Prospects brighten for two-wheeler makers

Stocks of two wheeler majors have already started reacting positively

Sudden buoyancy has set into the two-wheeler industry, triggered by forecasts of an above normal monsoon. The past two years had seen a deficit monsoon that affected purchasing power in the rural market, where about 40 per cent of two-wheelers are sold.

A private forecaster, Weather Risk Management Services, estimated last week that monsoon rainfall this year would be above normal in most parts. India Meteorological Department, the government forecaster, will release its first estimates on April 20.

Stocks of two-wheeler companies have started reacting positively. Hero MotoCorp, the nation’s largest two-wheeler maker, hit a 52-week high of Rs 3,009 on Tuesday. The stock has rallied 20 per cent since the start of the calendar year. Last week, TVS Motor touched a 52-week high of Rs 329 (see chart).

Two-wheeler sales grew only 0.86 per cent in 2015. However, a recovery in is already visible. In February, Hero’s domestic sales went up by 13 per cent. Overall, the industry grew by nearly 13 per cent in February. For Hero, March was even better as sales grew by 14 per cent. The firm sits on a strong 39 per cent share in the domestic market. Domestic sales of TVS increased by 19 per cent in March.

“Timely measures by the government and a good monsoon will be essential to sustaining this positive trend,” said Pawan Munjal, chairman,  managing director and chief executive officer of Hero MotoCorp, last week.  

Unlike previous months, when growth in the industry was being driven by scooters, motorcycles have also started contributing now. In February, motorcycle sales went up by 11 per cent. In 2015, sales of motorcycle, which form 65 per cent of two-wheeler volumes, had declined over three per cent. The rural market is critical for motorcycles. Sales of scooters, which are largely sold in urban areas, grew by 13 per cent in 2015.

“We have a growth forecast of seven-eight per cent for the industry this year. If rainfall is good, growth can be even higher at eight-nine per cent,” said Roy Kurian, vice-president (sales and marketing) at Yamaha Motor India.

The government had announced a slew of measures in the Budget to drive the rural economy. “The increased focus is positive along with the increase in wages of government employees from the Seventh Pay Commission. But the monsoon will be the most critical factor,” said Abdul Majeed, partner at PriceWaterhouse.