Bike sales seen slowing once festive fervour dies down

After passenger cars, it’s the turn of motorcycles to slow down.
Already, two-wheeler biggies Bajaj Auto and TVS Motor have been lagging the overall market growth and now, once the festive season gets over, even Hero MotoCorp is expected to ease up on growth.

“India’s motorcycle market grew 15% in August, with Hero MotoCorp growing at 20%, TVS at 13% and Bajaj at 8%. Since April this year, Hero has grown ahead of the market, while
Bajaj and TVS have been weaker. Some of Hero’s outperformance can be attributed to the much lower base last year; hence we expect a moderation post October 2011,” Macquarie analysts Amit Mishra and Priya Ranjan said in a report dated September 27.

While sales of Bajaj’s economy bike Platina grew 46% in August, those of its premium bike Pulsar declined 10%, Mishra and Ranjan pointed out. According to them, the share of premium bikes in Bajaj’s portfolio has declined from 35% in August 2010 to 29% this August. But a bigger concern is moderation in growth of Discover sales at just 3-4% in the last two months. Also, Bajaj’s sales included 9,251 units of Boxer 150, where the margins are lower.

K Srinivas, president (motorcycle business), Bajaj Auto tried to make light of the concerns. “We have adopted different strategy for branding the Boxer. It will take some time for the product to soak in the market,” he said.

According to him, the growth has been healthy as of Dassera. “We have grown 15% more as compared to last festival season. We will have to wait and see the coming quarter, which is generally slow for the industry.”

Srinivas said Bajaj expects to create a new segment with the launch of the new Boxer (150 cc).

However, analysts feel the product will not create any additional market. “We do not expect Bajaj to create any additional demand with the launch of its Boxer. At best it will cannibalise the demand of the existing products in the segment,” said an analyst.

Sales of Hero MotoCorp, which has been growing ahead of the market, are also expected to moderate going forward as the lower base effect of last year wanes and competition increases from Honda Motorcycle & Scooter India.

Aditya Makharia and Ritesh Gupta of J P Morgan noted in a recent report that Honda Motorcycle and Scooter India (HMSI) is already gearing up to expand capacity to four million units by 2013 and “thus appears to have aggressive plans in India after the split with its local partner, Hero, and we see competitive intensity rising in this space. While HMSI is currently the market leader in scooters, it is launching new products in the mass market motorcycle segment to expand its product portfolio.”

Vineet Hetamasaria, head of research for PINC Research, sees moderation setting in after October. “The year to date growth of the two-wheeler segment is around 16%, but in September, it grew 24%. We expect the growth rate to slow down to 12-13% going ahead.”

According to Hetamasaria, Hero MotoCorp’s growth will slide mainly due to capacity shortfall. The company has been producing 5 lakh units on a monthly basis and may find it difficult to meet additional demand going ahead. A major chunk of its sales comes from exports and “the company’s exports might go down from October as benefits of DEPB (duty entitlement passbook) scheme have been reduced,” he noted.

Industry experts see growth in the overall two-wheeler segment moderating after the festival season.

“Most two-wheeler companies were pushing sales before the start of the festival season and at its end, demand is expected to go down,” said an analyst with a domestic brokerage firm, requesting anonymity.