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Scooterisation continues to drive industry growth; Volume growth in motorcycles

reaches double digit after hiatus of five years, albeit on a contracted base

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 WHAT’S INSIDE?
1. Overview
2. Segment-wise performance
 Healthy double-digit growth reported by the industry in 11M FY2018
 Strong year for Motorcycles and Scooters; Mopeds decline
3. Motorcycles: Motorcycles revive gradually on the back of entry-level sub-segment as rural demand shows signs of recovery
 Motorcycle segment reports healthy growth on the back of entry-level sub-segment
 Executive and premium sub-segments lend support to motorcycle segment growth
 Honda and Bajaj battle for the position of second-largest motorcycle player
 Impressive market share gains for Honda in 125-cc and 150-cc sub-segments
 Increased traction in 160-cc motorcycle segment with slew of new launches
4. Scooters: Industry leading growth augmented by deepening product ranges catering to different customer segments
 Robust growth in scooter volumes in the last few months driven by low base effect of previous fiscal
 Inching up their presence in large part of the country
 OEMs launching products targeting specific customer segments
 Hero MotoCorp gains market share in Q3FY2018 but still lags behind TVS
5. Channel Check – Dealers and Financiers
 Dealers: Positive sentiment prevailing among dealers, with healthy growth in the near to medium term
 Financiers: Asset Quality continues to be plagued by slippages during demonetisation; incremental disbursements reflect better quality
6. Raw Material Price Trend: Two-wheeler OEMs hike prices in Q4FY2018 due to increase in prices of raw materials
7. Export Performance: Export volumes report robust growth supported by recovery in major export markets
8. ICRA Outlook for the Two-wheeler industry
9. International Markets
 Two of the largest two-wheeler markets report flat to negative growth in 2017
 Marginal growth in two-wheeler volumes in Vietnam and Japan
 Two-wheeler volumes decline in North America and EU
10. ICRA Ratings: Two-Wheeler Industry
11. Industry Peer Comparison: Two-Wheeler Industry
12. Company Section
 Bajaj Auto Limited
 Eicher Motors Limited
 Hero Motocorp Limited
 TVS Motor Company Limited
13. Annexure 1: Auto Expo 2018

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INDIAN TWO-WHEELER INDUSTRY
Scooterisation continues to drive industry growth; Volume growth in motorcycles reaches double digit after hiatus of five years, albeit on a contracted base

March 2018

OVERVIEW

Two-wheeler segment posts healthy growth as both scooter and motorcycle segments grow in double-digits
The two-wheeler industry performance has been strong during FY2018, reporting YoY growth of 14.5% during 11m FY2018. The year was
characterised by periodic swings in growth rate caused by a confluence of factors, e.g., channel filling by OEMs during April 2017 (post BS
Host of factors cause periodic IV) and July 2017 (post GST rollout), pre festive season dealer stocking during August-September 2017. During the latter half of the fiscal,
demand swings, even as the growth gained pace, supported by strong double-digit growth during November 2017-February 2018 partly driven by low base of
underlying demand drivers previous fiscal and partially benefitting from positive demand sentiments, especially from the rural market. During 11m FY2018, both the
remain strong, in domestic two- major products segments of scooters and motorcycles contributed to growth, expanding by healthy double-digits over the corresponding
wheeler market during 11m previous. While scooters have reported a YTD growth of 21.2%, the motorcycle segment also reported double-digit YoY growth of 12.7%
FY2018 during the same period, being the first instance of double-digit growth of the motorcycle segment since FY2012. Although the moped
segment had reported healthy growth of 23% during FY2017, the volumes decreased by 4.8% during 11m FY2018, in absence of new model
launches and shift of consumer preference towards lower displacement motorcycles.
Industry leading growth in scooter segment driven by low base of previous fiscal and positive demand sentiments
The scooter segment has reported positive demand trends during all three quarters of the current fiscal, supported by the underlying
factors that enabled the industry growth. Overall, during 11m FY2018, scooters reported growth of 21.2% with lowest growth of 0.5%
during October 2017 (owing to high base of October 2016), outpacing the industry growth and continuing to gain share in the overall
Scooters continue to outpace
domestic two-wheeler mix. Among the three sub-segments, the <90cc sub-segment, which has a single product segment of TVS Scooty
industry growth and expand
Pep+, reported growth of 41% during 11m FY2018, albeit over a low base. The largest 90-125cc sub-segment reported 21% growth during
share in domestic two-wheeler
11m FY2018, led by Honda Activa, the largest selling two-wheeler in the country. The 125-150cc sub-segment consisting of premium
pie
scooters reported healthy growth of 53% during the period, with growth driven mainly derived from urban areas.
Motorcycles revive gradually on the back of entry-level sub-segment
While demonetisation had marred the growth in the motorcycle segment during the second half of FY2017, the product segment revived
impressively since the beginning of the current fiscal. While channel-filling and dealer-stocking prior to festive season supported the sales
during the first half of the year, the demand recovery and positive sentiment has continued into the second half of the fiscal as well. The
growth has been led by the entry-level 110-cc sub-segment, driven by a general improvement in rural demand sentiment on the back of
Entry level sub-segment leads near normal monsoon. The executive sub-segment of motorcycles (110-125cc) also contributed to maintaining the growth momentum,
growth in domestic motorcycle despite volatility in growth trends reported during the course of the fiscal due to production constraints faced by one of the best-selling
volumes even as premium models, Glamour. The 125-150 cc sub-segment continues to be the only sub-segment in motorcycles where volumes have been shrinking,
motorcycles continue their owing to growing preference for 160-cc and 180-cc offerings of OEMs. The higher displacement premium motorcycles continue to expand
dream run their share in the domestic motorcycle pie and accounted for 7% of the total volumes in 11m FY2018 as against 2% in FY2014. This trend is
expected to continue with the gradual up-trading and premiumisation in the country, supported by improvement in disposable incomes.

