INDIAN TWO-WHEELER INDUSTRY Steady Growth Continues QUARTERLY UPDATE AUGUST 2011 Summary The Indian two-wheeler (2W) industry reported a strong double-digit volume growth of 17% 1 in Q1, 2011-12 (YoY), even as several other automobile segments showed signs of a cyclical dip in growth during this period. While the northward movement in macro-economic variables including inflation, fuel prices and interest rates has been the nemesis of the automobile industry at large, the 2W industry has been relatively less impacted so far. ICRA believes that the resilience shown by the 2W industry volumes is likely to persist, a large base notwithstanding, with the industry looking on course to record yet another year of double-digit growth. However, the situation may change in the event of higher than expected decline in India s GDP growth or persistent inflationary pressures over a longer period. Overall, ICRA expects the 2W industry to report a volume growth of ~13% in 2011-12 and a volume CAGR of 10-12% over the next five years to reach a size of 21-23 million units by 2015-16. Our growth outlook is built on the strength of the various structural growth drivers associated with the 2W industry comprising of favourable demographic profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system, growing urbanization and expected strong replacement demand, besides moderate share of financed purchases. ICRA RATING FEATURE Corporate Ratings Anjan Deb Ghosh +91 22 3047 0006 anjan@icraindia.com Contacts: Subrata Ray +91 22 3047 0027 subrata@icraindia.com Jitin Makkar +91 124 4545 368 jitinm@icraindia.com Table 1: Trend in Sales Volumes of Indian 2W Industry Volumes (Units, Nos.) YoY Growth (%) Domestic 2008-09 2009-10 2010-11 Q1, 2011-12 2008-09 2009-10 2010-11 Q1, 2011-12 Motorcycles 5,831,953 7,341,139 9,019,090 2,464,143 1.1% 25.9% 22.9% 17.5% Scooters 1,148,007 1,462,507 2,073,797 532,867 9.3% 27.4% 41.8% 13.3% Mopeds 431,214 564,584 697,418 190,672 4.2% 30.9% 23.5% 21. Total Domestic 7,437,619 9,371,231 11,790,305 3,187,682 2.6% 26. 25.8% 17. Exports 2008-09 2009-10 2010-11 Q1, 2011-12 2008-09 2009-10 2010-11 Q1, 2011-12 Motorcycles 971,018 1,103,104 1,480,983 482,566 25.1% 13.6% 34.3% 27.1% Scooters 25,816 30,125 52,312 20,949 1.3% 16.7% 73.6% 100.4% Mopeds 7,300 6,905 6,295 1,461-59.9% -5.4% -8.8% -44. Total Exports 1,004,174 1,140,184 1,539,590 504,976 22.5% 13.5% 35. 28.6% Source: SIAM 1 Refer to Domestic Sales Volumes
million units (Nos.) TREND IN QUARTERLY SALES VOLUMES AND MARKET SHARE IN MOTORCYCLES SEGMENT Chart 1: Trend in Quarterly Sales Volumes of Motorcycles (Domestic) 2.5 2.4 2.3 2.2 2.1 2.0 1.9 Chart 2: Trend in Market Share in Motorcycles Segment (Domestic) 10 9 8 7 6 5 4 3 2 1 3.6% 4.2% 4.9% 4.4% 4.6% 8.2% 7.3% 7.1% 6.8% 7.3% 7.3% 7.1% 6.9% 6.8% 6.3% 27. 28.5% 25.6% 26.1% 25.3% 54. 52.9% 55.5% 55.9% 56.5% Hero MotoCorp Bajaj Auto TVS Honda Motorcycles Others Motorcycles Volumes Growth (QoQ) Growth (YoY) 35% 3 25% 2 15% 1 5% Segment-Wise Analysis The strong double-digit volume growth of 17.5% recorded by the motorcycles segment in Q1, 2011-12 (Refer Chart 1) was not consistent across segments - Entry, Executive and Premium. The volume growth was a blend of: The flattish growth (~3%) of the entry segment (bikes having price less than Rs. 40,000) which accounts for around 16% of the total domestic motorcycles sales volumes The steady growth (~17%)of the executive segment (bikes in the Rs. 40,000-50,000 price range) which accounts for around 65% of the total domestic motorcycles sales volumes The fast growing (~3) premium segment (bikes having price greater than Rs. 50,000) which accounts for around 19% of total domestic motorcycles sales volumes Market Share Trends The Indian motorcycles segment continues to be dominated by Hero MotoCorp (erstwhile Hero Honda) which has been recording sequential gains in market share over the last three quarters (Refer Chart 2). The top three players accounted for 88.2% of the industry s volumes in Q1, 2011-12 (92. in 2007-08), with Honda Motorcycles having overtaken TVS since Q1, 2010-11 as the third largest player, behind Hero MotoCorp and Bajaj Auto. Short to Medium Term Outlook ICRA expects the entry segment volumes in the domestic market to grow at a much slower pace than the overall 2W industry and volume growth in this segment to be driven mainly by exports. This is because the segment is no longer a key focus area of OEMs due to limited scope for margin expansion and high interest-rate sensitivity. While the executive segment is expected to maintain its steady growth, competition is likely to intensify following aggressive model refurbishment and new model launch plans of most OEMs. The premium segment is expected to remain the fastest growing over the medium term, given the strong growth in purchasing power in the hands of middle-class urbanites, especially in the age group of 20-30 years. This should also translate into superior profit margins for players that are stronger in the premium segment.
