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| India Infoline Sector Reports | Wed, 31-Dec-2003 10:17:37 IST (GMT+5:30) | |
| Automobile - Two Wheelers | ||
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Demand The Indian two-wheeler industry has witnessed deep cyclical trends. A robust growth witnessed upto 1989, was followed by a severe recession upto FY93 and a strong recovery between 1993-96. The industry then witnessed a slowdown since the second half of FY97 which continued upto FY99. Prospects in FY2000 have turned for the better once again with an overall revival in demand. The trend in two-wheeler sales since the past decade is as given below.
Source : SIAM Two-wheeler sales have increased from 0.37mn in FY80 to 1.85mn in FY90 at a CAGR of 17.4%. There after the industry suffered from drop in demand in 1991, 1992 and 1993. In the 90's, the two-wheeler industry has performed extremely well especially after the automobile recession in 1992-93. In the period FY93-FY99 the two-wheeler industry has grown at a CAGR of 14.6%. This splendid growth was possible due to the above average performance of the motorcycle segment, which has grown at a CAGR of 24.3% compared to 11% for scooters and 8.6% for mopeds. After lying low for two years, sales of two-wheelers bounced back to witness growth in FY99. In the period April '98 to March '99 the sales of two-wheelers has increased by 11.85% yoy to 3.4mn. The trend has continued in FY2000 with the sector sales growing by 11% to 3.78mn vehicles. The demand for two-wheelers in India is dependent upon factors like availability of finance, increase in income levels, restricted growth in public transportation and movement in petrol prices. Except petrol prices, all other factors have positive correlation with the demand for two-wheelers. The increase in petrol prices on the contrary, adversely affects the demand for two-wheelers, due to increase in the running cost of a vehicle. Two-wheelers are distinguished on different factors for different consumer segments. For eg, high powered two-wheelers have a niche market as racing/sporting vehicles and have a special appeal to youngsters. Easy maneuverability/handling ease is preferred by teenagers and women. Urbanites are lured by fuel efficiency and low maintenance. The lower end of the market looks for durability, value for money and higher resale value. Scooters The scooter segment can be further classified into the geared and the ungeared scooter segment. Geared scooters are generally metal bodied while the ungeared ones come in plastic bodies. The demand for geared scooters is primarily from the middle aged group who have a family to look after. They would look out for the utility value of the vehicle. The demand for geared scooters is price sensitive compared to motorcycles. The demand for gearless scooters (or scooterettes) is mainly from women, teenagers and the student community. They are basically easy to handle and ride. Demand in this segment is also price sensitive. The scooterettes were first introduced by BAL (Sunny) followed by TVS Suzuki (Scooty). In FY99, LML entered the segment with a scooterette in 60cc and 75cc engine capacity. Until 1990, the two-wheeler market was dominated by the geared scooter with their sales equaling the combined sales of motorcycles and mopeds. However, things have changed in the 90s with customer preference shifting from geared scooters to motorcycles and also to an extent to the premium end scooters and scooterettes. This is mainly because of better fuel-efficiency and ruggedness of motorcycles and better maneuverability and aesthetic appeal of scooterettes. Scooter sales have increased from 0.91mn in FY91 to 1.25mn in FY2000 at a CAGR of 3.6%. But sales growth has dropped from a high of 24%yoy in FY95 to 7.1%yoy in FY97. FY99 saw better times with sales growth rising to 5.5%yoy. In FY2000, scooter sales fell by 5.4%yoy to 1,253,969 units over last year. Trend In Scooter Sales