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OVERVIEW Continued…..

Honda consolidates position in both product segments and inches closer to Hero for market leadership position
 Hero MotoCorp Limited (Hero): Recovery in rural demand translated into healthy growth in Hero’s strong hold entry sub-
segment of motorcycles, which accounts for close to 60% of the total segment. The OEM continued to maintain its
dominance in the domestic motorcycle segment with a YTD market share of 51.2% during 11m FY2018. However, due to
relatively weak presence in the fast-expanding scooter segment, its overall share in the two-wheeler market has been
steadily declining and contracted further to 36% during 11m FY2018, from 37% during the previous year. Going forward,
improving its presence in the two fastest growing segments of scooter and premium motorcycles would remain critical to
improving its leadership position in the domestic two-wheeler market.
 Bajaj Auto Limited (Bajaj): During the current fiscal, although Bajaj remained the second largest motorcycle manufacturer
Motorcycle and scooter segments in the country, its market share dropped to 16% during 11m FY2018, from 18% during FY2017. Honda has significantly
continue to be dominated by Hero bridged the gap with Bajaj, with a volume difference of ~14,200 units during 11m FY2018, as against 4.65 lakh units in
FY2017. Coupled with Bajaj’s absence from the fast-growing scooter segment, its share in the overall domestic two-wheeler
and Honda respectively
market declined to 10% during the current fiscal, almost half of its share just 6 years ago.
 Honda Motorcycle and Scooter India (Honda): Honda has achieved impressive market share gains in both the motorcycle
and scooter segments, thereby expanding its share in the overall two-wheeler pie and inching closer to the largest player,
Hero. Scooters remain its strong forte, with a market share of 57%, supported by continued strong demand for its Activa
model. Increasing acceptance of scooters in the market and additional capacities that came on-stream in Gujarat (scooter
only) helped growth. In the motorcycle segment also, Honda gained share in the all the lower displacement motorcycle
categories (upto 150-cc) and has almost closed the gap with the second largest player, Bajaj. Overall, the OEM expanded its
market share in the domestic two-wheeler market from 27% during FY2017 to 29% in 11m FY2018, benefitting from its
market share gains in both segments.
 TVS Motor Company Limited (TVS): TVS has reported fairly stable market share trends, maintaining its position as third-
largest two-wheeler player during 11m FY2018, supported by its presence across product segments. The OEM displaced
Hero MotoCorp from its position as second-largest scooter manufacturer during FY2017 and has further strengthened its
position during the current fiscal to 16% market share. In the motorcycle segment, TVS remains the fourth largest player
with a market share of 7%, similar to the previous fiscal.

Outlook

ICRA expects two-wheeler domestic volumes to grow at 8-10% during FY2019 driven by strong rural demand as well as
Two-wheeler industry expected to expanding urban consumption. The demand recovery from rural households in recent quarters drew strength from improved
grow by 8-10% in FY2019 farm sentiments as well as cash flows following two seasons of near normal monsoons and resultant healthy crop output. This
optimism is being complemented by Government’s policies to achieve the vision to double farmers’ income by 2022 driving
consumption demand from rural sector as well as an expectation of normal monsoon precipitation supported by developing la
nina conditions. Moreover, pay revision by 3-9 state governments should support urban demand. Additionally, the recovery in oil
prices has resulted in higher demand from select international markets, which coupled with new markets explored by OEMs
would drive exports in the current fiscal.

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 ICRA Limited
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