million units (Nos.) TREND IN QUARTERLY SALES VOLUMES AND MARKET SHARE IN SCOOTERS SEGMENT Chart 3: Trend in Quarterly Sales Volumes of Scooters (Domestic) 0.6 6 0.6 5 4 3 2 1 0.4 0.4-1 Scooters Volumes Growth (QoQ) Growth (YoY) Chart 4: Trend in Market Share in Scooters Segment (Domestic) 10 5.8% 8.7% 8.7% 7.3% 6.1% 9 11.1% 9.9% 11.3% 12.1% 12.7% 8 7 15.3% 15.4% 16.7% 18.4% 18.4% 6 19.6% 23.6% 5 21.9% 21.2% 2% 4 3 2 48.3% 42.4% 41.3% 41. 42.4% 1 Honda Motorcycles TVS Hero MotoCorp Suzuki Mahindra Sales Segment-Wise Volumes Analysis The growth The strong in scooter double-digit segment s volume sales growth volumes recorded has outperformed by the motorcycles that of the segment motorcycles in Q1, segment 2011-12 over (Refer the Chart last several 1) was years. not consistent However, across in Q1, all 2011-12, segments the scooters - Entry, segment Executive recorded and Premium. a growth The of volume 13.3% growth (YoY), lower was a than blend the 17.5% of: growth in motorcycle sales. This could be attributable primarily The to the flattish capacity growth constraints (~3%) of the of Honda entry segment Motorcycles, (bikes the having market price leader in less the than scooters Rs. 40,000) segment. which With accounts this, the for around share of 16% the of scooters the total segment domestic in the motorcycles total domestic sales volumes two-wheeler volumes declined marginally The to steady 17.8% growth in Q1, 2011-12 (~17%)of from the executive 18.7% in segment 2010-11. (bikes in the Rs. 40,000-50,000 price range) which accounts for around 65% of the Market Share total domestic Trends motorcycles sales volumes Overall, The Honda fast Motorcycles growing (~3) continues premium to segment maintain (bikes its having leadership price position greater in the than scooters Rs. 50,000) segment which through accounts its for flagship around brand 19% Activa of total (besides domestic Aviator and motorcycles Dio) enjoying sales a volumes market share of 42.4% in Q1, 2011-12. However, capacity shortfall at the company s existing plant at Manesar Short to Medium (Haryana) term has Outlook restricted its volume growth lately. With commercial ICRA expects production the entry segment at Honda volumes Motorcycles in the domestic new plant market at Tapukara to grow at a much slower pace than the overall 2W industry and volume growth to be (Rajasthan) expected to commence in Q2, 2011-12, the company is driven mainly by exports. This is because the segment is not a key focus expected to get better equipped to consolidate its market position. area of OEMs due to limited scope for margin expansion and high interestrate sensitivity. While the executive segment is expected to maintain its However, Hero MotoCorp s demonstrated success in improving market share (through its sole brand Pleasure) coupled with new scooter steady growth, competition is likely to intensify following aggressive models existing proposed model refurbishment to be launched and by new TVS model and Yamaha launch plans over of the most short OEMs. to medium The premium could segment imply shrinkage is expected of to market remain the share fastest gap growing between over the the market medium leader term, and given others over disproportionate time. growth in purchasing power in the hands of middle-class urbanites, especially in the age group of 20-30 Short years. to This Medium should Term also Outlook translate into superior profit margins for players ICRA that expects are stronger the scooters in the premium segment segment. to gradually increase its share in the domestic 2W market from 18.7% in 2010-11 to ~24% by 2014-15. With this, Market the Share scooters Trends market is estimated to double in size by 2014-15. Thus, The Indian even as motorcycles a multitude segment of brands continues already to be dot dominated the segment s by Hero landscape MotoCorp and (erstwhile more are Hero expected Honda) to which follow, has the been likely recording expansion sequential in the pie gains should in market offer sufficient share over volumes the last for three the quarters. industry The to grow top three profitably. players For accounted the new for entrants, 88.2% of a steady the industry s gain in volumes market share in Q1, could 2011-12 hasten (92. the in process 2007-08), of profitability with Honda Motorcycles improvement. having overtaken TVS since Q1, 2010-11 as the third largest player after Hero MotoCorp and Bajaj Auto.
