The deeper and wider spread of Covid-19 in the hinterland during the second wave, temporary closures of dealerships, and higher channel inventory will restrict the recovery of two-wheelers this fiscal to 10-12% volume growth as against the earlier estimate of 18-20%, a study by rating agency Crisil said.
The volume growth will be on a low base, after a tumble of 13.2% last fiscal and 17.2% in FY20.
However, overall revenue growth will be higher on account of calibrated price hikes by two-wheeler makers in the last quarter of FY21 and the current fiscal to offset rise in input costs. Credit profiles of two-wheeler makers will remain healthy owing to higher revenues, almost stable operating margins, healthy cash surpluses and strong balance sheets, the study of five manufacturers who account for 80% of the sale volume of the sector, said.
Gautam Shahi, director, Crisil Ratings, said: “Though forecasts of normal monsoon in the impending season bode well for the rural segment, higher rate of Covid-19 infections in rural areas will impact income levels and constrain offtake for most of the first half of fiscal 2022. Moreover, unlike during the first Covid wave, channel inventory for the industry was higher at 40-45 days in April 2021 compared to 20-25 days in April 2020 due to the BS VI transition. Hence, benefit of channel filling will not be available this fiscal, as the impact of the Covid wave abates from Q2 of current fiscal, resulting in lower growth.”
Segment-wise, motorcycle volumes will see higher moderation as 70-75% of these are sold in rural areas, compared to scooters, which are predominantly an urban product. Amongst domestic two-wheeler segments, growth of rural-focused executive and economy motorcycles will remain constrained at 9-11% this fiscal.
The premium motorcycle segment, after three fiscals of volume decline, is expected to grow at 12-15% given a higher number of new launches and two-wheeler makers’ increased focus on premiumisation.
The scooter segment is expected to stage a good recovery this fiscal, registering volume growth of 15-17% — albeit on a relatively low base — supported by faster recovery in urban incomes, continuing preference for personal mobility, and the graded reopening of offices and educational institutes as vaccination gathers pace.
Additionally, overall two-wheeler export sales volume, which accounts for 17% of industry volume and de-grew only 3% in FY21, will grow at 11-13% this fiscal, with continued recovery in demand in overseas markets and increase in geographic reach by players.
The study said calibrated price hikes, diversification into high-margin premium products, and cost rationalisation efforts will ensure limited impact on profitability for players against a sharp increase in steel and aluminium prices, which account for more than half of the total material cost. With raw material price increases passed on and rationalisation of advertising costs, operating margins of players are expected to sustain at similar levels of 13-14% as seen in FY21, but 100 basis points lower compared with FY20.
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