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Indian Two-Wheeler Industry

Jitin Makkar
+91 124 4545 368
jitinm@icraindia.com

As scooter sales volumes continue to soar, motorcycle

volumes too show improved growth momentum

ICRA LIMITED Page

October 2014 |1
 WHATS INSIDE?

1. Overview

2. Entry segment of motorcycles

Recent years trend in sales volumes of entry segment bikes stands in contrast to longer-term sales trend
Sub-segment is still growing, but at a slower pace than the industry
Despite reduction in proportion of first time buyers, segment volumes have held ground
Hero MotoCorp has further strengthened its position in the sub-segment over the last two years
Honda is the latest entrant into the sub-segment; launched the Dream CD110 bike in July 2014

3. Executive segment of motorcycles

Replacement demand supporting volume growth
Up-trading/ Down-trading: 2012-13 versus 2013-14
100cc: Sub-segment has witnessed large number of new model introductions over last two years
100cc: Competition intensifies but Hero MotoCorp stays on top
100cc: Bajaj Auto has lost market share; an alternate strategy now being implemented
125cc: Honda overtakes Hero MotoCorp and Bajaj Auto
125cc: Sub-segment holds greater appeal for commuters than performance bikers

4. Premium segment of motorcycles

Characterized by high model clutter and high degree of segmentation
The >150cc segment of motorcycles is dotted by a large number of models even as sub-segment volumes arent big enough as yet
Bajaj Auto maintains its leadership position in the sub-segment through its Pulsar series of bikes
Hero MotoCorp slips to the 4th position in the sub-segment from its No. 2 position two years back

5. Segmental Analysis of the Indian 2W Industry

Trend in 2W segment volume mix
Trend in segment-wise sales volume growth of 2Ws

6. Quarterly Performance trends of publically-listed 2W OEMs in India

Hero MotoCorp Limited
Bajaj Auto Limited
TVS Motor Company Limited

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INDIAN TWO-WHEELER INDUSTRY
As scooter sales volumes continue to soar, motorcycle volumes too show improved growth momentum
October 2014
OVERVIEW
Fast expansion of the scooter
segments pie has encouraged most
OEMs in India to launch new models
Motorcycle volume growth in 2014-
15 to be driven by increase in
replacement demand and
incremental wholesale volume
contribution of new models
ICRA LIMITED
2W industry volume growth in 5m 2014-15 gears up to 14.8% YoY, the fastest pace of growth since 2010-11
The Indian two-wheeler (2W) industry, the largest in the world in terms of volumes, had demonstrated positive volume growth in
the last three years (2011-14) even when some of the other automobile segments such as passenger vehicles and commercial
vehicles experienced volume contraction in at least one of the last three fiscals. In 5m 2014-15, the 2W industrys growth was even
stronger with sales volumes expanding by a healthy 14.8% YoY, the fastest pace of growth since 2010-11. While strong demand for
scooters (contributed 27% to domestic 2W industry sales volumes in 5m 2014-15) has been the primary driving force behind overall
2W industry expansion in the last three years, the motorcycle segments contribution to 2W industry growth too gained force in 5m
2014-15 by virtue of greater replacement demand and new model launches by various Original Equipment Manufacturers (OEMs).
Volume growth of scooters at 30.7% in 5m 2014-15 stays robust; strong segment growth over the years induces
proliferation of new model launches
In the last five years, the share of scooters in total domestic 2W sales volumes has increased from 15% in 2008-09 to 24% in 2013-
14 (27% in 5m 2014-15). In terms of recent trends, while domestic motorcycle sales volumes grew by 10.0% YoY in 5m 2014-15, the
volumes of scooters expanded by a robust 30.7% YoY during the same period. The fast expansion of the scooter segments pie has
encouraged most OEMs in India to launch new models to capitalize on the growing opportunity offered by this segment. In 2012-
13, three new scooter brands were launched in India, but the count of new brands introduced increased to six in 2013-14; and in
5m 2014-15, already four new models have been launched by various OEMs with more being in the pipeline. Compared to
motorcycles (targeted at males), the penetration of scooters (targeted at both males and females) remains lower by a factor of 3-4
times which has been one of the primary drivers of demand for scooters as positioning of this product segment has become
sharper. As scooters get increasingly targeted at both the sexes and as more women adopt mobile lifestyles, the case for continued
penetration-led growth for the scooters segment remains strong. The increased supply push in the form of new scooter launches
should only add to the growth momentum.
Motorcycle sales volume growth improved in 5m 2014-15, but high penetration in addressable income segment to
remain an overhang
Over the last three years, motorcycle segment volumes have grown only at a moderate CAGR of 5% as slowdown in Indias
economic growth and persistently high inflation weighed on disposable income of buyers, particularly those who buy entry
segment (at price point near Rs. 40,000) and executive segment (in price range of Rs. 45,000-50,000) bikes. Thus, pressure on
household income growth leading to reduction in proportion of first-time buyers weighed on demand for motorcycles. However,
the recent uptick in sales volumes of motorcycles, reflected in growth of 10.0% YoY in 5m 2014-15, does insinuate improved growth
prospects for 2014-15. While motorcycle volumes in 2014-15 may indeed grow faster than the CAGR of last three years, in our view,
this would largely be driven by increase in replacement demand and incremental wholesale volume contribution of new models.
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OVERVIEW Continued..

