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2-wheeler industry to see 4-5% volume growth in FY13: ICRA

Source : BUSINESS_STANDARD
Last Updated: Fri, Mar 29, 2013 20:40 hrs
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The domestic two-wheeler industry is expected to report moderate volume growth of around 4-5 per cent in 2012-13, as demand slowdown as well as base effect catches up with the industry, says a recent ICRA report on the industry. The two wheeler industry, however, has clocked a compounded annual growth rate (CAGR) of 21.8 per cent over the last three years.

The report further adds that over the medium term, the two-wheeler industry is expected to report a volume CAGR of 8-9 per cent, to reach a size of 22-23 million units (combining domestic and exports) by 2016-17.



"Our longer-term growth forecast remains at 9-11 per cent , as we believe the various structural positives associated with the domestic two-wheeler industry including favourable demographic profile, moderate two-wheeler penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization, strong replacement demand and moderate share of financed purchases remain intact; as also the large opportunity available to grow presence in overseas markets, mainly Africa and Latin America," the report says.

With domestic volume growth of 3.9 per cent year-on-year (yoy) and exports volume dip of 1.1 per cent yoy in 11 months of 2012-13, the Indian two-wheeler is currently amidst a slowdown phase last experienced in 2007-08 / 2008-09.

Several factors including high inflation, firm interest rates, rising petrol prices, besides weak monsoons have been dampening demand in the domestic market over last several quarters.

At the same time, overseas sales have been adversely impacted by increase in interest rates in several target countries, increase in import duty in Sri Lanka, trade restrictions imposed by Argentina and dollar sales embargo with Iran. This apart, the reduction in incentives available to two-wheeler exporters, twice over the last 18 months, has persuaded Indian original equipment manufacturers (OEMs) to partially hike product prices in overseas markets, adding to the pressure on export volumes.

The report highlights that based on calendar year 2012 volumes, however, India is now the largest two-wheeler market in the world, with sales volumes of 13.8 million units (domestic). It has overtaken China at 12.6 million units. In fact, while two wheeler sales volumes in India grew by 5.8 per cent during 2012 calendar year over the previous year, the domestic demand both in China and Indonesia second and third largest two-wheeler markets, respectively) shrunk by 10.0 per cent and 9.2 per cent, respectively.

Several industry participants have announced greenfield capacity expansion plans in recent periods. Hero MotoCorp plans to invest Rs 1,500 crore over the next two years towards establishing facilities in Rajasthan and Gujarat; Honda is in the process of setting-up its third manufacturing facility in Karnataka; Yamaha too is setting-up a new plant in Tamil Nadu at an investment of Rs 1,500 crore. Together, these three OEMs will add 4 million units of additional two-wheeler capacity over the next two years, representing 22 per cent addition on existing industry capacity.

ICRA expects these large investments to exert pressure on the industry's profitability metrics over the near term as volume growth moderation further takes root in the absence of immediate demand triggers.

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