Higher rate of Covid-19 infections in the rural areas, borne out of the second wave, can adversely impact two-wheeler sales. As the pandemic penetrates deeper and wider into the Indian hinterland, temporary closure of dealerships and higher channel inventory resulting out of this can restrict the volume growth of two-wheelers at 10%-12% as against an earlier estimate of 18-20%, said the Mumbai-based analytics company CRISIL Ratings on Friday. This volume growth was anyway coming on a low base of 13.2% de-growth last fiscal and a 17.2% de-growth in FY2020.

“Though forecasts of normal monsoons in the impending season bode well for the rural segment, higher rate of Covid-19 infections in rural areas will impact income levels and constrain offtake, for most of the first half of fiscal 2022. Moreover, unlike during the first wave, channel inventory for the industry was higher at 40-45 days in April 2021 compared to 20-25 days in April 2020 due to BS VI transition," said Gautam Shahi, director, CRISIL Ratings. India transitioned to stricter BS (Bharat Stage) VI directly from BS IV emission norms April 1, 2020 onwards.

For context, India’s two-wheeler industry has been slowly recovering after being in slumber for close to two years due to an overall economic slowdown, which, in turn, was exacerbated by the pandemic.

Two-wheeler retails grew 17% in June 2021 at 9.3 lakh units—up from 7.9 lakh units in June 2020. Experts say that this growth is on the back of a pent-up demand as well as a need for personal mobility options. World’s largest two-wheeler maker Hero MotoCorp sold 4.1 lakh units last month and commanded a market share of 44.65%, according to the industry body, Federation Of Automobile Dealers Associations (FADA).

TVS Motor Company sold 1.1 lakh units while Bajaj auto sold 73,614 units last month. According to CRISIL, net-net, credit profiles of two-wheeler makers will remain healthy owing to higher revenues, almost stable operating margins, healthy cash surpluses, and strong balance sheets. “Overall revenue growth will be higher on account of calibrated price hikes by two-wheeler makers in the last quarter of fiscal 2021, as well as the current fiscal to offset rise in input costs,” the report said.

Another ratings agency, ICRA, too came out with its growth forecast on Thursday, and, as opposed to CRISIL, was more optimistic about the two-wheeler market. It maintained its growth forecast for two-wheeler sales at 12%-14% for the ongoing fiscal. “A low base, healthy rural cash flows, and continued preference for personal mobility would support two-wheeler demand in the festive season,” it said in a statement.

ICRA pointed out that while the overall consumption and investment demand may take some time to recover after the devastating second wave, India’s rural economy is expected to provide some support. “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 FY2022,” the report read. It expects the low base, healthy rural cash flows, and continued preference for personal mobility to support two-wheeler demand in the festive season.

“The extensive localised lockdown measures, implemented due to the second wave between April and June 2021, were almost akin to the nationwide lockdown last year. 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,” said Rohan Kanwar Gupta, vice-president, ICRA and sector head, corporate ratings.

Gupta adds that several two-wheeler original equipment manufacturers (OEMs) advanced their shutdown maintenance schedules during these months, which hit wholesale volumes significantly in April and May 2021.“The inventory at dealerships, at [over] 30 days at May-end, was also relatively high, which could mean only a gradual recovery in wholesale volumes, till the stocking begins for the forthcoming festive season,” he said.

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