As for replacement demand, this would be attributable primarily to customers who had purchased 2Ws in 2009-10 and 2010-11
(which were two years of 20%+ volume growth for the industry) and who would now be ripe to replace their existing vehicles. As for
incremental wholesale volume contribution of new motorcycle launches, our estimates suggest that on excluding sales volumes of
five new models launched in recent months, the volume growth of motorcycles segment in 5m 2014-15 was around 350 basis points
(bps) lower than the headline growth of 10.0% YoY. Overall, we expect the domestic motorcycles segment to grow only at a
moderate pace over the medium term till such time as the pie of households having the threshold purchasing power to buy a 2W
expands. This in turn would depend on the pace of Indias economic growth recovery that could (a) boost personal disposable
incomes and resultant consumption growth, (b) pull up the un-penetrated households from the low income segment to the next
higher income segment, (c) further enable increase in the number multiple two-wheeler households, enabling penetration
supported rise in 2W demand.

Honda continues to grow its market share; new model launches by TVS support its volume growth in 5m 2014-15
In terms of market share, Hero MotoCorp continues to remain the distant leader with a share of 41.4% in 5m 2014-15,
Honda and TVS improve market compared to 41.3% in 2013-14, although this is much lower than the highs of ~45% it enjoyed till 2011-12. The other two
share in 5m 2014-15 leading Indian OEMs too, namely, Bajaj Auto and TVS Motor have experienced decline in their respective share in the domestic
2W market in the last few years.
The loss in market share of Hero MotoCorp, Bajaj Auto and TVS has been Hondas gain as it continues to demonstrate steady
gains in market share across the board. Honda has strengthened its market share in the domestic 2W industry to 25.6% in 5m
2014-15 from 14.9% in 2011-12 on the strength of its strong brand (particularly in the scooters segment), growing distribution
network and new product launches.
For Bajaj Auto, market share erosion has been the steepest with its share in the motorcycles segment dipping to 16.6% in 5m
2014-15 (versus 24.4% in 2012-13) due to reduced demand for the OEMs Discover series of bikes. The OEM has recently re-
jigged its portfolio of Discover brand bikes having discontinued the Discover 100T, Discover 125T and Discover 125ST models
and introduced the Discover 100M, Discover 125M, Discover 150S and Discover 150F models with plans to focus more on
strengthening the Discover 150 brand such that it has a positive rub-off on the 100cc and 125cc Discover bikes. While it
remains to be seen to what extent the change in Bajaj Autos portfolio and brand strategy pays off, the OEMs strong exports
performance has so far allowed it to mitigate pressures experienced on the domestic front.
TVS, that had been steadily losing market share for three years till 2013-14, improved the same to 12.9% in 5m 2014-15 (11.8%
in 2013-14) on the back of new model launches including Jupiter (110 cc scooter), Star City+ (110cc bike) and Scooty Zest
(110cc scooter).
Mahindra had made an entry into the Indian 2W market in the year 2008 when it had bought-out 80% of the business assets of
Kinetic Motor. However, as of 5m 2014-15, the market share of Mahindra Two-Wheelers remained low at 1.0% with its
product portfolio comprising of five scooter brands and two 100cc bikes. The company has recently made a binding offer to
acquire 51% stake in Peugeot Motocycles (PMTC), part of the Euro 54 billion PSA Group based in France. It remains to be seen
to what extent this investment allows the Mahindra Group to improve its market position in the domestic/ global 2W industry.
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OVERVIEW Continued..
Outlook
ICRA expects the domestic 2W industry volumes to grow by around 8-9% in 2014-15 as we expect 2W volumes in the short term to
continue to draw support from replacement demand. However, we expect 2W demand growth to decelerate from this level in
2015-16 in view of (a) high 2W penetration level currently in the addressable income segment and (b) limited flow of first-time
buyers whose disposable incomes are unlikely to expand till Indias economic growth turns more reassuring. Over the medium
term, the 2W industry is expected to report a volume CAGR of 8-9% to reach a size of 22-23 million units (domestic +exports) by
2016-17, as we believe the various structural positives associated with the domestic 2W industry including favourable demographic
profile, moderate 2W penetration levels (in relation to several other emerging markets), under developed public transport system,
growing urbanization, strong replacement demand and moderate share of financed purchases remain intact; as also the large
opportunity available to grow presence in overseas markets, mainly Africa and Latin America.

ICRA LIMITED P age |5

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