Two-wheeler inventories rise in seasonal slack

Two-wheeler inventories with dealers are rising as a strong base effect (higher sales during last year) and slowing rural demand are keeping the sales volumes subdued.

Dealers, however, are not worried as they see the drop in sales as a seasonal slack in demand.

The inventory levels, which rose in March on account of the festival season not taking off as per expectations, have gone above 45 days in some cases, when they ideally should be between 21 and 30 days. The demand itself has been weakening since October.

The two-wheeler industry grew 14.77% during April-February 2012, according to Society of India Automobile Manufacturers Association as against 26% in the same period last year. However, according to an industry source, “the growth has been just 6% at the retail level”. This means that dealers are stocking inventories in anticipation of a demand pick-up.

According to a Mumbai-based Bajaj Auto dealer, “Most of the manufacturers, over the year, have increased their production to meet the growing demand. Dealers started stocking products due to this, which eventually led to inventory pile-up.”

A Mumbai-based Hero MotoCorp dealer said rising petrol prices are also one of the key reasons for customers postponing purchases.

“Customers are finding it difficult to take the burden of rising EMIs and increased petrol prices. Hence, the slow demand.”

Two-wheeler manufacturers, however, do not see any inventory pile-up. “Our inventory levels do not go beyond 30 days. We only bill what we can retail. The fourth quarter has not been very good for the industry. Considering the current situation, the industry will not grow beyond 5% during fourth quarter,” said K Srinivas, president, two-wheeler unit, Bajaj Auto.

Kartik Jhaveri, a Mumbai-based HMSI dealer, said, “Overall, growth has been affected but our products like Unicorn, Shine and Activa are still doing well. The company has increased the production and hence the waiting periods have gone down. The market is generally slow after Gudi Padwa. We see demand picking up from June.”

Jamshed Dadabhoy and Arvind Sharma, analysts with Citi, wrote in a note on Tuesday that there is a build-up of inventory levels.

“Estimates range from 3-4 weeks to around 6-8 weeks (at an industry level). The reasons alluded to are a combination of pre-buying before the Budget, slackening consumer confidence in the wake of falling realisations for crop prices and base effects,” they said.

About 55-60% of two-wheeler sales are in rural areas. “Slackening of rural economy has directly impacted the demand for two-wheelers and tractors. Crop prices have gone down affecting spending power of farmers,” said Srinivas of Bajaj Auto.