Three of the top five two-wheeler makers in India are running their manufacturing facilities at less than peak capacity as weak rural demand due to a late monsoon and low exports hurt motorcycle off-take.
India’s largest two-wheeler maker Hero MotoCorp registered its second straight fall (in two months) in total sales even as the Delhi-based company gets ready for further production cuts to avoid unnecessary inventory build-up at the dealers’ end.
Pawan Munjal, managing director and chief executive officer, Hero MotoCorp said: "Retail sales have been slow in the two-wheeler industry in July and August. I do not expect September to be better. We already have stocks for the festive season. We are correcting production to prevent build-up of inventory."
Motorcycles make up 80 per cent of two-wheeler sales in India. Though the market-share of gearless scooters is up from 12 per cent two years ago to 20 per cent now, a dip in motorcycle sales can pull down the two-wheeler industry.
In August this year, total sales, domestic as well as exports, of seven two-wheeler producers in India dipped for the first time since January 2009, according to sales data gathered from the companies. The industry saw sales of 1,195,534 units during the month, a drop of 5.45 per cent as against 1,264,512 units sold in the same month a year ago.
The fall in sales at Hero Motocorp widened further in August compared to July as its top selling economy bike Splendor registered lower-than-expected retail sales. The company, which saw an unprecedented volume growth last year crossing the six-million vehicles mark, was confident of sustained demand. It had planned two new plants to take total production to nine million units.
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Bajaj Auto, the country's third largest two-wheeler maker, is playing safe by keeping production in tune with the retail demand. The Pune-based company slowed down to total sales of 304,352 units in August, a fall of 10 per cent as against 338,054 units sold in the same period a year ago.
K Srinivas, president, motorcycle divison, Bajaj Auto, said, "The motorcycle industry has been showing signs of slowdown right from November 2011. Bajaj Auto read the signs early and as per our policy we have been billing only what finally gets retailed. We have very good reasons to believe that not all other manufacturers have followed this philosophy."
Bajaj Auto is the largest exporter of motorcycles from India catering mainly to Asian markets. A third of its production every month goes to foreign markets. The company confirms that in addition to the urban center the rural market which was the growth engine for manufacturers has also slowed down.
"If all others had also billed as per retail the industry would show negative growth which is its true reflection. Both urban and rural markets have slowed down", added Srinivas.
A larger presence in the gearless scooter segment (scooters form about half its sales) has helped the second largest two-wheeler manufacturer Honda Motorcycle and Scooter India (HMSI) to register an increase in overall sales.
The company recorded total sales increase of 39 per cent to 222,768 last month as compared to 160,666 units sold in the same month a year back. In addition, increasing exports and new economy bike models have helped the company.
"There was an uncertainty about the monsoons and the MET department was apprehensive of drought in parts of the country. This had slowed consumption. With the festive season approaching consumer sentiment should pick-up", said Yadvinder Singh Guleria, operating head (sales & marketing), HMSI.
Chennai-based TVS Motors lost ground in August, marking the biggest fall among the major two-wheeler players. Its total sales dropped to 150,740 units last month, a fall of 20 per cent as against 190,184 units sold same month previous year. This has not prevented the company from lining up a commuter bike for next month.