The second half is also seeing a sharp decline in volumes due to rise in lending rates, and a margins squeeze in the entry level segment, prompting companies to tap the lucrative executive segment, which accounts for 50% of total bike sales.
Currently Hero Honda (with its Splendor, Passion and Glamour) is the dominant player with a market share of 70%. Bajaj and TVS are eyeing a pie in this 3.3 million units market with their new launchesXCD and Flame.
Bajaj, which launched XCD in September this year, has already sold about 65,000 units in 50 days of the launch, pushing it to increase the capacity of the bike from 50,000 units to 75,000 units in November 2007.
The share of below 125cc bikes in Bajajs sales has increased from 38.7% in first quarter of this year to 50% in the secondleading to an improvement in the companys product mix. Similarly, the 125-250cc motorcycle segment accounted for 4.1% of Hero Hondas motorcycle sales in the second half of this year, as against 1.8% in the same period last year.
TVS, which had Victor in this segment, expects to regain its lost market share with the launch of Flame. It expects Flame to add Rs 800 crore to the topline this fiscal. It is targeting to sell 20,000-25,000 units a month from January 2008 once the product is rolled out across the country.
Moreover, the impact of interest rates is also expected to be in the short term. Apart from strong volume growth, we believe that the two-wheeler companies would be able to sustain better Ebitda margins, which would be driven by lower raw-material costs, and improvements in product mix. We expect earnings growth to remain strong in the second half of this financial year and the next year, says a Motilal Oswal report.