Further, the ICRA said that the poor performance of the festive season has highlighted the continuing warnings about big ticket purchases among the low-income population.
Credit rating agency ICRA said domestic two-wheeler (2W) volumes are expected to decline 1-4% year-on-year this fiscal, impacted by a steady rise in two-wheeler prices as well as record high petrol costs. . said.
Further, the ICRA said that the poor performance of the festive season has highlighted the continuing warnings about big ticket purchases among the low-income population.
Following a weak festive season performance for the industry, ICRA Ratings expects domestic two-wheeler volumes to decline by 1-4% in FY22.
Moreover, sales of 8.05 million two-wheelers in the domestic market in the April-October period of FY 2022 are flat on a YoY basis, despite a severely contracted base.
According to the credit rating agency, the steady rise in two-wheeler prices during the year and record-high petrol rates have kept consumers away from dealerships.
Additionally, financiers have been cautious after seeing a rise in crime levels.
While the demand for premium two-wheelers, which comprises about 15% of the total domestic volumes, has outperformed relatively, OEMs have faced supply constraints due to shortage of semi-conductor chips, ICRA said, adding, overall, Considering the existing inventory at dealerships after the festive season (40-45 days), bulk dispatches are not likely to see a high growth in the remaining part of the financial year.
“The entry-segment (75-110cc), which dominates two-wheeler sales in India, reflects the broader (and expanding) impact of the second wave of the pandemic this year. Rohan Kanwar Gupta, Vice President and Sector Head, Corporate Ratings, ICRA, said, “The poor performance of the festive season also highlighted the continued vigilance among the low-income population with regard to big ticket purchases.
He said the uncertainty of income due to job losses, salary cuts or limited wage growth, while facing COVID-related medical expenses (actual or anticipated) and skyrocketing cost of ownership of two-wheelers have contributed to this festive season. The purchase has been postponed, he said.
“Given the muted sales, the inventory at dealerships is also relatively high, which may mean only marginal, if any, bulk quantities in the balance of FY 2022,” Mr. Gupta said.
According to ICRA, rural offtake has lagged behind urban, possibly due to moderate agro-feelings due to uneven monsoon and delayed harvesting in the regions.
In urban markets, weak income sentiment due to delays in reopening of schools and colleges, job losses or pay cuts (post-pandemic) and extended work-from-home policies by corporates have hit sales, it added. .
Given that the recent cut in petrol prices, the upcoming wedding season (usually lending to increased two-wheeler purchases in rural markets) and the opening up of labor-intensive industries such as travel, tourism and hospitality are likely to improve demand. is favorable. In the coming months, the rating agency said that only the next financial year could see meaningful growth.
“On the financial front, given the high operating profit of the industry, sluggish demand and higher raw material costs are expected to keep operating margins constrained for two-wheeler OEMs in the current financial year. However, these are likely to be supported by price escalation and cost rationalization initiatives,” said Mr. Gupta.
According to ICRA, the credit profile of the two-wheeler OEM will remain healthy, backed by a strong balance sheet with high net worth, limited debt and massive cash and liquid investments.
While capital expenditure will be higher than FY2021 levels, major expansion plans are expected to be postponed until a meaningful demand recovery, Mr Gupta said.
“OEMs will continue to invest in new product development, new technologies (including electric vehicles) and network expansion in both domestic and overseas markets,” he added.
,