Indian Two Wheeler Industry

7/31/2019 Indian Two Wheeler Industry

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ICRA LIMITED

Overview

The Indian two-wheeler (2W) industry recorded sales volumes of 3.4 million units in Q3, 2011-121, a growth of 11.0% (YoY) but

flat (QoQ). Although the YoY volume growth of the industry remained in double digits, the pace of growth during the last 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, 2011-12; even as the scooters segment continued to post 20%+ (YoY)

expansion. Overall, ICRA expects the domestic 2W industry to report a volume growth of ~13% in 2011-12 as we expect growth

to fade further in Q4, 2011-122

due to base effect.

In an environment where the northward movement of inflation, fuel prices and interest rates has been the nemesis of the Indian

automobile industry at large, the 2W industry has been the most resilient reflected in its healthy volume growth of 15.0% (YoY) in

9m, 2011-12. The growth has been supported by various structural positives associated with the domestic 2W industry including

favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under

developed public transport system, growing urbanization and expected strong replacement demand, besides moderate share of

financed purchases. ICRA expects these strengths, coupled with the OEMs thrust on exports, to aid the 2W industry to report a

volume CAGR of 10-12% over the medium term to reach a size of 21-23 million units (domestic + exports) by 2015-16.

Table 1: Trend in Sales Volumes of the Indian 2W Industry (Source: SIAM)

Volumes (Units, Nos.) YoY Growth (%)

Domestic 2009-10 2010-11Q1

2011-12

Q2

2011-12

Q3

2011-122009-10 2010-11

Q1

2011-12

Q2

2011-12

Q3

2011-12

Motorcycles 7,341,122 9,019,090 2,464,143 2,558,515 2,556,782 25.9% 22.9% 17.5% 15.4% 9.2%

Scooters 1,462,534 2,073,797 532,867 650,155 659,643 27.4% 41.8% 13.3% 29.0% 21.6%

Mopeds 564,584 697,418 190,672 192,859 186,472 30.9% 23.5% 21.0% 7.0% 2.6%

Total Domestic 9,368,240 11,790,305 3,187,682 3,401,529 3,402,897 26.0% 25.8% 17.0% 17.3% 11.0%

Exports 2009-10 2010-11Q1

2011-12

Q2

2011-12

Q3

2011-122009-10 2010-11

Q1

2011-12

Q2

2011-12

Q3

2011-12

Motorcycles 1,102,978 1,480,983 482,566 492,408 448,090 13.6% 34.3% 27.1% 31.7% 21.8%

Scooters 30,125 52,312 20,949 24,696 23,950 16.7% 73.6% 100.4% 88.5% 92.0%

Mopeds 6,905 6,295 1,461 3,478 2,796 -5.4% -8.8% -44.0% 159.2% 188.0%

Total Exports 1,140,008 1,539,590 504,976 520,582 474,836 13.5% 35.0% 28.6% 34.0% 24.5%

1Refers to domestic sales volumes

2The domestic 2W industry grew by 14.8% (YoY) in 10m, 2011-12

INDIAN TWO-WHEELER INDUSTRY

Volume growth decelerates in Q3, 2011-12; slower growth expected in Q4, 2011-12 as well

FEBRUARY 2012ICRA RATING FEATURE

Corporate Ratings

Anjan Deb Ghosh

+91 22 3047 0006

[email protected]

Analyst Contacts:

Subrata Ray

+91 22 3047 0027

[email protected]

Jitin Makkar

+91 124 4545 368

[email protected]

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54.0% 52.9% 55.5% 55.9% 56.5% 55.0% 56.2%

27.0% 28.5% 25.6%26.1% 25.3% 26.8% 25.1%

7.3% 7.1% 6.9% 6.8% 6.3% 6.8% 5.6%

8.2% 7.3% 7.1% 6.8% 7.3% 6.5% 8.1%

3.6% 4.2% 4.9% 4.4% 4.6% 4.9% 4.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1, 2010-11 Q2, 2010-11 Q3, 2010-11 Q4, 2010-11 Q1, 2011-12 Q2, 2011-12 Q3, 2011-12

Hero MotoCorp Bajaj Auto TVS Honda Motorcycles Others

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-

0.5

1.0

1.5

2.0

2.5

3.0

Q1, 2010-11 Q2, 2010-11 Q3, 2010-11 Q4, 2010-11 Q1, 2011-12 Q2, 2011-12 Q3, 2011-12

millionunits(Nos.)

