Social News XYZ     

Second wave impact on hinterland to restrict two wheelers’ volume growth at 10-12%

Second wave impact on hinterland to restrict two wheelers' volume growth at 10-12%

Mumbai, July 16 (SocialNews.XYZ) Deeper and wider penetration of the second wave of the pandemic into the hinterland, temporary closures of dealerships and higher channel inventory is expected to moderate recovery of two wheelers this fiscal to 10-12% volume growth against an earlier estimate of 18-20%.

Significantly, this volume growth would come on a low base - after a tumble of 13.2% last fiscal and 17.2% in fiscal 2020. However, overall revenue growth will be higher on account of calibrated price hikes by two wheeler makers in the last quarter of fiscal 2021, as well as the current fiscal to offset rise in input costs.

 

Net-net, credit profiles of two-wheeler makers will remain healthy owing to higher revenues, almost stable operating margins, healthy cash surpluses and strong balance sheets.

A CRISIL study of five manufacturers, which account for 80% of the sale volume of the sector indicates as much.

"Though forecasts of normal monsoon in the impending season bode well for the rural segment, higher rate of Covid-19 infections in rural areas will impact income levels and constrain offtake, for most of the first half of fiscal 2022. Moreover, unlike during the first Covid wave, channel inventory for the industry was higher at 40-45 days in April 2021 compared to 20-25 days in April 2020 due to BS VI transition. Hence, benefit of channel filling will not be available this fiscal, as the impact of the Covid wave abates from Q2 of current fiscal, resulting in lower growth," said Gautam Shahi, Director, CRISIL Ratings.

Segment-wise, motorcycle volume is expected to see higher moderation as 70-75% of these are sold in rural area, compared to scooters' which is predominantly an urban product. Amongst domestic two wheeler segments, growth of rural focused executive and economy motorcycles will remain constrained at 9-11% this fiscal. And the premium motorcycles, after last three fiscals of volume decline, is expected to grow at 12-15%, given higher number of new launches and increased focus of two-wheeler makers on premiumisation.

The scooters segment is expected to stage a good recovery this fiscal, registering volume growth of 15-17%, albeit on a relatively low base, supported by faster recovery in urban incomes, continuing preference for personal mobility, and the graded opening up of offices and educational institutes, as vaccination drive gathers pace. This growth, though, is on the back of three consecutive years of volume decline.

Additionally, overall two wheeler export sales volume (accounts for 17% of industry volume) which de-grew only 3% in fiscal 2021 will grow at 11-13% this fiscal with continued recovery in demand in overseas markets and increase in geographic reach by players.

Calibrated price hikes, diversification into high-margin premium products, and cost rationalisation efforts will ensure limited impact on profitability for players against a sharp increase in steel and aluminium prices that account for more than half of the total material cost.

With pass on of raw material price increases and rationalization of advertising costs, operating margin of players are expected to sustain at similar levels of 13-14%, as seen in fiscal 2021, but 100 basis points lower compared with fiscal 2020.

According to Sushant Sarode, Associate Director, CRISIL Ratings, "Credit quality of two-wheeler manufacturers will remain resilient considering strong balance sheets, limited debt, efficient working capital management, robust liquidity (over Rs 40,000 crores), and limited need to add more capacity, given low capacity utilisation over the earlier two fiscals."

Source: IANS

Facebook Comments
Second wave impact on hinterland to restrict two wheelers' volume growth at 10-12%

About Gopi

Gopi Adusumilli is a Programmer. He is the editor of SocialNews.XYZ and President of AGK Fire Inc.

He enjoys designing websites, developing mobile applications and publishing news articles on current events from various authenticated news sources.

When it comes to writing he likes to write about current world politics and Indian Movies. His future plans include developing SocialNews.XYZ into a News website that has no bias or judgment towards any.

He can be reached at gopi@socialnews.xyz

%d bloggers like this: