Two-wheeler sales will continue to be driven by scooters and their share in the industry will jump to around 40 per cent by 2019-20, according to a report
Two-wheeler sales will continue to be driven by scooters and their share in the industry will jump to around 40 per cent by 2019-20, according to a report.
ADVERTISEMENT
Representational Picture
The report by the Swiss brokerage Credit Suisse further says that market leader MotoCorp will have the lowest volume growth while TVS will have maximum earnings disappointment due it its stretched valuations.
"In more developed states, scooter share has already crossed 40 per cent and is still increasing and we expect the share of scooters to reach around 40 per cent by FY20, which should be the most positive for Honda, which completely dominates the space," the report said.
It added that scooters are growing at the expense of lower executive bikes. It notes that over the past five years, the share of scooters has risen from around 20 to over 30 per cent while the share of lower executive bikes (under Rs 50,000, same as scooters) has shrunk from 35 per cent to 25 per cent now.
For the sector as a whole, the new fiscal year will not be that great as low commodity benefits are behind the industry, which will lead to margin headwinds once again.
"We believe the trend of scooters gaining share from the lower executive segment will continue even though product mix continues to move towards scooters, which is a structurally lower-margin product," CS Research Analysts Jatin Chawla and Akshay Saxena said in a note.
Though there will be a cyclical recovery in 2016-17, Hero MotoCorp will have the lowest volume growth while TVS will have maximum earnings disappointment due it its stretched valuations, said the brokerage, which favours four-wheelers over two-wheelers. It added that slowdown in higher-margin exports and the expiry of excise and income tax exemptions present another headwind.
"A good monsoon and a pick-up in the pace of the economic recovery should augur well for auto volumes.
"In our view, it is much better to play this recovery through 4Ws (four-wheelers) rather than 2Ws (two-wheelers). Not only is the cyclical correction deeper in 4Ws than 2Ws, 4Ws also have a much higher operating leverage once volumes bounce back," the report argued.
It noted that while four-wheelers grew at 2 per cent CAGR, two-wheelers clipped at 7 per cent CAGR in the past five years.
Yadvinder Singh Guleria, Senior VP for sales and marketing at Honda Motorcycle and Scooter India told PTI that he expects 20 per cent sales growth this fiscal, primarily driven by scooters.
The Japanese major accounts for a whopping 56 per cent of the scooters market as of 2015-16 and he expects it to rise further with more supplies from its 1.2 million units capacity Gujarat plant.
"With commodity benefits behind us, 2W industry to again face margin headwinds. Whilst the Honda threat has diminished, competitive intensity remains high in the 2W industry. Pricing remains under pressure as OEMs continue to launch aggressively priced variants," the report.
The report said exports do not look rosy this year. For the listed 2W players, exports have a significant contribution to volumes but are likely to decline in FY17 because currency in some of the large export markets has depreciated by 30-50 per cent in the past one year alone.
In terms of volumes, the report said Hero MotoCorp will have the lowest volume growth with a CAGR of around 6 per cent for the next five years, while TVS and Honda will have volume growth of 10 per cent CAGR.
On entry-level bikes side, the report notes that Hero has broadly increased its market share from 70 to 85 per cent at the expense of Bajaj, which has responded by aggressively priced products in the economy segment, leading to both market share increase and segment growth.
The share of premium segment is once again rising, especially with cruisers from both Royal Enfield and Bajaj doing very well. Hero has high exposure to the weakest growth segments and hence will have the lowest volume CAGR of 6 per cent over the next five years, while Bajaj is likely to clip at 8 per cent CAGR, and TVS and Honda are likely to post 10 per cent CAGR growth.
On the margins side, the report says disappoint will continue for most two-wheeler companies. While the threat from Honda on motorcycles market share has stabilised now, competitive intensity in the industry remains high with smaller players like Eicher, Yamaha and TVS also doing well within their niches.
The industry has witnessed gross margin expansion in 2015-16 on account of the sharp fall in commodities but pricing power remains capped. The trend of players launching aggressively priced products has continued, it said.
This, combined with a shift in product mix towards lower margin scooters, should put pressure on margins, the report said.
Slowdown in exports should also negatively impact margins given the Chinese competition. The expiry of excise duty and income tax incentives in Uttarakhand should also negatively impact margins for Hero, Bajaj and TVS, it added.
Subscribe today by clicking the link and stay updated with the latest news!" Click here!
