Two-wheeler: Promising prospects - Views on News from Equitymaster

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Two-wheeler: Promising prospects

Mar 18, 2002

The domestic automobile sector has been buzzing with activity off late. The industry has been suffering on account of sluggish industrial production and slower economic growth. However, the two-wheeler segment has been growing at a robust rate in recent years. Consider the sector profile and transition in brief. The two-wheeler industry has grown at a CAGR of 7% over the last five years to 3.7 m units in FY01. But the segment-wise mix within the industry has changed drastically. Growth has been primarily led by the motorcycle segment, which registered a CAGR of 20% in the same period. While mopeds grew at a meager rate of 2% between FY97-01, scooter volumes have shrunk by 5% in the last five years. Even within the scooter segment, geared scooter sales declined by 38% in FY01 whereas un-geared category grew by around 8%.

But what are the future growth prospects? Motorcycles have gained an upper hand over scooters, as they are more trendy and sleek. Besides, with competition increasing, the affordability factor has also been in favour of the former. Bajaj’s ‘Boxer’ currently sells at Rs 32,000 (ex-showroom), which is significantly lower when one compares the historic price range of around Rs 36,000-Rs 38,000 per motorcycle. Excise rationalisation and emission norms have also increased the cost of scooters in Eastern India, which is one of the key markets for manufacturers. One of the key factors that have also benefited two-wheeler manufactures is cheaper financing options for consumers. Manufacturers are currently focusing on higher-tenure-low-EMI based financing schemes, as it would be light on the consumers’ pocket.

Keeping these factors in mind, we expect the scooter segment to grow at a CAGR of just 2% in the next five years to 0.9 m units. However, geared scooter volumes are expected to stagnate at 500,000 units per annum. But ungeared scooter is expected to grow at a CAGR of 6% over the next five years, which would benefit players like Bajaj Auto and TVS Motors. While industry volumes are expected to touch 5.3 m by FY05, motorcycles would account for as high as 72% the industry. The key players to benefit would be Bajaj Auto and Hero Honda. TVS, though has been successful with its new model ‘Victor’, it still has a long way to go.

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