Limited scope for margin expansion and high interest rate sensitivity add to slowdown

Volume growth of the entry segment bikes, priced lesser than Rs 40,000 is expected to grow at a much slower pace than the overall two-wheeler industry.  This is because the segment is no longer a key focus area of original equipment manufacturers (OEM) due to limited scope for margin expansion and high interest rate sensitivity. According to ICRA, growth will be driven mainly by export models.

While the executive segment (bikes in the Rs 40,000-50,000 price range) is expected to maintain its steady growth, competition is likely to intensify following aggressive model refurbishment and new model launch plans of most OEMs.

The premium segment (bikes having price greater than Rs 50,000) is expected to remain the fastest growing over the medium term, given the strong growth in purchasing power in the hands of middle-class urbanites, especially in the age group of 20-30 years.

This should also translate into superior profit margins for players that are stronger in the premium segment. The Indian two-wheeler industry recorded sales volumes of 134 crore units in 2011-12, a growth of 14 percent over the previous year.

In a year where in growth in other segments particularly passenger vehicles , medium and heavy commercial vehicles, slowed down to single digits, marred by demand slowdown due to northward movement of inflation, fuel prices and interest rates - the 14 percent growth recorded by the two-wheeler industry remained steady