Rs. Crore Rs. Crore FINANCIAL PERFORMANCE OF TWO-WHEELER OEMs Hero MotoCorp Chart 5: Trend in Financial Performance of Hero MotoCorp Bajaj Auto Chart 6: Trend in Financial Performance of Bajaj Auto 6,000 5,000 4,000 3,000 2,000 1,000 18% 16% 14% 12% 1 8% 6% 4% 2% 6,000 5,000 4,000 3,000 2,000 1,000 35% 3 25% 2 15% 1 5% 0 0 Revenues OPM PAT Margins Revenues: In Q1, 2011-12, Hero MotoCorp s Net Sales at Rs. 5,683.3 Crore grew by 32.3% YoY and 6.2% QoQ, supported largely by strong growth in sales volumes and partially by increase in average realizations on account of price increases done in March 2011. Till 2010-11, exports accounted for 2.5% of the company s sales volumes. However, FINANCIAL post PERFORMANCE cessation of Hero OF MotoCorp s TWO-WHEELER JV agreement OEMs with its erstwhile partner HMC, the company is expected to get more aggressive on the exports front resulting in greater diversification of its revenue streams. Operating Profit Margins (OPM): Hero MotoCorp s OPM declined to 14.4% in Q1, 2011-12, lower by 37 basis points (bps) QoQ in the wake of commodity price escalation which could not be fully neutralized through price increases; even as the margins during the quarter were 150 bps higher on a YoY basis. However, excluding the company s estimated royalty payments to HMC till Q3, 2010-11, HHML s OPM in Q1, 2011-12 was 228 bps lower even on a YoY basis. This highlights the adverse impact of commodity price movement on the company s profit margins over the last several quarters, mirroring the declining margin trend for the automobile industry in general. Net Profits: Hero MotoCorp s Q1, 2011-12 PAT at Rs. 557.9 Crore grew by 11.2% QoQ and 13.5% YoY. Still, the company s PAT was lower than the highs achieved in 2009-10 particularly due to the benign raw material price scenario prevailing during that period. Revenues OPM PAT Margins Revenues: In Q1, 2011-12, Bajaj Auto s Net Sales at Rs. 4,777.3 Crore grew by 22.8% YoY and 13.7% QoQ, supported by strong growth in exports of both 2W as well as three-wheelers (3W), with the company recording its highest ever quarterly exports. Operating Profit Margins (OPM): Although there was a marked increase in Bajaj Auto s Raw Material Expenses as a proportion of Revenues during Q1, 2011-12, the decline in the company s OPM was not as sharp. The company s OPM declined to 19.1% in Q1, 2011-12, lower by 73 bps QoQ and 9 bps YoY contributed by commodity price escalation. However, Bajaj Auto s higher sales volumes, focus on higher-end motorcycles and greater proportion of 3W sales (which are more profitable relative to 2W) allowed it to largely neutralize the input cost headwinds. While the company management s outlook on exports remains robust with its focus on African and South-East Asian markets, the company s ability to sustain its margins would hinge on its pricing strategy post discontinuation of DEPB benefits after September 2011. Net Profits: The healthy OPBITDA growth recorded by Bajaj Auto in Q1, 2011-12 also translated into a strong PAT growth which increased to Rs. 711.1 Crore, reflecting a growth of 2% YoY.
Rs. Crore FINANCIAL PERFORMANCE OF TWO-WHEELER OEMs TVS Motor Chart 7: Trend in Financial Performance of TVS 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 8% 7% 6% 5% 4% 3% 2% 1% Revenues: In Q1, 2011-12, TVS Net Sales at Rs. 1,746.0 Crore grew by 25.3% YoY and 6.9% QoQ, on the back of consistent volume growth across all segments and improvement in average realization (up 7.3% YoY and 3.4% QoQ) a combination of price increases effected in April 2011 and better product mix. Operating Profit Margins (OPM): Despite 143 bps increase in TVS Raw Material Costs as a proportion of Revenues, the company s OPM at 6.7% in Q1, 2011-12 was 261 bps higher QoQ and 217 bps YoY. This was consequent to the company s strong volume growth during the quarter along with steady pricing action. Net Profits: The healthy OPBITDA growth recorded by TVS in Q1, 2011-12 also translated into a strong PAT growth which increased to Rs. 58.8 Crore, reflecting a growth of 45.7% YoY. Revenues OPM PAT Margins
Analysts Analyst Contacts Contacts Mumbai Subrata Ray subrata@icraindia.com 022 3047 0027 Kinjal Shah kinjal.shah@icraindia.com 022 3047 0027 Delhi Anupama Arora anupama@icraindia.com 0124 4545303 Jitin Makkar jitinm@icraindia.com 0124 4545368 Shamsher Dewan shamsherd@icraindia.com 0124 4545328 Chennai Pavethra Ponniah pavethrap@icraindia.com 044 45964314 ICRA Limited An Associate of Moody's Investors Service CORPORATE OFFICE Building No. 8, 2 nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002 Tel: +91 124 4545300; Fax: +91 124 4545350 Email: info@icraindia.com, Website: www.icra.in REGISTERED OFFICE 1105, Kailash Building, 11 th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001 Tel: +91 11 23357940-50; Fax: +91 11 23357014 Branches: Mumbai: Tel.: + (91 22) 24331046/53/62/74/86/87, Fax: + (91 22) 2433 1390 Chennai: Tel + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Fax + (91 44) 2434 3663 Kolkata: Tel + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91 80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79) 2658 4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373 5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231
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