Two wheeler segment of India expected to grow 8-9 per cent in 2013

Wednesday 30 May 2012, 00:24 AM by

The latest report on Indian two wheeler (2W) market has been revealed by the Investment Information and Credit Rating Agency (ICRA). According to the agency, a growth of 8-9 per cent in sales is expected for the domestic 2W segment. This is owing to the fact that the industry has illustrated a steady and robust volume increase in last three years at CAGR of 21.8 per cent.

In 2011-12, a YoY growth of 14 per cent in the Indian 2W market was reported, with sales of 13.4 million vehicles. The 14 per cent growth rate remained steady, unlike other segments, such as passenger vehicle and Medium and Heavy Commercial Vehicle (M&HCV). These segments were affected by low demand and single digit growth rate because of soaring inflation, fuel price hikes and higher interest rates. With a slow YoY growth rate of 11 per cent during the second half of 2011-12 against the 17 per cent growth rate in the first half, it is quite obvious that the 2W industry is facing a slump as well.

Clocking YoY growth rate of 7.8 per cent in second half of 2011-12 against 16.4 per cent in first half, the motorcycle segment is to be blamed for the overall decline in volumes. On the other hand, a consistent growth of 20 per cent was marked by the scooter segment in both the halves. This raised the segment's share from 19.1 per cent in 2011-12 from 17.6 per cent in 2010-11 in the domestic two-wheeler market.

By 2016-17, it is anticipated that the industry will record CAGR of 9-11 per cent over the medium term to attain sales volume of 24-26 million units, including both domestic sales and exports. This is because there are several factors favouring the 2W segment, such as demographic profile, moderate 2W penetration levels compared to other developing markets, under developed public transport system, increasing urbanisation, high replacement demand and small share of financed purchases.

The key target audience for the two wheeler segment includes the population within the age bracket of 20-40 years. The main contributor to the industry's steady growth in last 10 years is the youth of India, which grew by 77 million people in the last decade. With an average age of 25 years, which is 9, 12 and 19 years lesser than that of China, US and Japan, respectively, the Indian demographics favour the 2W market. The population of youth is expected to increase to 41 million over the next five years, which will help maintain the strong demand for two wheelers. Shifting the needle from the potential buyers to actual buyers is that people who fall in 20-40 age bracket are usually earn high and spend high. With the trend of nuclear family getting more popular in India, the potential buyers for the 2W industry are expected to increase.

Back in 2001, 12 percent of the total population owned a two wheeler, quite a small penetration level for the industry. Over the last 10 years, the annual sales volumes multiplied by 3.4 times of the original value. In 2011, 21 per cent of the households in the country owned a two wheeler, a moderate figure. Despite the increase in penetration level, it was still below that of other emerging markets like Brazil, Indonesia, Thailand and Taiwan. With rural areas still under-penetrated 2.5 times as compared to urban areas, the level of penetration varies across the rural and urban areas of the country.