What the two wheeler industry wants from Budget

The Indian two wheeler industry is current bright spot in the automobile industry.  After worst recession in calendar year 2008, the two-wheeler industry bounced back quickly, consistently recording y-o-y growth from February 2009 onwards.

The two-wheeler industry has consistently improved on sequential basis as well as y-o-y basis after falling down to levels of 5,52,058 two wheelers sold in December 2008 to 808075 two wheelers in May 2009.

In FY09, the total 2-wheeler sales grew by 5 per cent from 8068991 vehicles in FY08 to 8,44,1844 vehicles in FY09.

The growth in two wheelers were triggered by couple of factors such as 4 per cent excise duty cut announced in stimulus package in December 2008, fuel price reduction of Rs 5 per litre in petrol and Rs 2 per litre in diesel as well as the unaffected and untapped demand from the rural market.

In case of 3 wheeler industry, the domestic sales have perked up from low of 19048 vehicles in Dec 2008 to 30036 vehicles in May 2009 post excise duty cut of 4%. However, 3-wheeler industry continues to struggle with lack of credit as well as Light commercial vehicles eating into its marketshare especially in goods carrier segment. Nevertheless, Bajaj Auto is launching 2 three wheelers in FY10 – one in goods carrier and other in passenger carrier.

Two wheelers: Sales at a glance

 Source: SIAM

Three wheelers: Sales at a glance

Source: SIAM

Industry expectations

• Retain the existing excise duty on 2 & 3 wheeler at 8%.
• Release a measure to boost retail lending in big way in PSU banks
• Abolish fringe benefit tax.
• Analysts/market expectations
• Reduce interest rates on auto loans and credit availability on 2 wheeler and 3 wheeler loans. The lack of finance and high interest rates limits the growth in both the 2 wheeler and 3 wheeler industry.
• Retain the existing excise duty on 2 & 3 wheeler at 8%. The reduction in the excise duty to 8% enabled the revival of the 2 & 3 wheeler sales. Thus retention of the same will provide support for 2 & 3 wheeler industry to continue to grow.

Companies to watch

Bajaj Auto, Hero Honda, TVS, Mahindra & Mahindra

Outlook

Currently, the 2 wheeler industry is thriving thanks to excise duty cut and conscious effort of players to focus on the untapped unaffected rural demand and premium bike segment. In contrast, 3 wheeler industry's growth is still muted despite revival from the downtrend.

A focus on credit availability to 2 & 3 wheeler loans and lowering of interest rates could boost their sales especially the 3 wheeler industry's. If the customs duty on steel, aluminium etc is raised, then it will be negative for the auto industry in general and 2 & 3 wheelers in particular.