ICRA RATING FEATURE
TWO-WHEELER SECTOR: GROWTH MOTORISTS INTACT
п‚§ The Indian two-wheeler (2W) sector has shown a solid volume development over the last two-years, having produced by 25% in 2009-10 and 27% in 2010-111 to reach 13. 3 million units. This kind of strong double-digit growth have been driven by multiple elements. One purpose, of course , is statistical as this period of high double-digit development has appeared after a somewhat sedate previous two years, when the 2W sector volumes had shrunk simply by 5% in 2007-08 together grown by a mere five per cent in 2008-09. In addition to the contribution of pent-up demand, the 2W market growth over the last two years has become supported highly by different underlying elements including India's rising per capita GROSS DOMESTIC PRODUCT, increasing non-urban demand, growing urbanization, inflammation replacement demand, increasing proportion of cash product sales and the much less measurable metric of superior consumer belief. Going forward, ICRA expects the 2W sector to survey a quantity CAGR of 10-12% within the next five years to succeed in a scale ~21-23 million units by 2015-16 mainly because it views the primary growth motorists comprising of expected regular GDP progress, moderate 2W penetration amounts, favourable demographic profile, beneath developed community transport system and power quotient of any 2W -- to be unchanged. Additionally , the entry of recent players in the industry, multitude of new model/ variant launches, growing distribution reach, cheaper ownership costs on the relative basis are expected to get some of the various other prime movers for sector growth over the medium term. In ICRA's view, while the trend in rising product prices, hardening interest rates and increasing fuel costs may result in some small amounts in market growth within the short term, the growth over the channel to long term is expected to remain in twice digits. ICRA believes the landscape in the Indian 2W industry is placed to develop as many new players are keen to into the Indian market which will would additional intensify competition; most existing players plan to extend/ reinforce their reach into the non-urban and semi-urban markets to harness pregressive growth possibilities; and suppliers are demonstrating increased pushed on cool product development and repositioning to tap new customer portions. These dynamics would ensure that business would not remain as usual for the best incumbents as market share may well change hands to some extent. However, the existence of strong product capacity, wide syndication network and established supply chain will continue to be the necessary conditions to support competitive edge and achieve economies of scale. Consideringg the higher than expected require last year, many OEMs experienced faced ability constraints in their supply cycle for choose components which in turn resulted in continual demand-supply distance for few models, mirrored in long ready periods for dealers' end. To overcome
Refers to April-March period including of both equally domestic as well exports sales volumes ICRA Rating Solutions www.icraindia.com Page 1 of 23
ICRA Rating Characteristic
Two-Wheeler Sector: An ICRA Perspective
source constraints as well as to gear up for meeting the continuing buoyancy sought after, most players currently have ideas to expand production capability which would entail significant capital spending (capex) both equally by Original Equipment Manufacturers (OEMs) as well as suppliers. While this could pull over the profitability metrics of market participants in the short term, the anticipated good volume progress should allow them to wave over the short term pressures and emerge which has a bigger size and a stronger credit profile above the medium term. п‚§ Also, ICRA sights the current asset-light business model of OEMs as a key confident as most in the players...