On the skids

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The warning signs had begun to show up as early as late 2006 when, during the normally brisk festive season, motorcycle sales barely climbed. And in February 2007, motorcycle sales registered their first year-on-year decline—from 536,220 units to 517,334 units—in over three years. This trend has, since, gained mass. For the first nine months of the current financial year, motorcycle sales are down 12.25 per cent year-on-year. But Hero Honda Motors (HHML) and Bajaj Auto (BAL), the two biggest companies in this sector, are unperturbed. “We want to be India’s most profitable auto company,” says Rajiv Bajaj, Managing Director, BAL. Its motorcycle sales have declined over 20 per cent over the first nine months of 2007-08 and overall sales volumes (including three-wheelers) have fallen over 18.6 per cent, but its top line has fallen just 2.7 per cent and net profits 4.2 per cent.

Hero Honda, too, is concentrating on the higher end of the market, which was a critical reason (along with reduced raw material costs) behind the company’s net profits improving 31.5 per cent to Rs 275 crore for the quarter ended December, 2007. In fact, the market for bikes with engines larger than 125CC grew 18.4 per cent over the first three quarters of the current fiscal year.

Says a recent report from Mumbai-based brokerage Emkay Research: “We have a cautious view on the motorcycle segment largely due to non-availability of consumer finance.” Some bankers admit that default rates are increasing, and even though only about 50 per cent of sales are financed, default rates have risen above 2 per cent, and this may put further pressure on some two-wheeler manufacturers, some of whom, such as TVS Motors, have a larger percentage of sales financed. TVS, incidentally, has seen sales decline precipitously by 40 per cent in the motorcycle segment for the first nine months of 2007-08.

But it is not as if the entire two-wheeler market has declined. The past few years have seen the re-emergence of the scooter segment, led by Honda Motorcycle and Scooter India (HMSI). Over the April-December 2007 period, scooter sales increased 16.1 per cent to 795,754 units and are expected to cross the million-unit-mark by the end of the current financial year. But motorcycles still dominate, with close to an 80 per cent share of the Indian market; so, the resurgent scooter market hasn’t been able to lift the fortunes of the two-wheeler segment.

However, as a panacea to declining domestic sales, manufacturers, particularly BAL, have been rapidly growing exports. BAL exported 358,444 two-wheelers between April and December, a growth of 60 per cent. TVS Motor recently opened a unit in Indonesia and even Hero Honda has started to ramp up exports. So, while the situation might still look a bit bleak, the future does not look as bad as some make it out to be.