Motor cycl es Vo lume s G rowth ( QoQ) G rowth ( YoY)

TREND IN QUARTERLY SALES VOLUMES AND MARKET SHARE IN MOTORCYCLES

Chart 1: Trend in Quarterly Sales Volumes of Motorcycles (Domestic)

Chart 2: Trend in Market Share in Motorcycles Segment (Domestic)

Sales Volumes Analysis - Motorcycles

The domestic motorcycles segment recorded a volume growth of 9.2% YoY

in Q3, 2011-12 and as has been the trend over the last several quarters, the

>125cc segment of motorcycles grew much faster than the 75-125cc

segment. With this, the contribution of the >125 cc segment to the total

motorcycles segment increased from 26% in 2009-10 to 29% in 9m, 2011-

12.

Market Share Trends

The Indian motorcycles segment continues to be dominated by Hero

MotoCorp which has maintained its market share at over 55% in the

domestic motorcycles segment over the last five quarters (Refer Chart 2).

The top three players accounted for 89.5% of the industrys volumes in Q3,

2011-12 (92.0% in 2007-08), with Honda Motorcycles reclaiming its spot as

the third largest player, a position which it had lost out to TVS in the

previous quarter after having retained it since Q4, 2009-10. In the 75-125cc

segment of motorcycles (that represented 71% of total motorcycles salesvolumes in 9m, 2011-12), Hero MotoCorp continues to be a strong market

leader with a share of 74.2% in 9m, 2011-12 (70.4% in 9m, 2010-11). In the

>125cc segment of motorcycles, while Bajaj Auto continues to account for

nearly half the segments volumes (49.1% in 9m, 2011 -12), Yamaha has

been the fastest growing having improved its market share from 8.1% in

9m, 2010-11 to 10.1% in 9m, 2011-12.

Short to Medium Term Outlook

ICRA expects the entry segment (bikes having price less than Rs.40,000) volumes in the domestic market to grow at a much slower

pace than the overall 2W industry and volume growth in this segmentto be driven mainly by exports. This is because the segment is no

longer a key focus area of OEMs due to limited scope for margin

expansion and high interest rate sensitivity.

While the executive segment (bikes in the Rs. 40,000-50,000 pricerange) is expected to maintain its steady growth, competition is likely

to intensify following aggressive model refurbishment and new model

launch plans of most OEMs.

The premium segment (bikes having price greater than Rs. 50,000) isexpected to remain the fastest growing over the medium term, given

the strong growth in purchasing power in the hands of middle-class

urbanites, especially in the age group of 20-30 years. This should alsotranslate into superior profit margins for players that are stronger in

the premium segment.

Source: SIAM, ICRAs Estimates




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-10%

0%

10%

20%

30%

40%

50%

60%

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Q1, 2010-11 Q2, 2010-11 Q3, 2010-11 Q4, 2010-11 Q1, 2011-12 Q2, 2011-12 Q3, 2011-12

millionunits(Nos.)

Scooters Volumes Growth (QoQ) Growth (YoY)

48.3%42.4% 41.3% 41.0% 42.4%

45.4%50.7%

19.6%23.6%

21.9% 21.2% 20.5%22.8%

19.4%

15.3%15.4%

16.7% 18.4% 18.4%15.0%

15.9%

11.1%9.9% 11.3% 12.1%

12.7% 10.4%9.1%

5.8% 8.7% 8.7% 7.3% 6.1% 6.5%4.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 , 2 01 0-1 1 Q2 , 2 01 0-1 1 Q3 , 2 01 0-1 1 Q4 , 2 01 0-1 1 Q1 , 2 01 1-1 2 Q2 , 2 01 1-1 2 Q3 , 2 01 1-1 2

Honda Motorcycles TVS Hero MotoCorp Suzuki Mahindra

TREND IN QUARTERLY SALES VOLUMES AND MARKET SHARE IN SCOOTERS

Chart 3: Trend in Quarterly Sales Volumes of Scooters (Domestic)

Chart 4: Trend in Market Share in Scooters Segment (Domestic)

FINANCIAL PERFORMANCE OF TWO-WHEELER OEMs

Segment-Wise Analysis

The strong double-digit volume growth recorded by the motorcyclessegment in Q1, 2011-12 (Refer Chart 1) was not consistent across all

segments - Entry, Executive and Premium. The volume growth was a

blend of:

The flattish growth (~3%) of the entry segment (bikes having priceless than Rs. 40,000) which accounts for around 16% of the total

domestic motorcycles sales volumes

The steady growth (~17%)of the executive segment (bikes in the Rs.40,000-50,000 price range) which accounts for around 65% of the

total domestic motorcycles sales volumes

The fast growing (~30%) premium segment (bikes having pricegreater than Rs. 50,000) which accounts for around 19% of total

domestic motorcycles sales volumes

Short to Medium term Outlook

ICRA expects the entry segment volumes in the domestic market to grow at

a much slower pace than the overall 2W industry and volume growth to be

driven mainly by exports. This is because the segment is not a key focus

area of OEMs due to limited scope for margin expansion and high interest-

rate sensitivity. While the executive segment is expected to maintain its

steady growth, competition is likely to intensify following aggressive

existing model refurbishment and new model launch plans of most OEMs.

