Two-wheelers to grow 4-6% in FY17: ICRA

Volumes during the first two months having grown by 15% already on the back of festive and wedding season demand

While the domestic two-wheeler industry grew in single digits last fiscal, it has been to a good start this year, banking primarily on the scooters segment. Rating agency ICRA thus estimates demand for two-wheelers to grow at a pace of 4-6 per cent during FY17.

Hurt by sluggish demand across segments, the domestic two-wheeler industry expanded by a modest 3 per cent touching 16.5 million units during FY16. While motorcycles and moped volumes shrank by 0.2 per cent and 3.3 per cent respectively, scooters segment held the fort - albeit posting a relatively lower growth of 11.8 per cent as against past five fiscals.

However, the industry has been off to a strong start in FY17 with volumes during the first two months having grown by 15.3 per cent on the back of festive and wedding season demand. The growth during two months FY17 has been broad based with scooters leading the pack at 30.3 per cent year-on-year (YoY) growth while motorcycles and mopeds reported YoY growth of 9.5 per cent and 14.8 per cent respectively.

In contrast to the weak start to the year in FY16, the scooter segment appears to be stepping into FY17 on a stronger footing with robust 30.3 per cent YoY volume growth during M2FY17.

ICRA feels that with enhanced capacities of key players coming on stream, success of recent launches (Yamaha Fascino, Hero Duet) and introduction of new crossover segment (Navi), the scooter segment appears poised for above-industry growth rate in the near to medium term.

Within the motorcycles category, the volumes in the 75-110 cc entry segment have been under pressure over the last few quarters with weakness in rural demand. Despite strong product portfolio across OEMs and launch of refreshed variants in the recent periods, the entry segment continued to report YoY de-growth for the past five consecutive quarters, ICRA claimed.

The report added, "While some of the key launches such as Bajaj CT 100 witnessed healthy reception in the market, the growth in the sub-segment was impacted by drop in volumes under Splendor (largest selling model in the sub-category) - though Splendor volumes have recovered over the past two months lending support to the overall volumes in the 75-110 cc sub-segment. "

Revival in demand from rural areas - which account for a sizeable share of volumes under this sub segment - remains critical for uplifting performance of this segment which has shrunk to about 59 per cent of the overall motorcycle volumes during two-months FY17 - down from 65 per cent in Q1FY15.

ICRA expects demand for two-wheelers to grow at a pace of 4-6 per cent during FY17.

"Although increased allocations towards rural development and welfare schemes in the Union Budget for FY2017 and growth in National Rural Employment Guarantee Act (NREGA) expenditure, besides the government's focus on improving irrigation infrastructure, augur well for the farm sector, demand recovery from rural households is expected to be gradual and in turn linked to the volume and dispersion of monsoon rainfall," the report said. Additionally, the implementation of the recommendations of the Seventh Pay Commission in phases and expectations of softer interest rates would support demand for two-wheelers from urban households.