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Two Wheelers - Dealer Survey Report

Two Wheelers - Dealer Survey Report



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Published by ticktick
All India two wheeler dealer survey report.
All India two wheeler dealer survey report.

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Published by: ticktick on Aug 11, 2008
Copyright:Attribution Non-commercial


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July 2008
       F       Y       9       4       F       Y       9       5       F       Y       9       6       F       Y       9       7       F       Y       9       8       F       Y       9       9       F       Y       0       0       F       Y       0       1       F       Y       0       2       F       Y       0       3       F       Y       0       4       F       Y       0       5       F       Y       0       6       F       Y       0       7       F       Y       0       8       F       Y       0       9
-10%-5%0%5%10%15%20%25%30%ScooterMotor CyclesMopedsIndustry Growth
The sentiment towards the two-wheeler segment has been badly hit in FY08due to the rise in interest rates and resultant loan defaults on the part of thecustomers. With banks having been forced to slow down lending for thepurchase of two-wheelers, the incremental volume growth of most motorcyclemajors such as Bajaj Auto, TVS Motors and Hero Honda has taken a beating.The two-wheeler industry registered a YoY de-growth of 5% for FY08 (thebiggest drop in last 15 years).To understand the growth scenario for FY09, we recently surveyed dealers andfinance companies connected with the two-wheeler industry. Most of therespondents hinted at the possibility of a flattish volume growth for FY09E.
Key Highlights:
 Financial Scenario-From bad to worse - 
The credit market situation hasworsened over the past 12 months:
IRR @ 23.4%:HDFC Bank
IRR of
(up 600 bps in the last 12months) and
(up 150 bps in the last 3 months).
Financing ratio dips by 11 percentage points:
In the last 6 months, thefinancing ratio has declined significantly
from 65% to 54%
. Hero Hondacommands the highest financing ratio of 60% due to the better resale valuecited by the finance companies.
Source: Dealers, TATA Securities Research
NPAs up almost 3.5-4 times:
The average NPAs stand at13—14% compared to normal level of 3-4%.However, dealers based inLucknow and Mumbai indicated the default rates to be in the range of 30-35% in some cases.
High NPAs force exit of financial players
Citibank moves out:
The high NPA levels have forced Citibank to exit thetwo-wheeler segment.
ICICI Bank may exit few circles
: ICICI Bank is also planning to quit theNoida and Ghaziabad circles.
Volumes under pressure in FY09:The demand scenario is expected toremain weak during the year.
The overall volume growth of the motorcycle segment in
FY09 is estimatedin the range ~2-3%
(50% dealers expect ~0-5% YoY growth, 15% expect aYoY decline of 2-3% and the remaining 35% see a higher YoY growth of 5-10%).
Trend shifts away from entry-level bikes
In our survey, 74% of the dealers said the customer preference is shiftingaway from entry-level (100cc) bikes towards executive and premium bikes.Bajaj Auto will be the largest long-term beneficiary of this changing trendowing to its strong dominance in the executive and premium segments.
Financing Ratio Bajaj Auto Hero Honda TVS Motors
12 months back 58% 71% 65%Current 50% 59% 50%
Drop 8,00bps 1,200bps 1,500bps
Two wheelers – Dealer Survey* Report
No’s in ’000s
Analysts:Ajay Shethiya, CFA
Email: ajay.shethiya@tatacapital.comTel: +9122 6675 2630
Harish Awasthi
Email: harish.awasthi@tatacapital.com
Trend in two-wheeler industry
Source: SIAM, Tata Securities Research
 e a l   e S  u v e y
Note: * - The survey is based on feedback from 25 dealers ( 10 – Bajaj Auto, 11- Hero Honda and 4-TVS Motors) spread across India and few finance companies ( Fullerton, ICICI Bank and HDFC Bank)
Relative Performance
Source: Bloomberg, Tata Securities Research
Dealer Survey
July 2008
Financing Scenario
1.) Lending rates remain high
The overall cost of ownership has substantially gone up due to the steepincrease in lending rates.HDFC Bank’s IRR at 22% and ICICI Bank’s 24% is unlikely to soften in the nearfuture.
2.) Default rates on the rise
average NPA’s range from 13-14%. However, ICICI Bank and Citi Bankreportedly have experienced defaults anywhere between 30% and 40% inMumbai and Lucknow in some cases. In Lucknow, 10% of the defaultersdisappeared after taking delivery of the bike.In order to keep a check on the rising default rates, most banks have increased the documentation work and tightened the lending norms in the last fewmonths. The documentation process has become far more stringent in the last12 months, according to 79% of the dealers.
 3.) High NPAs force exit of financial players
The high NPA levels have forced Citibank to exit two-wheeler financing, while ICICI Bank is likely to leave Nodia and Ghaziabad.
Dealer view: The dealers expect the exit of ICICI Bank and other finance companies to adversely impact the sales of Hero Honda the most as it does not have a supporting finance arm such as Bajaj Auto Finance. Bajaj Auto withhelp of Bajaj Auto Finance has been successful in drawing customers away  from Hero Honda by offering higher financing during the festival season. Bajaj was able to register higher sales in Noida on account of Bajaj Auto Finance Limited, according to a dealer.
Decline in the financing ratio
The high default rates have led to a sharp decline in the financing ratio from 65% to 54% in the last 12 months. The entry-level bikes have suffered the mostcompared to premium-level bikes as they are largely purchased throughfinance. In areas such as Noida, the financing ratio fell to as low as ~40% inMarch 2008.
Hero Honda commands the highest financing ratio of 60% due to the better resale value cited by the finance companies.
5.) Loss in sales
The confluence of three factors 1.) Increase in the cost of ownership (owing tohigh lending rates 2.) The high level of NPAs and 3.) Decreasing financing ratiohave led to volume de-growth.
12M back 6M back 3M back Current
50%31%6%6%6%0% 10% 20% 30% 40% 50% 60%0-10%10-20%20-30%30-40%40-50%
Source: Dealers, Tata Securities Research
Default RatesRegistration process becomingstringentIncrease in lending rates
58%65%65%71%54%50%59%50%0%10%20%30%40%50%60%70%80%BajajHeroHondaTVSIndustryBefore One YearCurrently
Decline in financing ratio
Documentationhas not changedover time, 21%
Too high EMI17%
Dealers view: Factors leading todrop in sales
Unavailability offinancing54%Unavailability ofdiscounts/incentives, 3%Unavailability ofnew models, 3%Unavailability ofright mix of priceand features, 13%Other, 10%
Documentationhas tightenedover time, 79%
% of dealers
Dealer Survey
July 2008
Resultant, the two wheeler finance market is likely to getimpacted
2%(8)%12% growth
Source: SIAM, Dealers, Tata Securities Research
Trend in two-wheeler salesTwo-wheeler finance market
(In Rs)3500036000370003800039000400004100042000FY07EFY08EFY09ERealization
Trend in realisation
74%70%70%65%54%50%40%50%60%70%80%FY07EFY08EFY09ELTVFinancing Ratio
and Financing Ratio
x x
Loan to Value
(In mn)
152111107-3%-27%16%050100150200FY07EFY08EFY09E-30%-20%-10%0%10%20%Two wheeler finance marketYoY growth
(Rs bn)

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