Two-wheeler makers saddled with excess capacity

Analysts expect growth in demand to decelerate in 2015-16 to 1-3% in view of limited first-time buyers

Capacity addition by two-wheeler makers Hero MotoCorp and Yamaha is behind schedule on uncertain demand. Market leader Hero MotoCorp stated its greenfield plant in Gujarat would come on stream in the first quarter of the next financial year instead of the third quarter of this year.

The plant, which will add a capacity of 1.8 million by March 2017, will take Hero’s capacity to 9.9 million in five plants. The Delhi-based company sold 6.63 million two-wheelers last year using 87 per cent of its 7.65 million capacity in four plants.

A slowdown in the rural market caused sales volume to grow just 6 per cent, much lower than Hero’s target of double digit growth during the year. Last year, Hero sold 6.24 million two-wheelers.

Speaking to analysts Ravi Sud, senior vice-president and chief financial officer, Hero MotoCorp, said, “We have started construction at Gujarat and we expect the plant to be ready for operations in the first quarter of the next fiscal year.”

Similarly, Yamaha’s Chennai plant is running 18  months behind schedule and the company is blaming the economic slowdown for the delay.

On the sidelines of launching a new scooter, Fascino, priced Rs 52,500 (ex-showroom, Delhi), Masaki Asano, managing director and chief executive officer, Yamaha Motor India Sales, said, “We will inaugurate the Chennai facility this month.”

The Rs 1,500-crore plant was to have become operational by January 2014 but was rescheduled for opening in January 2015. With an initial capacity of 450,000 the unit was to be ramped up in stages to 1.8 million by 2018.

Yamaha’s two-wheeler sales  were 729,436, using 73 per cent of its 1 million capacity that stands at its two plants in Haryana and Uttar Pradesh.

The two-wheeler industry, which depends for half its sales on rural markets, grew by 8 per cent last year. “We expect demand growth to decelerate in 2015-16 to 1-3 per cent in view of limited first-time buyers whose disposable incomes are unlikely to expand till India’s economic growth turns more reassuring,” ICRA said.