The timely arrival of monsoons, a hike in minimum support prices for kharif crops, expectations of a healthy rabi production and other government initiatives are likely to help revive rural demand sentiments and support the two-wheeler off-take in the festive season.
Rating agency ICRA expects a 12-14% YoY growth in the two-wheeler volumes in FY22, amid an evolving Covid-19 situation. The continued preference for personal mobility solutions, amid the pandemic, would also drive up some demand.
Even as the pace of domestic demand recovery remains uncertain, the steady growth in two-wheeler exports is encouraging and is expected to support industry volumes in FY22, said ICRA.
However, the overall consumption and investment demand may take some time to recover after the devastating second wave, even as India’s rural economy is expected to provide some support.
Rohan Kanwar Gupta, Vice President & Sector Head, Corporate Ratings, ICRA, said, “Unlike the first wave, the surge in infections in non-metro and rural hinterlands, dampened rural consumer sentiments as well. This reflected in a sharp sequential fall in two-wheeler retail sales in the mini festive and wedding season in April-May 2021.”
The inventory at dealerships, at 30 days+ in May-end, was also relatively high, and this could only mean a gradual recovery in wholesale volumes, till the stocking begins for the forthcoming festive season, Gupta said.
Taking a cue from the high-frequency indicators of economic recovery following the second wave, ICRA had moderated its GDP growth forecast in June 2021 to 8.5% YoY for FY22 from the previous estimate of 10.5%. While uncertainty continues to persist regarding a possible third wave, the rating firm continues to maintain a stable outlook for the 2W industry.
The rating agency also pointed out that given the high operating leverage of the industry, subdued demand and continued hardening in raw-material costs are expected to keep the operating margins constrained for the two-wheeler OEMs in the current fiscal.
However, these will likely be near about the FY21 levels (13.5-14%), supported by price escalations, a depreciating rupee and continuing cost rationalisation initiatives. The RoCE of 2W OEMs would also continue to remain at healthy levels, ranging between 22-24%.