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Street turns cautious on two-wheelers as rural stress hits volumes

Motorcycles likely to clock single-digit growth, scooters to drive sector's volumes in FY16

<a href="http://www.shutterstock.com/pic-33415951/stock-photo-bikes-in-a-row.html?src=csl_recent_image-1" target="_blank"> Bikes image </a> via Shutterstock

Malini Bhupta Mumbai
The Street is betting heavily on the auto sector, as recovery is expected to lead to a sharp recovery in volumes. While Wednesday's rate cut might boost sentiment in urban areas, rural stress might continue to impact volumes of two-wheelers, which continued to buck the trend through the slowdown. Monthly volume trends for two-wheelers suggests two-wheeler demand is not as robust. While passenger vehicles are seeing higher enquires and conversions, the stress in rural India is telling on two-wheeler sales. In February, both Hero MotoCorp and Bajaj Auto reported double-digit decline in volumes. TVS Motor was the only two-wheeler firm to report a double-digit volume growth, largely driven by scooter sales.

In February, Hero's volumes fell four per cent year-on-year (y-o-y) and 13 per cent month-on-month (m-o-m) to 484,769 units. Bajaj Auto’s volumes dropped even more sharply during the month (22 per cent y-o-y and 16 per cent m-o-m) to 243,319 units. Analysts are largely attributing this decline to the build-up of stress in rural India. According to Motial Oswal Securities, two-wheeler demand remained weak as rural demand was impacted due to a variety of reasons like curtailment of MNREGA spends, poor crop realisation and moderating wages.

  Inventory levels are currently at five to seven weeks for two-wheelers, say analysts, suggesting the trend of weak monthly sales would continue in the coming months, too. The rise in excise duty and consequent increase in cost could further impact sales. Trend in volume growth in the first nine months of the financial year suggest the slowdown in two-wheelers is not a passing event. In the first half of FY15, two-wheeler sales grew 16 per cent compared to the year-ago period. However, volume growth in the 10-month period stands at 10 per cent, implying sales have steadily fallen after the first six months in FY15.

The deceleration in demand has been driven largely by motorcycles, even as scooter demand remains robust. It’s perhaps for this reason that market remains bullish on companies like Eicher (Royal Enfield) and TVS Motor. Deutsche Bank Global Research remains cautious on the two-wheeler segment. It says: "While we are forecasting an uptick in two-wheeler volumes during FY15-17 (12 per cent per annum), this should be driven mainly by scooters (18 per cent a year), as motorcycle growth (9.5 per cent a year) should continue to lag. High-end motorcycles (>250 cc) should be the exception, and we forecast this segment to grow at 40 per cent per annum.”

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First Published: Mar 04 2015 | 9:36 PM IST

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