Two-wheeler may grow at 8-10%

The higher minimum support price (MSP), farm loan waivers in some states combined with a near-normal monsoon since last three fiscals and growing per capita income can bring some push in the domestic 2W industry volumes to grow at 8-10% during FY2019, the latest report from Icra said.

The forecast comes in wake of some adverse events like, floods in Kerala and regulatory changes in West Bengal, which affected the industry in 2018 in the form of an increase in insurance premium across the country which mandated two-wheeler sale only to valid license holders.

According to the analysts, with the election season nearing, the farm crises is getting more mileage from the politicians who are falling over each other to offer better prices for crops to the farms. Further, they are also trying to out-do each other in declaring loan waivers of the debt-ridden farmers, a move which has been severely criticised by many of the economists.

Icra in its report revealed that while the increase in the rural income would support motorcycle demand; the demand for scooters is expected to be led by rapid urbanisation, increased affordability and greater penetration through targeted product launches. However, on the flip side, concerns which could disturb the positive demand drivers are increasing the cost of acquisition of a two-wheeler due to rising raw material prices and hike in insurance premiums, rising interest rates and somewhat unevenly distributed monsoon in FY2019 (moderate impact).

The report further added that some pre-buying in the second half of FY2020 due to the implementation of BS VI from April 1, 2020, is likely.

According to a Mumbai based auto analyst associated with a global consulting agency, the new year will see the OEMs coming out with a slew of products catering to different segments. "However, the commuter and premiums will see most of the competition".

"Three consecutive years of good monsoon have led to a strong demand coming from rural markets for motorcycles which are driving the sales growth to a large extent," Siam deputy director general Sugato Sen said during the release of November wholesale data.

Further, the report points that overall, in the medium term, the two-wheeler industry is expected to report a volume CAGR of 7-8% with positive structural factors like favourable demographic profile, growing middle class, the participation of women in the workforce and rapid urbanisation. ICRA also expects increasing penetration of organised finance into tier 2/3 cities as well as rural centres to support domestic demand as the current share of financed vehicles remains moderate.

Last year in May, India overtook China to emerge as the world's biggest motorcycle market in the world with over 17.7 million vehicles getting sold, translating into 48,000 units on every single day.