No festive cheer for two-wheeler industry

Our Bureau | | | Updated on: Nov 22, 2021
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Low single-digit decline in overall domestic sales likely during this fiscal: ICRA

Lower sales during the festive season and absence of favourable growth factors may lead the two-wheeler industry to report a low single-digit decline in overall domestic sales during this fiscal, says a report of rating agency ICRA.

FY22 posted one of the weakest festive season performances for the industry, indicating consumer wariness at the bottom of the demand pyramid. The domestic two-wheeler volumes are expected to contract by 1 to 4 per cent Y-o-Y in FY22, following a weak festive season performance for the industry, it said.

This is further confirmed by the fact that the domestic volumes of 8.05 million during April-October 2021 were flattish on a Y-o-Y basis despite a severely contracted base. The relentless increase in 2W prices during the year and record-high petrol rates have kept consumers away from dealerships. Rural offtake has lagged urban, possibly due to moderated agri sentiments caused by uneven monsoon and delayed harvesting across regions.

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In urban markets, the delay in reopening of schools and colleges, weak income sentiments due to job losses or salary cuts (in the aftermath of the Covid pandemic) and extended work-from-home policies by corporates, have impacted sales. Additionally, financiers have remained cautious, after witnessing an increase in delinquency levels.

Muted sales

“The entry-segment (75-110cc), which dominates 2W sales in India, has remained subdued this year, reflecting extensive (and extended) impact of the second wave of the pandemic. The lacklustre festive season performance also highlighted continued wariness among the low-income population regarding big-ticket purchases,” said Rohan Kanwar Gupta, Vice-President & Sector Head, Corporate Ratings, ICRA.

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“Income uncertainties, caused by job losses, salary cuts or limited increments, while facing Covid-related medical expenses (actual or anticipated) and skyrocketing cost of 2W ownership, have led to purchase deferrals this festive season. Given the muted sales, the inventory at dealerships is also relatively high, which could mean only a marginal, if any, traction in wholesale volumes in remaining FY22,” he added.

Chip shortage impact

While the demand for premium 2Ws, which comprise about 15 per cent of the overall domestic volumes, has fared relatively better, the OEMs have faced supply constraints due to semiconductor chip shortages. Overall, given the existing inventory at dealerships post-festive season (40-45 days), a high growth in wholesale dispatches in the remaining part of the fiscal is unlikely.

While the recent cut in petrol prices, the upcoming wedding season (typically lends itself to increase in 2W purchase in rural markets) and opening up of labour-intensive industries like travel, tourism, and hospitality are favourable for demand recovery in the forthcoming months, meaningful growth is likely to be seen only in the next fiscal.

Published on November 22, 2021

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