Indian Two-Wheeler Industry

Transcription

1 The si ICRA RESEARCH SERVICES Corporate Ratings Anjan Deb Ghosh Indian Two-Wheeler Industry Contacts: Subrata Ray Jitin Makkar Searching for exports-driven growth, but challenges galore March 2014 ICRA LIMITED P a g e 1

2 WHAT S INSIDE? 1. Overview 2. Special Feature Overseas Market: Opportunities and Challenges Global Two-Wheeler (2W) Industry Leaderboard India has been amongst the fastest growing 2W markets in the world in the last five years India overtook China in terms of domestic 2W sales volumes in 2012; the gap increased further in 2013 Indonesia, the third largest 2W market, has also seen industry growth stagnate over the last few years Slowdown in economic growth in Vietnam hurts domestic 2W demand; yet, OEMs remain in an investment mode with an eye on boosting exports Developed markets of North America, Europe and Japan have experienced significant contraction in new 2W registrations in the last few years Domestic 2W growth expected to falter due to high penetration in addressable income segment Domestic 2W sales volume growth expected to remain tepid over the near term; economic growth recovery holds the key to increase the pie of households having the threshold purchasing power to buy a 2W Indian 2W OEMs exports performance trends 2W exports from India have grown at a healthy volume CAGR of 19% in the last seven years, albeit on a low base Bajaj Auto remains the largest 2W exporter from Indian by far 2W exports growth from India slowed down during last two years due to country-specific challenges; yet OEMs remain bullish on growing their exports pie Case Study: Indonesia Indonesian economy had grown well post the last downturn; recent trends in economic indicators have several similarities with that of India s economic performance Given that Indonesia is the third largest 2W market in the world, it presents a large opportunity for any new entrant (at least theoretically) Japanese brands rule the 2W market of Indonesia Similarities between the Indonesian and the Indian 2W market Challenges galore for Indian 2W OEMs in Indonesia Other ASEAN Markets Vietnam and Thailand are no different in terms of their liking for Japanese 2W brands; Philippines is an exception though ICRA LIMITED P a g e 2

3 WHAT S INSIDE? Latin America Sales of 2Ws in Brazil, the largest market in Latin America, have declined for two consecutive years Market still remains under-penetrated which augurs well for long-term growth prospects Honda is the clear market leader in Brazil; Bajaj Auto may look to make an entry into the Brazilian market in partnership with Kawasaki The odds of Indian OEMs doing well in other smaller Latin American markets appear higher Select South Asian Countries 2W exports from India to Sri Lanka have suffered in last two years due to increase in import duty; Bajaj Auto remains the leading 2W player in the country 2W demand drivers: High population, in case of Pakistan and Bangladesh; relatively higher purchasing power, in case of Sri Lanka Africa Nigeria is the largest 2W market in Africa; although it has shrunk post the ban imposed on commercial motorcycle taxis in select cities 2W OEMs in Nigeria have had to explore other African markets to cushion the impact of decline in 2W demand in Nigeria Unlike Nigeria, the Kenyan 2W market is expected to sustain its healthy growth; Indian 2W OEMs are positioning themselves well to capitalize on this growth opportunity Although Africa provides a strong long term growth opportunity for 2W OEMs, near to medium term growth in the continent may remain moderate 3. Segmental Analysis of the Indian 2W Industry Trend in 2W segment volume mix Trend in segment-wise sales volume growth of 2Ws 4. Quarterly Performance trends of publically-listed 2W OEMs in India Hero MotoCorp Limited Bajaj Auto Limited TVS Motor Company Limited ICRA LIMITED P a g e 3

