After a strong growth over the last two years, two-wheeler sales seem to have hit speed bumps. Inventories are piling up at dealers and analysts warn of subdued growth going ahead.
"Although the year-on-year volume growth of the industry remained in double digits, the pace of growth during the third quarter was at its lowest gear in the last three years. The deceleration in growth was contributed mainly by the motorcycles segment which grew at a much lower rate of 9.2% YoY in Q3; even as the scooters segment continued to post 20%+ expansion," said Subrata Ray of ratings agency ICRA.
Growth has further slowed in the last two months. On Friday, Bajaj Auto reported February sales rose just 5% year-on-year at 3,43,777 units. Its domestic sales, in fact, slipped 1.5%, the first fall since July 2009, point out analysts.
So far over the April-February period, Bajaj Auto's total sales are up 14%, in contrast to the 34% growth in 2010-11.
TVS Motor reported 1,52,796 unit sales in February in the domestic market, a marginal rise from 1,51,526 units it sold last year. Its total sales were down 3% as exports slipped sharply.
Hero MotoCorp maintained a strong double-digit growth, but sales growth was slower at 11% in Feb, compared with 17% growth it has seen over April-Feb.
Overall motorcycle demand has started moderating in India and Hero dealers have reported month-on-month increase in inventory, points out Abhijeet Naik of CLSA Asia-Pacific Markets.
Softening rural demand, apart from high fuel prices, is seen as a major factor in slowing sales. Utility vehicle maker Mahindra & Mahindra too has seen a sharp decline in tractor sales, another indicator of lower farm income.
"Going by Feb volumes, two-wheelers are also witnessing a moderation in growth. Reports indicate higher dealer inventory with no waiting period," said brokerage Sharekhan.
Vineet Hetamasaria, VP - Research at Pinc says it's the executive segment (where Hero dominates) and scooters (where Honda Motorcycle & Scooter India is the market leader) that is still relatively doing good sales.
While, Bajaj stopped making scooters two years ago, it is a laggard in the executive segment and that is hurting sales, Hetamasaria told moneycontrol.com. TVS Motor too has missed a big opportunity due to marketing issues and several of its new launches like the Jive and Flame motorcycles failed to excite customers, he said.
Honda Motorcycle is the only one that continues to see brisk sales, led by its flagship Activa scooter, even as others hit the brakes. Its sales in February accelerated 41% to 2,06,043 units, led by scooters, which saw near 54% growth and motorcycle sales were up 26%.
How's the road ahead?
Naik of CLSA expects the motorcycle industry in India will grow at just 8% in the next fiscal year.
Pinc's Hetamasaria feels sales will remain subdued for at least one more quarter for Bajaj Auto.
The company has started sales of its sports bike Duke from Austrian company KTM's stable. Its new Pulsar 200 NS will also hit the markets next month followed by another new motorcycle in May. Sales of these new products will be keenly eyed.
From a more longer term perspective ICRA says two-wheeler sales in India will grow at a compounded rate of 10-12% to reach 21-23 million units (including exports) by 2015-16.
The domestic scooters market will almost double in size by 2014-15, with its market share increasing to 21% from 17.6% by then.
Among motorcycles executive segment is expected to keep a steady pace, but there will be much more competition (especially from Honda Motorcycle, which severed ties with Hero in 2010, and is now targeting the market aggressively).
CLSA is cautious on the two-wheeler sector. It recommends a "sell" on Hero MotoCorp and "underperform" on Bajaj. Pinc has an "accumulate" on Hero and Bajaj.
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