After a strong growth over the last two years, two-wheeler sales seem
to have hit slowdown. With piling up of inventories at the dealers, it
is a clear sign of the two wheeler industry facing speed bumps ahead.
Macro economic variables including fuel price hike, inflation have
been affecting the auto sector resulting in lower than expected
growth. Industry analysis shows an increasing competition arising in
two wheeler industry with the huge entry of MNCs like Honda Motorcycle
giving a tough run for market share to domestic players. Diminishing
demand due to industry entering a moderation in growth cycle has
negative influence. Softening rural demand along with increase in
inflation has majorly impacted sales.
As quoted by CLSA, "We cut our motorcycle industry growth forecast for
FY13 from 14% to 8%. After three years of above trend growth, 2W
growth is moderating. Our analysis of 2W growth over the last 20 years
suggests that it is unlikely that growth will enter negative territory
but mid-single digit growth for a couple of years cannot be ruled out.
This is worrisome as the slowdown comes at the time of rising
competition from HMSI, though we expect competition to rise more in
FY14 than in FY13. Shrinking earnings visibility given slowing growth
and rising competition makes a case for multiples to contract. Stocks
have started to underperform but we believe that it is still early
days in the down-cycle and recommend investors to avoid 2W space."
Deceleration of growth can be witnessed by the overall growth of 2
wheeler industry decreasing to 9.3% Y-o-Y for Q3 of FY2011-12.
In February 2012, Market leader Hero Motocorp maintained double digit
growth of 11% Y-o-Y owing to new launches but its peer Bajaj Auto
failed to show any momentum in growth with mere 5% increase in sales
and TVS reported a decline in volume.
However, MNC Hondo Motorcycle continued to grow steadily with 41%
increase in February sales owing to its flagship Activa performing
immensely well. Its scooter segment saw nearly 54% growth and
motorcycle grew at 26%. Mr.Naresh Kumar Ratan, Vice President (Sales),
Honda Motorcycles said that they plan to further invest Rs.1000 cr
during 2012-13 in India with their third plant coming up in Karnataka
soon. The company plans to double its yearly capacity to 40 lakh units
in next two years and further to 1 crore units by 2012.
Japanese two wheeler maker, Yamaha, too has vigorous expansion to
invest Rs.800 cr in 2012-13 in India targeting to increase their
capacity from 6.5 lakh units to 10 lakh units annually.
According to analysts, scooters segment in 2 wheeler is buffering the
industry with support. This segment grew relatively higher at 20%
compare to the moderating motorcycle segment. With Bajaj
discontinuing its scooter segment two years back, it has hurt its
sales due to complete emphasis on falling motorcycle segment. On
domestic front, Bajaj saw a decline of nearly 2% compare to its 2009
sales. TVS too is losing grounds owing to its marketing issues as well
as failure of its new launches. As per the domestic CAGR (FY11-07),
Honda stood at 22.4%, Hero is 12.8% , TVS is mere 5.8% and worst of
all is Bajaj at 3.6% ( Source: ICICI Direct)
Indian domestic players are eyeing on exports for diversification.
Bajaj has been performing well on its export front and a large part of
its revenues are exports dependent. Hero MotoCorp, after its split of
JV with Honda, is starting with exports on a global scale from May
2012 onwards. With Hero's aggressive export plans, it will be a
difficult ride for other domestic players in export.
Owing to faltering economic growth, increasing inflation and price
hike in fuel along with over competitive market and diminishing
demand, the road ahead for domestic players like Bajaj & TVS looks
tough and rough. It won't be far that MNC giant Honda Motor captures a
large chunk of the market with its strong strategies set for Indian
two wheeler industry.
DISCLAIMER: - Smart Profit has taken due care and caution in
compilation of data for its reports. The market view and investment
tips expressed on Smart Profit are in no way a guarantee either
express or implied. However, Smart Profit does not guarantee the
accuracy, adequacy or completeness of any information and is not
responsible for any errors or omissions or for the results obtained
from the use of such information.
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