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
NOT OUT OF WOODS YET!
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.
Financial Scenario-From bad to worse -
The credit market situation hasworsened over the past 12 months:
IRR @ 23.4%:HDFC Bank
(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: email@example.comTel: +9122 6675 2630
Trend in two-wheeler industry
Source: SIAM, Tata Securities Research
D e a l er S ur 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)
Source: Bloomberg, Tata Securities Research