4 INDIAN TWO-WHEELER INDUSTRY Searching for exports-driven growth, but challenges galore March 2014 OVERVIEW Domestic 2W demand to decelerate further in the near term The Indian two-wheeler (2W) market, the largest in the world at 14 million units, has grown at a volume CAGR of 14% over the last five years (CY ). This track record of healthy growth has been much better than that of the global 2W industry as a whole that grew at a relatively slower rate of 3% during this period. The key growth drivers for India s domestic 2W industry have been its large population (fostering strong consumption trends), favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization and strong replacement demand. Although over the last two years, domestic 2W demand has slowed down, reflected in growth of 2.9% in and 6.1% YoY in 11m , the overall performance has remained much better than some of the other automobile segments, namely passenger vehicles and commercial vehicles, that have experienced negative growth. However, we expect 2W demand growth to decelerate more in the near term as current penetration level in the addressable income segment runs high. Our report discusses the trends in 2W penetration levels in India in the addressable income segment over the years, highlighting the movement in number of households having the threshold purchasing power to buy a 2W. Growth in demand for scooters may continue to outshine that of motorcycles Even as the 2W industry as a whole may possibly run against the high penetration cliff in the near term, the scooters segment in our view enjoys several structural advantages. Compared to motorcycles (targeted at males), the penetration of scooters (targeted at both males and females) remains lower by a factor of 3-4 times. As more women adopt mobile lifestyles and as scooters get increasingly targeted at both the sexes, the case for continued penetration-led growth for the scooters segment remains strong. The increased supply push in the form of new scooter launches will only add to the growth momentum. In the last five years, the share of scooters in total 2W sales volumes has increased from 15% in to 24% in 11m In terms of recent trends, while domestic motorcycle sales volumes grew by a modest 2.7% YoY in 11m , the volumes of scooters expanded by a robust 21.4% YoY during the same period. However, we expect the bigger segment of motorcycles, which accounts for 76% of industry volumes, to see a further slowdown in demand till such time as the pie of households having the threshold purchasing power to buy a 2W expands. This in turn would depend on the pace of India s economic growth recovery that could (a) boost personal disposable incomes and resultant consumption growth, (b) pull up the un-penetrated households from a low income segment to the next higher income segment, (c) further enable increase in the number multiple two-wheeler households, enabling penetration supported rise in 2W demand. Exports could potentially be the next growth frontier, but challenges abound On the exports front, the year was a period of weak growth for the industry with volumes at 2.0 million units declining by 0.7% over the previous year. This was consequent to hike in interest rates in several countries, increase in import duty in Sri Lanka, trade restrictions imposed by Argentina, dollar sales embargo with Iran and ban imposed on motorcycle taxis in Nigeria. This apart, the reduction in incentives available to 2W exporters, twice over the last two years, had also made Indian 2W OEMs partially hike product prices in overseas markets, further contributing to pressure on sales volumes. In 11m , growth in 2W exports has been higher at 5.4% YoY led by strong traction in export volumes of Yamaha, TVS and Honda, even as Bajaj Auto (the largest 2W exporter from India that also occupies leading position in several overseas 2W markets) witnessed tepid exports growth for the second year running. From a medium term perspective, 2W exports continue to present a strong opportunity for industry participants to expand presence in geographies such as Africa and Latin America that have low 2W penetration, inadequate public transport infrastructure and adequate scope for both secular as well as market share gain-led growth. Hero MotoCorp, the largest 2W OEM in India, which currently has a small presence internationally, considers expansion in overseas markets to be one of its key growth driver over the next few years. Indian 2W OEMs are also investing in international markets (mainly Africa and Latin America) to set-up local assembly units to exercise better control over demand-supply, branding, back-end infrastructure, currency risk, besides other tariff and other non-tariff hurdles. While some of the international 2W markets are mature and have entrenched incumbents, who would be hard to compete against, the Indian 2W OEMs are being prudent in identifying markets that are currently smaller in size, or ICRA LIMITED P a g e 4

5 OVERVIEW Continued.. have relatively lower competitive intensity. Our report discusses key characteristics of the 2W market in the ASEAN region, Latin America, South Asia and Africa while pointing out trends in volume growth, market share and possible challenges for Indian 2W OEMs in their endeavour to target these markets for future growth. Honda continues to grow its market share In terms of market share, while Hero MotoCorp continues to remain the distant leader with a share of 41.6% in 11m , it saw its share erode by 121 basis points (bps) compared to (45.1% market share in ). A large part of Hero MotoCorp s market share erosion is attributable to weakness in demand for 100cc bikes, a segment which is the company s primary volume contributor. The other two leading Indian OEMs too, namely, Bajaj Auto and TVS Motor experienced decline in their respective share in the domestic 2W market in 11m compared to (by 353 bps and 106 bps, respectively). The loss of Hero MotoCorp, Bajaj Auto and TVS has been Honda s gain as it continues to demonstrate steady gains in market share across the board. Honda has strengthened its market share in the domestic 2W industry from 14.9% in to 23.6% in 11m on the strength of its strong brand, growing distribution network and new product launches. In the recent months as also over the short to medium term, a large number of new models have been/ are likely to be introduced by various 2W OEMs across segments. This, in an environment of weak domestic demand, is likely to make the OEMs quest to expand volumes be accompanied by pressure on profitability. Outlook Overall, ICRA expects the domestic 2W industry volumes to grow by around 6-7% in and 2-4% in as base effect as well as high penetration in the addressable income segment weigh on demand. Over the medium term, the 2W industry is expected to report a volume CAGR of 8-9% to reach a size of million units (domestic + exports) by , as we believe the various structural positives associated with the domestic 2W industry including favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization, strong replacement demand and moderate share of financed purchases remain intact; as also the large opportunity available to grow presence in overseas markets, mainly Africa and Latin America. ICRA LIMITED P a g e 5

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