The premium segment is expected to remain the fastest growing over the

medium term, given the disproportionate growth in purchasing power in

the hands of middle-class urbanites, especially in the age group of 20-30years. This should also translate into superior profit margins for players

that are stronger in the premium segment.

Market Share Trends

The Indian motorcycles segment continues to be dominated by Hero

MotoCorp (erstwhile Hero Honda) which has been recording sequential

gains in market share over the last three quarters. The top three players

accounted for 88.2% of the industrys volumes in Q1, 2011-12 (92.0% in

2007-08), with Honda Motorcycles having overtaken TVS since Q1, 2010-11

as the third largest player after Hero MotoCorp and Bajaj Auto.

Sales Volumes Analysis - Scooters

Barring Q1, 2011-12, the growth in scooter segments sales volumes has

generally outperformed that of the motorcycles segment, partly due to the

formers smaller base. In Q3, 2011-12 too, the sales volumes of the

domestic scooters segment at ~660,000 units recorded a growth of 21.6%

(YoY), higher than the 9.2% growth in motorcycle sales. With this, the share

of the scooters segment in the total domestic two-wheeler volumes

increased to 19.4% in Q3, 2011-12 from 17.6% in 2010-11.

Market Share Trends

Overall, Honda Motorcycles continues to maintain its leadership position in

the scooters segment through its flagship brand Activa (besides Aviator and

Dio) enjoying a market share of 50.7% in Q3, 2011-12. While capacity

shortfall at the companys plant at Manesar (Haryana) had restricted its

volume growth in the recent past, the company began commercial

production at its new plant at Tapukara (Rajasthan) in July 2011. This has

allowed the company to consolidate its market position over the last two

quarters. However, Hero MotoCorps demonstrated success in improving

market share (through its sole brand Pleasure) coupled with new scooter

models proposed to be launched by Hero MotoCorp, TVS and Yamaha over

the short to medium could imply shrinkage of market share gap between

the market leader and others over time.

Short to Medium Term Outlook

ICRA expects the scooters segment to gradually increase its share in the

domestic 2W market from 17.6% in 2010-11 to ~21% by 2014-15. With this,the domestic scooters market is estimated to nearly double in size by 2014-

15. Thus, even as a multitude of brands already dot the segments

landscape and more are expected to follow, the likely expansion in the pie

should offer sufficient volumes for the industry to grow profitably. For the

new entrants, a faster gain in market share could hasten the process of

profitability improvement.





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0%

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4%

6%

8%

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12%

14%

16%

18%

0

1,000

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3,000

4,000

5,000

6,000

7,000

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Rs.

Crore

Revenues OPM PAT Margins

0%

5%

10%

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20%

25%

30%

35%

0

1,000

2,000

3,000

4,000

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Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Rs.

Crore

Re ve nue s OPM PAT Margins


Hero MotoCorp Bajaj Auto

Chart 5: Trend in Financial Performance of Hero MotoCorp Chart 6: Trend in Financial Performance of Bajaj Auto

Revenues: In Q3, 2011-12, Hero MotoCorps revenues at Rs. 5,983.6 Crore

grew by 16.9% YoY and 3.4% QoQ, supported by 11.3% YoY and 2.9% QoQ

increase in sales volumes and 5.0% YoY and 0.5% QoQ increase in average

realizations. Till 2010-11, exports accounted for 2.5% of the companys

sales volumes. Although since the time Hero MotoCorps JV agreement

with its erstwhile partner Honda (Japan) ceded in Dec 2010, the company

has been unable to scale up its exports much; it is likely to get more

aggressive on the exports front as and when its fourth manufacturing plant

gets established (for which the company is mulling a location near one of

the ports).

