higher numbers for the industry as well. Just to put things in perspective, in absolute terms, two-wheelers bought through vehicle financing stands at around 1.7 million units.
Secondly, rising double income families and urbanisation have also led the change in consumer preference.
For quantification purpose, the NCAER estimate suggests that the consuming class as a percentage of total households in India in financial year 1995 was 29 million (17%).
NCAER expects the mix to change considerably with the consuming class expected to touch 91 million households in financial year 2007 (46%). This has also been a driving factor for the industry in the last few years.
The graph below, which shows the correlation between GDP and the two-wheeler sector, highlights this significance. But over the longer-term horizon of 3-5 years, we remain positive on the sector.
Growth in volumes will take place due to the following factors
Increasing contribution from the services sector
Urbanization
Double income families
Favorable interest rates
Improving road connectivity, which could unlock significant value from
the rural markets.
The two-wheeler industry is expected to post around 7.8% CAGR growth in volumes over the next five years.
Apart from motorcycle segment, ungeared scooter manufacturers will also see a sustained rise in volumes.
In the last one year, not even a single new model has been launched targeted at the geared scooter segment. Honda’s launch of ‘Dio’ and Kinetic’s ‘Nova’, are both launches in the ungeared scooter segment.
Bajaj Auto and TVS expect the decline in geared scooter and moped sales to stabilise in the near future.