The Indian two-wheeler market in India is expected to contract by 11 to 13 percent this financial year (FY 2020-21). As per the credit rating agency ICRA, operating margins of two-wheeler manufacturers in India is set to drop from 14 percent last year (FY 2019-20) to 11.5 to 12 percent.
These contractions are attributed to the COVID-19 pandemic and the economic impact due to the lockdown. The report adds that the full extent of reduction in volumes will depend on the severity of the coronavirus outbreak and the continuation of lockdowns.
However, the pandemic is not the only reason why the Indian two-wheeler industry will be shrinking this year.
In the midst of a liquidity crunch due to the NBFC crisis, the increase in insurance premium started the fall of the industry. Further, rising raw material costs sharp rise in vehicle prices and a subdued macroeconomic situation in the country and the BS-VI transition saw the increase in prices by around 10 to 12 percent.
The challenges for the industry are likely to increase as consumer spending will be severely reduced by the coronavirus outbreak, resulting in lower spending power both in urban and rural markets.
Speaking about the falling volumes of the Indian two-wheeler industry, Shamsher Dewan, Vice President of ICRA, said, “Pressure on earnings will also arise due to costs involved in re-calling BS-IV inventory from dealers which is likely to remain unsold due to shutdowns. Furthermore, during periods of stress, OEMs will also have to extend credit support to its dealers thus leading to potential increase in working capital intensity.”
However, manufacturers are expected to continue investing in new product development and enhancement of sales network, though the pace may be muted in the near term.
The industry is expected to make a recovery in the medium term backed by factors like favourable demographic profile, growing middle class, low two-wheeler penetration, improving financing availability, the participation of women in the workforce, and rapid urbanisation.
Shamsher adds, “The underdeveloped public transport system, in the backdrop of increasing road network in the past few years, has steered personal mobility requirement, which also supports the demand for two-wheelers.”
(Edited by Saheli Sen Gupta)
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