Icra expects domestic two-wheeler volumes to grow by 8-10% this fiscal as the note ban impact wanes
The two-wheeler segment, which reported sales de-growth during the last five months of FY17, is slated for an accelerated upturn in the coming months on a normal monsoon, improving rural economy, pent-up demand in view of GST, hope of farm loan waivers as well as the waning of demonetization impact, claim experts.
The category had encountered bumps in the past five months due to liquidity shortage arising from note ban and inventory correction measures undertaken by original equipment manufacturers (OEMs) for the transition from BS-III to BS-IV norms.
"A lot of factors are making the bounce in the growth possible. The loan waivers being promised in quite a few states will definitely spur the demand," said Abdul Majeed, an auto analyst with PwC.
There are demands from farmers in states like Maharashtra, UP and Karnataka for waiver of farm loans and the farmers from Maharashtra have even gone on strike in this regard.
Rating firm Icra, in a report released on Monday, said it expects domestic two-wheeler volumes to grow by 8-10% this fiscal as the demonetization impact wanes and overall demand recovers.
Expectations of improved farm sentiments will follow two seasons of a good crop, forecasts of normal south-west monsoons and benefits from rural employment guarantee schemes are likely to trickle in. Besides, pent-up demand consequent to the deferment of purchases during Q3 and Q4 FY2017 augur well for demand revival on the rural front, the report said.
On the other hand, urban sentiments are expected to draw support from staggered pay revision for state government employees and pensioners as well as muted CPI inflation, it added.
Icra said that the industry witnessed a de-growth in both the key product segments – motorcycles and scooters – during the last five months of FY17 (November-March), resulting in a year-on-year fall of 6.5%. In contrast, the industry had posted a double-digit YoY growth across all the product segments between April to October 2016. On an annual basis, this led to a slowdown of growth to 6.9% during FY17.
On the pick-up in demand and the changing demand outlook, Subrata Ray, senior vice president and group head - corporate sector ratings, Icra, said, "Among the various two-wheeler product segments, both scooters and motorcycles were significantly impacted by demonetization, while mopeds continued to report growth on their low base. The new fiscal has also started with a growth of 7.3% in April 2017, with the impact of demonetization wearing off and both major product segments gradually reporting an uptick in their growth rates."
As per the report, while scooters maintained double-digit growth during FY17, the pace slowed down to 11.4% towards the end, as compared to 23.7% growth reported during the first 7 months of FY17. However, they posted a 25.3% yoy volume growth in April 2017. While the 90-125cc sub-segment continues to account for the major proportion of domestic scooter volumes supported by the wider variety of product offerings, the lower and higher displacement categories have also reported healthy growth.
"The demand for scooters is increasing in urban centres as customers now want that a vehicle which his entire family can use," adds Majeed.
As for motorcycles, third and fourth quarters were weak, with a volume de-growth of 6.5% and 4.2%, respectively. Motorcycles have exhibited flat volumes during the first month of FY18. The entry-level segment (75-110 cc) has grown the slowest, majorly impacted due to the relatively high rural dependence for sales. Comparatively, the 110-125 cc sub-segments and the premium segment have reported encouraging volumes, posting growth during March-April 2017.
Even though things are moving in the right direction, the pace is albeit a bit slow. This is the reason why auto major Mahindra and Mahindra (M&M) while talking about the auto industry during the announcement of its quarterly results, said that the industry was quick to recover from the impact of demonetization. Most segments showed resilience after a dip in the third quarter. "However, the continued lag in light commercial vehicle (less than 2 tonne), three-wheelers and two-wheelers is an indication of slow recovery in rural parts of the country," it continued.
REVVING UP
- Icra expects domestic two-wheeler volumes to grow by 8-10% this fiscal as the note ban impact wanes
- Good rains, improving rural economy, pent-up demand due to GST, farm loan waivers to boost sales
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