Source : SIAM In terms of market share in the two-wheeler market, the share of geared scooters fell from 46.2% in FY91 to 25.8% in FY2000 while that of scooterettes increased modestly from 4.3% to 7.2% in the same period. In terms of absolute numbers, sales of geared scooters have risen from 0.835mn in FY91 to 0.973mn in FY2000 while that of scooterettes increased from around 77,000 to 0.28mn in the same period. The future growth in the scooter segment will be more from the scooterettes or gearless scooters segment, as compared to basic models. The four-stroke models of geared scooters, which were expected to create some demand have not yet been able to do so. This may be due to the their associated drawbacks like increased risk of skidding, vibration problems and restricted efficiency gains. Also higher maintenance costs due to the large number of moving parts add up to the disadvantages of buying a four stroke scooter. Given the latest emission norms, scooters, if not four-stroke, will have to be fitted with a catalytic converter. This would bring down the price differential between a scooter and motorcycle and result in further switching of demand from the scooter segment. The four-stroke scooter model launched by Bajaj Auto also has been unable to live up to the expectations. Nothing much is expected from it in the future either. Thus the demand for geared scooters is expected to fall in the future. Companies like Bajaj Auto, which have a major presence in the geared scooter segment are trying to milk what remains of a shrinking market. Their strategy will be include starting hire-purchase schemes in areas with a population of above 100,000 in the traditional scooter market of the north. Secondly, Bajaj will also plan product specific strategies. The aim would be to excite the buyer by giving him something new in terms of features, technology, specifications and aesthetics. One such effort in this direction will be the 4-stroke 'Chetak' scooter with higher fuel efficiency (70 km/ltr) than a traditional 2-stroke one. Another model to be introduced later will be called 'Fusion' with a metallic finish and good power. The company seems confident that the traditional markets for scooters like Punjab, Delhi etc will for the foreseeable future stick to geared scooters as the product has come to signify a certain value proposition which will be difficult to beat by other kinds of two-wheelers. Taking into account the various factors, we expect sales in the geared scooter segment to fall by around 20%yoy in FY01 while that of the scooterette segment to grow by around 30%yoy. Motorcycles The motorcycle is being increasingly used by youngsters/bachelors in urban areas and by rural folk as a sturdy means of personal transportation. Bigger wheels, better road grip, higher ground clearance, power, fuel efficiency, low maintenance cost are the major attraction of this segment. The motorcycle segment, too, can be further classified into the Japanese and the Indian motorcycle segments. The former consist of models manufactured out of Japanese technology while the latter category consist of the high-powered bikes of the 'Rajdoot' and 'Bullet' range and also the step-thru's which fall somewhere between a scooter and a motorcycle. The sales of motorcycle has increased from 0.1mn in FY80 to 0.38mn in FY93 at a CAGR of 11.6%. The segment picked up momentum in the 90's to grow at a CAGR of 15.7% to 1.796mn vehicles in FY2000. Motorcycle sales achieved a major milestone of crossing the scooter sales in the month of November 1998. This trend has further continued for the next couple of years causing a jump in sales of 28.7%yoy to 1,796,734 units in FY2000. Trend In Motorcycle Sales
Source : SIAM In the last two years, the motorcycle segment has witnessed the launch of several new models from existing players. Majority of these have been in the four-stroke engine category for which the technology has come from Japanese parents. Increasing product differentiation and competition has resulted in new sub-segments emerging. The efficiency segment is currently the fastest growing and constitutes four-stroke motorcycles. This has caused a dent in the demand for two-stroke motorcycles which is expected to further drop in the future. Taking in to consideration the limited availability of mass transportation in rural and semi-urban areas and suitability of motorcycles to these conditions, we expect the segment to continue to grow at 20%yoy growth in FY01. This will increase demand for motorcycles from 1.80mn in FY2000 to 2.5mn in FY02. The major growth in motorcycle segment will be coming from Japanese segment and in particular four-stroke motorcycles, leading to marginalisation of Indian motorcycles. The Japanese motorcycles will continue to improve penetration in the rural areas by providing additional features like luggage carrying provision etc. On the other hand, sales of step-thru's will most probably stagnate. The rush of new models in the small car market combined with upgradation of small car users to new mid-size cars has lead to sharp drop in prices of second hand cars. In some cases the price of a second hand car is just twice the price of a brand new motorcycle. This will accelerate shift of two-wheeler users to cars and hence affect the demand for high end motorcycles. Therefore, in the coming years the high end motorcycle manufacturers will have to take into consideration prices of second hand cars, while positioning the vehicle. Mopeds Mopeds are entry level vehicles. The demand for mopeds is predominantly from low to middle income families who graduate from bicycles to motorized vehicles and also among college students. Moped sales increased from 0.11mn in FY80 to 0.42mn in FY93 at a CAGR of 11.3%. But an increasing preference towards scooterettes and motorcycles in the nineties lead to slow growth for mopeds compared to other segments. Trend In Moped Sales
