Rural demand to soften blow for two-wheeler makers

New Delhi, Oct 29 : Improving rural prospects, downtrading in a subdued income environment, and greater preference for personal mobility will support sales of motorcycles in the economy segment (53 per cent of sector volume last fiscal), thereby limiting the slide in overall two-wheeler sales to 15-17 per cent(s) this fiscal, Crisil Ratings said on Thursday.
As per a CRISIL study of 5 manufacturers, accounting for 80 per cent of the sector’s sale volume, better prospects of the agriculture sector in the cropping seasons would ensure higher disposable income in rural India that would boost two-wheeler sales, largely in economy segment, and will also drive up the segment’s share by 300 bps to 56 per cent of the overall pie.
Hinterland, which accounts for half of two-wheelers sold, saw good traction in the kharif (summer) sowing season supported by a good and evenly spread monsoon. With water reservoirs also at healthy levels of 87 per cent on average, the tidings are good for the rabi (winter) crop, too. As a result, agriculture GDP is seen growing 2.5 per cent even as India’s GDP is estimated to contract 9 per cent in the current fiscal.
Additionally, hike in the minimum support price (MSP) for key crops will also boost rural income and discretionary spending.
Hence, rural demand for two-wheelers is seen recovering faster, with sales estimated to grow 500 basis points (bps) more than urban, where income growth is more tepid.
This is underscored by data on rural two-wheeler retail registrations during April-September 2020.