Second Covid wave impact in rural to restrict two wheelers’ volume growth at 10-12%: Crisil

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Deeper and wider penetration of the second wave of Covid-19 pandemic into the hinterland, temporary closures of dealerships and higher channel inventory will moderate recovery of India’s two wheelers volume growth to 10-12% in this fiscal against the earlier estimate of 18-20%, rating agency Crisil said.

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, it said.

“Though forecasts of normal monsoons 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,” said Gautam Shahi, Director, Crisil Ratings.

“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.”

Segment-wise, motorcycles volumes will see higher moderation as 70-75% of these are sold in rural area, compared to scooters’ which is predominantly an urban product.

Growth of rural focused executive and economy motorcycles will remain constrained at 9-11% this fiscal. However, 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.

The growth in this segment will be 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.

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.

The pace of vaccination, impact of future Covid waves, and consumer behavior towards personal mobility will remain key monitorables.