Source : SIAM After rising to 19.6%yoy in FY96, growth in the moped segment has slowed down mainly because of rising sales in the scooterette segment. A scooterette offered the buyer more power and higher stability combined with the easy maneuverability of a moped. The moped segment witnessed a 3.5% drop in sales in FY98. Growth in the moped segment has shown a reversal in line with two-wheelers sales trend, to witness a growth in sales for FY99. Sales in FY2000 has risen by 7.4%yoy. The future demand for mopeds will be from low and middle class families, who will be upgrading to two-wheelers from bicycles. Taking into consideration the present ownership of bicycles in India and upgradation of existing moped owners to scooterettes/scooters or motorcycles, we expect the demand for mopeds to remain stagnant in FY01. Three Wheelers Three-wheelers are used for both goods and public transport purposes. This segment is very sensitive to operating cost of a vehicle. The success of diesel three-wheelers in 1995 was mainly due to low operational cost of the vehicle. The sales of three-wheelers increased from 26,417 in FY80 to 64,321 in FY93 at a CAGR of 7.1%. The segment witnessed astronomical growth in the nineties to reach 233,733 in FY98 at a CAGR of 29.5% for FY93 to FY98. Thereafter sales have been on the decline, recording negative growth for two consecutive years, to reach 205,238mn units in FY2000. During the four year period of FY94 to FY97, the yoy growth in the segment has been oscillating between 25 to 45%. Trend In Three-Wheelers
Source : SIAM The decline in sales in the past two years has been partly due to the strict environmental regulatory norms made applicable by some state governments in the country, which made it difficult for diesel three-wheelers to ply. These governments include those of Delhi, Uttar Pradesh and Karnataka. To counter them, companies like Bajaj Auto have decided to gradually do away with their diesel range of three wheelers and replace them by petrol and CNG driven ones. Taking into account the shortage of local transport facilities in the country, we expect three-wheelers segment to grow at 5%yoy in FY01. This will lead to an increase in demand for 3-wheelers from 0.205mn in FY2000 to 0.215mn in FY01. The demand for two and three-wheelers in the long-term may get affected due to commissioning of mass transport systems in state capitals. As mass transport systems are still in the initial stages of development, we expect it to take at least five to seven years time to have any sort of an adverse impact on two and three-wheeler demand. Supply The manufacturers of two-wheelers distinguish their products based on power, fuel efficiency, maintenance requirement, ease in handling, style, looks and ergonomics, price etc. The two-wheeler industry is controlled by eight major players viz Bajaj Auto Ltd (BAL), Maharashtra Scooters Ltd (MSL), LML, Kinetic Motors Ltd, Hero Honda Motors Ltd (HHML), Escorts Yamaha Motors Ltd (EYML), TVS Suzuki Ltd (TSL) and Kinetic Engineering Ltd (KEL). Among these only Bajaj Auto and TVS Suzuki are having presence in all the three segments of two-wheelers, with the rest catering to one or two segments of the two-wheeler market. Scooters The scooter industry is dominated by five players viz, BAL, MSL, LML, KMCL and TVS Suzuki. A major proportion of scooter sales is garnered by BAL, which dominates the scooter market with about 58% market share along with its affiliate MSL. BAL which has been the market leader over the years maintained its position due to aggressive capacity addition in the late eighties and no threat from existing players who were struggling financially. However, with the coming in of Kinetic Motor and TVS Suzuki with their range of gearless scooters, BAL has seen its market share drop to 46% in FY2000 from the initial 60%. Market Share In The Scooter Segment
Source : SIAM The market share of the leading players in the scooter segment is as given above. BAL is the leader with a 57.7% market share in FY2000 (along with MSL). LML has also suffered with its market share dropping from 25.2% in FY98 to 22.6% in FY2000. The biggest gainer has been TVS Suzuki which has raised its share from 7.1% in FY98 to 10.2% last fiscal. The other player Kinetic Motor Company has also done well by improving its share from 7.2% to 9.6% in the same period. In H2 FY99, four-stroke scooters were introduced from BAL (Legend) and TVS Suzuki (Spectra). These four-stroke models are priced at a premium to conventional two-stroke scooters and the initial response for them hasn't been encouraging. The four-stroke scooters are the result of continuous R&D effort by Indian manufacturers to develop vehicles confirming to Y2K emission norms. The capacity of scooters has increased from 1.38mn in FY96 to 2mn in FY2000. The increase in capacity was brought about by expansion projects of LML and Bajaj. With the entry of TVS Suzuki with 0.15mn capacity along with the new plant of Bajaj, scooter industry capacity will increase from 1.83mn in FY99 to 2.15mn by FY01. Capacity For Scooters (mn nos)
Source : SIAM & Indiainfoline research The scooter segment will witness a stream of new models from existing players in the next few months or so. Some of the launches expected are: four-stroke scooters from LML, four-stroke scooters in the engine capacity of 75 to 150cc range from Bajaj developed in technical collaboration with Tokyo R&D, Japan and a variometric four-stroke scooter from TVS. Motorcycles The motorcycle segment is dominated by four players viz Hero Honda, TVS Suzuki, BAL and Escorts Yamaha. The market share of each of the players is as given below. Nearly 80% of the motorcycle sales is of Japanese motorcycles with the rest coming from Indian motor cycles and step-thru's. The Indo-Japanese segment is catered by three to five models from each of the players viz BAL, TVS, Hero Honda and Escorts Yamaha. But majority of the sales is of 100cc-125cc vehicles. The Japanese range of motorcycles are costlier due to import content and royalty payments to their Japanese collaborators. Market Share In The Motorcycle Segment
Source : SIAM The motorcycle segment will be broadened on the high price front by introducing high powered bikes priced above Rs55,000. These bikes have been targeted at college going students who have a flavor for high powered rides. To cater to this segment, Hero Honda launched CBZ, a 156cc four-stroke motorcycle, in March 1999. It is priced around Rs60-65,000. 'Fiero' from TVS Suzuki has been the latest addition in this list. Bajaj Auto is also getting ready with its 175cc 'Eliminator'. In the near future, competition will hot up in the Japanese motorcycle segment with players like LML and Kinetic Motors standing ready with their offerings. Motorcycles will be the least affected segment from Y2K emission norms, as Japanese four-stroke motorcycles confirm to the norms, except some models of TVS Suzuki and Escorts Yamaha. The two-stroke Indo-Japanese motorcycles will be making use of catalytic converter so as to confirm the emission norms. The only threat will be for Indian motorcycles, which also have a two-stroke engine. The major player in the Indian motorcycles segment Bajaj Auto, with its M-80 model, plans to overcome the emission problem by introducing a four-stroke version. The supply of motorcycles will be increasing from 2.08mn in FY2000 to 2.38mn in FY01. Motorcycle Capacity (mn)
Source : SIAM & Indiainfoline research Mopeds The major players in the moped segment are TVS, Kinetic Engineering, BAL and Majestic Auto Ltd. TVS leads the segment with a market share of 52.6% and a dominant position in south India. The market share of individual players in the segment is as given in the chart below. Market Share In The Mopeds Segment
Source : SIAM It must be said that strictly speaking BAL manufactures scooterettes and not mopeds. As seen from the above table, it is apparent that the market leader by virtue of its strong presence in the south continues to dominate the market. However, the other two players viz KEL and Majestic Auto have been losing their hold. Clearly, scooterettes have come to grab some space from mopeds as could be observed from the market share changes of BAL. With regards to conforming to Y2K norms, all manufacturers have fitted their mopeds with catalytic converters and are not planning to roll out four-stroke mopeds. The fitting of catalytic converters has lead to 15 to 20% increase in the prices of the mopeds from the present levels. The increased prices are also partly responsible for mopeds sales to stagnate, as consumers in the segment are price sensitive. The capacity of moped production has increased from 0.93mn in FY97 to 1.17mn in FY2000. The increased capacity was due to expansion of TVS and Kinetic Engineering. The moped capacity is expected to increase further to 1.2mn in FY01. Moped Capacity (mn)
