Domestic two-wheeler sales second lowest in 7 years, shows data

Likely to end year with 3-6% YoY decline: CRISIL estimates

Domestic two-wheeler sales in India may have recovered marginally in the seven months to October of the current financial year, but are still in pandemic phase. 

They are likely to end the year with a 3-6 per cent year-on-year decline, revealed CRISIL Research estimates.  

In the seven months to October, volumes rose marginally to 8,059,237 units, from 8,037,492. This is the second lowest in seven years, according to the latest sales data (factory-gate despatches) from the Society of Indian Automobile Manufacturers. 

A proxy for India’s economic well-being, declining volumes shows not all is hunky–dory with one of the world’s largest economies.

“There is a dual-income effect playing out, with the lower income class being impacted structurally. This has weighed on the sales of entry-level motorcycles (110cc to 125cc) that have seen significant slowdown,” says Hemal N Thakkar, director, CRISIL Research.

This is pronounced even in other consumer-facing product categories, including housing, consumer durables, and passenger vehicles — those at the bottom of the income pyramid have tightened their purse strings amid economic distress unleashed by the pandemic.

On the contrary, the affluent class is splurging on pricier cars, motorcycles, and high-end products.     

“The status of the two-wheeler industry is a reflection on the bottom half of the economy because two-wheelers are used by the lower middle class,” Rakesh Sharma, executive director, Bajaj Auto, told investors after the company’s second-quarter earnings last month. 

Two-wheeler manufacturers had been riding on the festival season for a sales turnaround, but the period turned out to be a dampener.

A total of 1.56 million two-wheelers got registered over the last 45 days (the whole of October and the first 15 days into November). These include the 30-day festival period starting from Navratri and ending with Bhai Dooj.

In 2020, a total of 4 million units of two-wheelers got registered in the months of October and November. Going by the current month’s sales, if one were to extrapolate the full month’s registration, the total number of registration of two-wheelers retailed will be close to 2.13 million units, half of what the trend was a year ago.   

The slowdown seen in the segment is structural in nature and unlikely to be corrected anytime soon, says CRISIL’s Thakkar. The estimated 3-6 per cent decline comes on an already low base of the last few years. It is only from 2022-23 that one can expect some growth, he adds.

Saddled with inventory, two-wheeler companies are now pinning their hopes on the upcoming wedding season. The season typically leads to a higher offtake of motorcycles and scooters.

Market leader Hero MotoCorp has a current inventory of five to six weeks, the company’s management told investors in a post-earnings call on Saturday, conceding that the festival season hasn’t been as good as last year’s.

Impacted by the delayed monsoon and harvesting, the company’s festival season sales declined in double digits. It is hopeful of making a recovery in the upcoming wedding season on the back of multiple positive indicators, such as good monsoon, improving consumer confidence index, and the recent cut in fuel prices.

So, what is ailing the world’s largest two-wheeler market?

This segment of the automotive market has been at the receiving end from every quarter — be it regulation on safety and insurance, skyrocketing fuel prices, a patchy and delayed monsoon, sluggish infrastructure projects in rural India, increase in prices or disruption caused by electric two-wheelers.

Among other reasons, a sharp 25 per cent jump in prices of two-wheelers in the last few years has dissuaded buyers, particularly entry-level.

Over the past few quarters, manufacturers of scooters and motorcycles have been forced to take frequent price hikes owing to a steep run-up in metal prices. Hero MotoCorp, for instance, has taken a price hike of up to Rs 3,000 across its line-up in the current financial year, the company informed investors.

Others like Bajaj Auto, TVS, Eicher Motors’ Royal Enfield have also been hiking prices to offset input-cost pressures.

“The rural demand has been weak after the second wave of Covid-19 due to the severe impact of the pandemic on income and sentiment, as well as irregular rainfall. This has adversely impacted sales in the current year, including during the recent festival season,” says Amit Mishra, vice-president-research, Antique Institutional Equities.

With high penetration, more than 200 million two-wheelers sold over the past 15 years, coupled with a rapidly increasing penetration of electric two-wheelers, will mean the best years of internal combustion engine-based two-wheeler sales may be behind us, says Mishra.