Operating Profit Margins (OPM): Hero MotoCorps OPM at 15.0% in Q3,

2011-12, declined marginally by 15 basis points (bps) QoQ but increased by

454 bps YoY. The YoY expansion in HMCLs core EBITDA margins, however,

was relatively lower at 194 bps YoY on exclusion of the estimated royalty

payments made by HMCL to its erstwhile partner Honda Motor Company

(HMC, Japan) in Q3, 2010-11. Going forward, HMCLs ability to sustain the

scale required to absorb the additional expenses being incurred for

creating a new corporate brand, introduction of new models, building of

R&D capability and exploring overseas markets will govern its profitability.

Net Profits:Hero MotoCorps Q3, 2011-12 PAT at Rs. 613.0 Crore grew by

42.9% YoY and 1.6% QoQ. Overall, the companys revenues and PAT

touched a record high in Q3, 2011-12.

Revenues: In Q3, 2011-12, Bajaj Autos revenues at Rs. 5,063.2 Crore grew by

21.2% YoY but declined by 3.9% QoQ) led by continued strong exports growth in

both the 2W as well the three-wheeler (3W) segments; increase in average

realization due to both price increase as well as favourable change in product

mix; and favourable currency movement on exports. The company

managements outlook on exports (~32% of 2W volumes in Q3, 2011-12)

remains robust with a target to achieve export of 1.5 million units in 2011-12E,

reflecting a growth of 25% over 2010-11.

Operating Profit Margins (OPM):Bajaj Autos OPM improved to 21.0% in Q3,

2011-12, higher by 63 bps YoY and 89 bps QoQ. The improvement in margins

was supported by relatively higher realizations from exports, operating leverage

benefits and rationalization of spends on sales promotion. The DEPB benefits

were discontinued post September 2011; however, BAL has undertaken price

increase on export models (besides price increase on domestic models), which

should allow the company to sustain its margins going forward.

Net Profits: In Q3, 2011-12, while Bajaj Autos OPBITDA growth at 25.0% (YoY)

was robust, the companys PAT at Rs. 795.2 Crore grew at a relatively lower rate

of 19.2% (YoY). This was due to the exceptional MTM loss of Rs. 58.9 Crore

recorded by the company in Q3, 2011-12 related to the valuation of forward

exchange contracts. This is a notional loss and would get reversed on maturity

of the underlying contracts (assuming the companys actual exports remain inline with its budgeted estimates during the term of the contract).



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0%

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0

500

1,000

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2,000

2,500

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Rs.

Crore

Revenues OPM PAT Margins


TVS Motor

Chart 7: Trend in Financial Performance of TVS

Revenues: In Q3, 2011-12, TVS Net Sales at Rs. 1,762.2 Crore grew by

7.0% YoY but declined by 11.5% QoQ. While the companys total 2W

volumes in Q3, 2011-12 grew by 0.9% YoY and total three-wheeler (3W)

volumes declined by 11.0% YoY, the revenue growth was much higher by

virtue of favourable change in product mix. Thus, notwithstanding the

increase in proportion of low-ticket mopeds in TVSs domestic 2W sales

volumes from 39% in Q3, 2010-11 to 41% in Q3, 2011-12, the increase in

proportion of >100cc scooter (Wego) and >125cc motorcycles (mainly

Apache RTR family) in its sales mix enabled it to improve its average

realization YoY.

Operating Profit Margins (OPM):TVS OPM at 6.5% in Q3, 2011-12 was

44 bps higher YoY but 40 bps lower QoQ. While the companys product mix

in Q3, 2011-12 was in its favour on YoY basis, its relative deterioration on

QoQ basis accordingly translated into movement in OPM.

Net Profits: While TVS recorded OPBITDA growth of 14.6% YoY in Q3,

2011-12, the companys PAT growth at 1.4% YoY was much lower on

account of higher tax rate and lower other income. Also, the companys

PAT in Q3, 2011-12 declined by 26.1% on QoQ basis both due to negative

revenue growth (QoQ) as well as decline in OPM on QoQ basis.



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ICRA LIMITED

Analyst Contacts

Analysts Contacts

Mumbai

Subrata Ray [email protected] 022 3047 0027

Kinjal Shah [email protected]

022 3047 0027

Delhi

Anupama Arora [email protected] 0124 4545303

Shamsher Dewan [email protected] 0124 4545328

Jitin Makkar [email protected]

0124 4545368

Chennai

Pavethra Ponniah [email protected]

044 45964314

ICRA Limited

An Associate of Moody's Investors Service

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Copyright, 2011 ICRA Limited. All Rights Reserved.

Contents may be used freely with due acknowledgement to ICRA.

All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true,

such information is provided 'as is' without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of

any such information. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication

or its contents.

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Indian Two Wheeler Industry