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  • SEPTEMBER 13, 2002

Two-wheelers: The road ahead

While it is known that there has been a dramatic change in the two-wheeler industry mix with motorcycle sales gaining upperhand over the years, what could be the future trend in the market? Will players like Bajaj Auto and TVS that have presence in segments like scooters and mopeds be able to generate volumes especially when consumer aspirations are changing at a faster clip?

Consider the last five year performance of the two-wheeler industry first. The compounded annual growth rate (CAGR) between FY97-FY02 was 7.8%. But as is evident from the table below, much of it was led by the motorcycle segment that grew at 28.9% during the same period. Volumes have almost quadrupled in the last five years to touch 2.8 m units in FY02 (0.8 m in FY97). Scooter segment, on the other hand, witnessed a sharp slump in demand due to change in customer preference towards more trendier vehicles.

With interest rates also falling considerably in the last five years, consumers could migrate to motorcycles thanks to some innovative finance schemes, both by manufacturers and banking majors. While overall scooter sales have plummeted, ungeared scooters have seen secular growth in volumes on account of better fuel efficiency and increased urban demand (notably youth). Ungeared motorcycle volumes have grown at a CAGR of 9.2% in the last five years. In mopeds and step-thrus there is not much to write home about. Just to put things in perspective, TVS's moped model sells in the range of around Rs 12,000 to Rs 16,000. At the same time, the basic model of an ungeared scooter is priced at Rs 15,000 upwards. Will a consumer prefer an ungeared scooter or a moped, given the fact that both are bought through vehicle financing? That said, mopeds and step-thrus sales see predominantly rural-oriented demand and still account for 12% of two-wheeler segment.

Looking forward…
SegmentCAGR (last five yrs)CAGR (next five yrs)
Motorcycles28.9%10.7%
Scooters-7.7%3.3%
– Geared-14.1%-4.4%
– Ungeared9.2%10.8%
Mopeds-5.1%-7.1%
Step-thrus-12.0%-8.7%
Industry7.8%7.5%

Having taken a brief look at the historic trend, what does the future hold for two-wheeler majors? We expect robustness in motorcycle volumes to continue in the coming years as well, especially with manufacturers now concentrating on lower end models that have adequate fuel efficiency (the two key demand drivers). Since the segment has already quadrupled in the last five years, it is difficult for one to extrapolate similar growth projections in the future. While motorcycle sales is expected to grow at 22% in FY03, we expect growth to taper in the future. In this context, a 10.7% CAGR in the next five years looks reasonable in light of the current economic growth prospects. At 4.7 m units in FY07, motorcycle segment would still account for a mammoth share of 76% in the two-wheeler pie.

While 3.3% CAGR for scooter segment may not be impressive at first glance, ungeared scooter sales would still grow at a faster rate considering the focus of manufacturers like Bajaj, Honda, LML and TVS in this category. Geared scooters, mopeds and step-thrus growth prospects are not promising keeping in mind various factors like pricing, affordability, competent models and fuel efficiency. Given this backdrop, we expect the two-wheeler segment to grow at a CAGR of 7.5% in the next five years. Who will benefit the most and how is a different story.

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