Monday, October 25, 2010

Indian motorcycle market: Double-digit growth rates to continue in 2011-12

More than 10 million motorcycles and scooters were sold in India during 2009-10 and the growth rate is still expected to be in double digits during 2011!

The Indian two-wheeler market, already the second largest in the world (China is the largest), is showing no signs of slowing down anytime in the near future. More than 10 million two-wheelers were sold in India during 2009-10, most of it being motorcycles, with a few scooters thrown in for good measure. Motorcycles as a segment have grown at a CAGR of 17.4% during the last 16 years, while other two-wheelers (scooters, mopeds) have been virtually stagnant, growing at a meagre CAGR of 1.8%.

In India, the share of motorcycles in the two-wheeler market has risen from 30% to 80% in the last decade and a half, during which period annual sales of motorcycles in the country have grown by a multiple of 13. In the near future, volume growth is expected to persist, though percentage growth is likely to decline slightly on the back of a substantially increased base.

Demand drivers

Demand for motorcycles in India is being driven by a variety of factors – given poor public transport infrastructure in most Indian cities, and the increasing purchasing power levels, motorcycles and scooters are the only viable means of transportation for a very large segment of the population. Further, as the scale of operations have grown, motorcycle manufacturing has become more efficient, driving down prices. Motorcycle prices today are only about 70-80% above the levels of 20 years ago, in nominal terms. Incomes, on the other hand, have grown manifold and financing is also much easier to avail.

The Demographics

Motorcycle manufactures find themselves addressing the demographic sweet spot of the great Indian consuming universe and will be able to benefit for a long time to come. As soon as a slack develops in urban demand, the rural demand not only fills it very fast but also fuels it further. And, the rural segment in India is still at least a few years away from a decent public transport infrastructure.

The key drivers of demand are the households earning Rs 300,000 to 500,000 per annum. As income rises on the back of rapid economic growth, many households are moving from two-wheelers to small cars. However, such is the pyramid that an even higher number from lower income categories are moving in to motorcycle ownership. So, yes, the motorcycle segment is addressing a key demographic sweet spot, which will fuel the demand for years to come.

The overall penetration of two-wheelers in India is of the order of 28% of all households. In the urban segment, the penetration is of the order of 45%, whereas in the rural segment, the penetration is only about 12% of the households. Clearly, the big drive in future will come from the rural segment.

As many as 11 million urban households and 4.4 million rural households have annual household incomes in the Rs 300,000-500,000 category. The next category consists of 25 million urban and 23 million rural households. At least a quarter of these (11-12 million) will move into the two-wheeler purchasing segment during the next five-ten years.

International Trends

International trends suggest that the growth of the two-wheeler markets will continue unabated for some time. In value terms, the BRIC motorcycles market grew by 14.7% between 2004 and 2008 to reach a value of $32.4 billion (Brazil alone growing by 32% per annum). By 2013, the market is forecast to have a value of $54.7 billion.

Global motorcycle demand has been growing at 6-7% pa and is estimated to be about 80-85 million units per annum. India has emerged as one of the key players with a domestic market that is nearly about 11% of the global market and growing significantly faster. The high base implies that India and Indian companies are set to enter a stage where they are likely to be the preferred suppliers for motorcycles. This is likely to lead to further innovations and efficiency gains.

Of course, the Indian motorcycle market is significantly less evolved than European, Japanese, American and many other markets, with the segment below 150cc engine capacity being the dominant segment here. This is unlike the developed world, where it is the larger bikes that dominate the market volumes. Indian consumption is also likely to shift significantly toward international trends, but in the foreseeable future, it is the smaller bikes that will remain the mainstay.

At present as many as 72% of the bikes are in the entry segment (defined as 75 to 125 cc), and 27% are in the executive segment (defined as 125-250 cc). Only 1% of the bikes are in the premium segment, which is expected to continue being a niche segment and its share is not expected to grow beyond 2-2.5% over the next decade. However, that itself implies that it will be a market of about 200,000 to 250,000 annual units, which is substantial and attractive. (As a comparison, the declining Japanese market currently consumes only about 350,000 motorcycles annually in the above-250cc category, having fallen sharply over the past few years).

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