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Motorcycles vs Scooters: the verdict is clear - Views on News from Equitymaster
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  • Jul 29, 2000

    Motorcycles vs Scooters: the verdict is clear

    Two wheelers segment has been the most vibrant in the automobile sector. In the past five years this segment has grown at a CAGR of 19 percent, as compared to cars which grew at 13 percent and commercial vehicles which fell by 3 percent. It is the only automobile segment which has withstood the economic downturn of the past few years.

    The reasons for this are many: rise in income levels, impact of urbanisation, easy availability of finance and of course the most important, the fact that two wheelers are preferred entry level vehicles. This being due to their low price and reasonable maintenance cost. In a developing country like India, this segment is likely to have buoyant demand over the years to come.

    Though overall two wheeler volumes have been growing, the composition of the two wheeler industry has undergone dramatic changes in the last few years. Why has this happened? The answers to this are many. The two main sub-segments scooters and motorcycles have moved in opposite directions. On one hand, scooter volumes have declined while on the other Indo-Japanese motorcycles have reported robust growth rates. Demand for scooters has a direct correlation to industrial growth, while motorcycles have a correlation to agriculture growth. The agriculture sector has performed very well over the last couple of years, while the industrial sector performance was lacklustre during this period. This has lead to opposite demand trends in both the segments.

    Motorcycles have swept the market
    % market share FY96 FY97 FY98 FY99 FY2000
    Scooters 46% 44% 41% 39% 33%
    Motorcycles 30% 33% 37% 41% 48%
    Mopeds 24% 23% 21% 20% 19%

    India has experienced normal monsoons for over a decade now, this has resulted in a rise of rural incomes over this period. Motorcycles due to their large wheel base and high mileage are preferred over scooters in rural areas as they ride well on long distance, bumpy and uneven roads. Besides the fact that motorcycles are sleeker than scooters coupled with the infusion of Japanese technology, has added to their demand. On the other hand scooters are more practical to use in urban areas.

    The key players in the motorcycle segment are Hero Honda, Bajaj Auto and TVS Suzuki. Hero Honda leads the market with a 42 percent market share. Its tie-up with Honda Motors gives it access to the best available technology. It continues to report good growth in volumes and has the distinction of introducing the first disc brake model. Bajaj Auto has the second highest market share at 24 percent. BAL though a late comer has recently become very aggressive in motorcycles and is stepping up its capacity to capture a higher chunk of the industry. This new found aggression of BAL is expected to make it achieve a higher market share in the current year. The third largest player, TVS Suzuki with a 18 percent market enjoys some technological inputs from its partner Suzuki.

    Hero Honda enjoys highest market share
    Company Motorcycles Market share
      (no. of units sold) (FY2000)
    Hero Honda 761,700 42%
    Bajaj Auto 431,308 24%
    TVS Suzuki 326,357 18%
    Escorts 251,865 14%
    Royal Enfield 25,504 1%
    Total industry 1,796,734 100%

    In the current year motorcycles continue to grow at buoyant growth rates. For April' and May'2000 cumulatively they have registered a growth of 33 percent. This segment is expected to maintain a steady growth in future too, with introduction of new models and higher technology. The agriculture sector performance is expected to be on line due to expectations of a normal monsoon in the current year. This will continue to back the demand for motorcycles.

    Mopeds another segment of the two wheeler market has lost market share to motorcycles. The major players in this segment are TVS Suzuki, Kinetic Engg., Majestic Auto and BAL. However moped demand has picked up well as compared to scooters. Though they are less powerful than scooters, mopeds are selling at more or less the same prices as scooters. The main reasons for this is that they are trendy and stylish as compared to the traditional scooters and are popular with the younger generation.

    In the three wheeler market BAL continues to be the market leader with a 81 percent market share. Though this segment has been fairly stagnant due to licensing problems from various state governments, it is bound to pick up as pollution norms across the country are becoming stricter. To take advantage of this the company has recently launched its 4 stroked CNG model in New Delhi.

    BAL market leader in scooters
    Company Scooters Market share
      (no. of units sold) FY2000
    Bajaj Auto 740,059 52%
    LML 282,901 20%
    Maharshtra Scooters 146,671 10%
    TVS Suzuki 127,554 9%
    Kinetic Honda 120,232 8%
    Total industry 1,417,417 100%

    All the segments will face higher competition in FY2001 with companies launching innovative models with increasing focus on price and quality. Also with emission norms getting more stringent, companies will have to invest in upgrading technology and may pass on the incremental cost to the consumer. Suitable technology, a strong distribution network and ability to introduce new products will determine which companies will survive the future competition.

    Currently the market is buoyant for motorcycles and mopeds. Given the size of the rural market and the way this market is expected to grow the future looks bright for motorcycles. The scooter segment too will pick up on the premise that it is the lowest cost entry vehicle. For a developing country like India, demand for scooters will always exist. However there is no doubt that motorcycles will continue to dominate the composition of the India's two wheeler market as over 80 percent of India's population lives in rural areas. The verdict is clear.



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