Mumbai: Domestic two-wheeler industry is estimated to log 8-9 percent growth for 2014-15, but it will decelerate to 1-3 percent in the next financial year because of limited flow of first time buyers, rating agency ICRA said.
It will be driven by increasing penetration of scooters even as the larger segment of motorcycles continues to post modest growth supported mainly by replacement demand, ICRA said in its report.
Notwithstanding the strong revival witnessed early in FY15, volume growth in the Indian two-wheeler industry has reported deceleration over the last few months dragged by declining volumes of motorcycles segment, it said.
ICRA expects two wheeler demand growth to decelerate from this level in 2015-16 to around 1-3 percent in view of limited flow of first-time buyers whose disposable incomes are unlikely to expand till India's economic growth turns more reassuring.
Over the medium term, this industry is expected to report a volume CAGR of 8-9 percent to reach a size of 22-23 million units in both domestic and exports by 2016-17.
ICRA said that various structural positives associated with the domestic two wheeler industry include favourable demographic profile; moderate two wheeler 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.
Besides, there is large opportunity available to grow presence in overseas markets, mainly Africa and Latin America.
ICRA said the motorcycle volumes faltered after a positive first half of 2014-15 and OEMs lined up new models to woo customers. Accounting for over 65 percent of two-wheeler industry volumes, performance of motorcycles has a significant bearing on the overall volumes of the industry.
Consequently, with sluggish volumes in the segment, the overall industry volume growth was also dragged down during the last four months despite continued strong performance of scooters. Though the segment grew by 11.6 percent YoY during H1 FY15, growth faltered during Q3 FY15 with motorcycle volumes posting a decline of 5.4 percent YoY and 6 percent YoY in January 2015.
With a view to arresting the decline, OEMs have lined up launches of several new models and refreshed variants which are expected to aid in spurring the demand for motorcycles.
However, given current high levels of penetration in the addressable income segment; replacement demand (including product upgrades) and additional motorcycles per household would be key demand drivers for the segment.
"We expect this segment to continue to post moderate growth in the near term," ICRA said.
Scooters segment continued to uplift the overall two wheeler industry volumes as segment share improves.
