Mobikes speed up the action

Mobikes speed up the action

Ernst & Young Automotive Research Team

In volume terms, the two-wheeler industry forms the bulk of Indian auto, with three out of every four vehicles being sold in the country being a two-wheeler. While FY09 was a tough year for all automotive categories, two-wheelers have been able to handle the downturn better and posted a growth of three percent in domestic markets and exports growing by 22 percent.

Owing to a lower ticket size, this industry caters to a significant percentage of the Indian demographic pyramid, providing regular mobility to the maximum number of people. Not only does this segment have a mass appeal, it also caters to some of the niche markets. After the entry of Yamaha, Suzuki and Honda in the super powerful bikes segment, marquee brands like Harley-Davidson are also understood to be planning to enter Indian markets. Considerable product innovation is also happening within two-wheelers, with newer products being launched in electric segment which is another niche sector currently.

Until the late 1990s, scooters dominated two-wheeler sales with motorcycles accounting for less than 40 percent share. On the back of new and improved products, better fuel efficiency and faster mobility, there has been a structural shift with motorcycles making up 80 percent of the segment currently.

The Society of Indian Automobile Manufacturers (SIAM) classifies motorcycles on the basis of engine capacity and the same can also be extended and linked to customer profiles, which include: (i) Less than 125 cc – Entry-level; (ii) 125 cc & above but less than 250 cc – Executive; (iii) Greater than 250 cc – Premium.
The premium segment is relatively smaller and currently has only Royal Enfield as a significant player. The entry segment is currently the largest, constituting 70 percent of the total motorcycle market and is dominated by Hero Honda, which is the world’s largest two-wheeler company and also holds more than 80 percent of this segment. The executive segment is led by Bajaj Auto (top-selling model – Pulsar) with a 50 percent market share in this category.

Motorcycles have been growing at 13-19 percent during FY05 to FY07. The credit squeeze and higher borrowing cost impacted the demand in FY08, resulting in de-growth of 12 percent. The industry started recovering from Q4FY09 and is now back on the growth trajectory with a 15 percent growth in first four months of FY10.

Within the motorcycle segment, the premium category is growing at a pace of 20 percent approximately, (though on a smaller base), from FY08 onwards and the growth has accelerated in the current fiscal. Stronger customer profiles ensured that the impact due to the credit squeeze was minimal.

The entry segment was the most severely impacted in FY08, de-growing by 19 percent. With an improvement in the macro economic scenario, it has now grown by 14 percent in the first four months of the current year, with growth rates improving every successive month.

For all these years, the executive segment has been able to manage a higher growth rate than the entry segment, although the variation in growth was similar in both segments. Attracted by the prospect of incremental growth, various players have launched new products to attract customers and increase their market share in the executive segment. Between FY07 and FY09, Bajaj and TVS have lost 10 percent and eight percent of market share respectively, whereas Honda Motorcycles and Scooters, Yamaha and Hero Honda have strengthened their foothold.

Of late, motorcycles have started facing competition from scooters, pursuant to the launch of fuel-efficient scooters