Source : SIAM & Indiainfoline research Three Wheelers The three-wheeler industry was dominated by petrol engine vehicles from BAL till the early nineties. But their dominance was challenged by low operating cost diesel engine vehicles introduced by Greaves in 1995. Bajaj Tempo has lately become a vigorous player in the segment with a 8.7% market share. But still BAL commands a strong hold in the three-wheeler industry with 83.8% market share. The third player in the segment - Scooters India - commands 7.5% of the three-wheeler market with its Vikram autos used mainly for goods transport. Market Share In The Three Wheeler Segment
Source : SIAM The joint venture between Piaggio of Italy (51% stake) and Greaves have launched a diesel three wheeler in FY2000. The company has plans to set up 30,000 vehicle capacity to manufacture range of vehicles in the country. Piaggio plans to shift its manufacturing base for 'APE' range of vehicles and use India as a base for exports to other Asian countries. They have started well by capturing a market share of around 5% in FY2000. But Piaggio's production base will be small to challenge the dominance of Bajaj Auto in the three-wheeler industry in the near future. The capacity of three-wheelers is expected to increase from 0.34mn in FY2000 to 0.39mn in FY01 as a result of expansion of BAL and Greaves. Mahindra & Mahindra has test-marketed a new electrically operated three-wheeler called 'Bijlee'. On the other hand, BAL has already launched a four-stroke, CNG powered vehicle to confirm to Y2K emission norms. Three-wheeler Capacity (mn)
Source : SIAM & Indiainfoline research Exports The exports of two-wheelers from India are insignificant in comparison to domestic sales. The exports started looking up in FY94 and FY95 when they registered a growth of above 50% to reach a figure of 0.116mn vehicles. In FY96, the exports remained stagnant but continued its upward journey at a growth of 9.43% to reach 0.125mn vehicles in FY97. In FY98, the exports remained stagnant due to slump in Asian demand. The sluggish trend continued during FY99 and FY2000. Shares of both scooters and mopeds in the export market fell while that of motorcycles remained stagnant. The major portion of exports is contributed by motorcycles which form about 42.4% of total two-wheeler exports. The composition of exports by different sectors is as given in the table below. Composition Of Two-wheeler Exports In FY2000 (nos)
Source : SIAM The major exporters from the country are Majestic Auto, BAL, Escorts Yamaha and Hero Honda constituting 66% of the total two-wheeler exports from the country in 1999. Majestic Auto exports its 'Hero Puch' mopeds, which contribute nearly 16% of the total exports from the country. Major export destinations, in terms of value, include Egypt, Sri Lanka and Argentina for scooters, Nepal, Sri Lanka, Argentina and Uruguay for motorcycles and UK, Argentina and Uruguay for mopeds. Bajaj Auto is the major exporter of three wheelers. It exported almost 17,693 vehicles compared to a total three wheeler exports of 18,388 vehicles from India in FY2000. The other exporters being Scooters India and Mahindra & Mahindra. M & M managed to export 32 units of its 'Bijlee' during the year. The exports are mainly to African and South East Asian countries. The exports of three-wheelers have remained more or less stagnant since FY98. While exports increased from 18,595 units in FY98 to 21,138 units in FY99, the momentum was lost in FY2000. The setting up of Piaggio Greaves joint venture with the intention of making India as a base for three-wheelers for the whole of Asia will give a boost to exports. Demand-supply The capacity for two-wheelers in FY2000 was about 5.25mn units per annum. Against this, the sales of two-wheelers amounted to 3.78mn, thus translating into a capacity utilization of 72%. Segment wise capacity utilization was the highest for motorcycles at 87% and lowest for mopeds at 62%. Capacity utilization for scooters was 63%. Taking into account the supply for different sectors of two-wheelers, the total supply will increase from 5.25mn in FY2000 to 5.73mn in FY01. With the assumptions made for demand of different segments of two-wheelers, the demand for total two-wheelers will increase by about 11% in FY01 to 4.2mn. This will lead to a capacity utilization of around 73% for the industry. |
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