Motorcycle demand in India lower than expected

A report on the auto industry prepared by Kotak Institutional Equities indicates that motorcycle sales did not pick up as expected during the Onam festival, based on feedback from two-wheeler industry dealers. Analysts contend that the coming festival season is likely to remain lackluster due to the weak economic climate and high inflation. As a result, FY2013 domestic motorcycle industry volume growth assumptions were reduced to 3%, from 8% year-on-year. The weak festival demand will also affect overall growth of the motorcycle industry in FY2014-15.
“We forecast 10-11% year-on-year growth in domestic motorcycle volumes, driven by a low base, moderation in inflation and improved affordability for two wheelers (as we don’t expect two-wheeler makers to increase prices as commodity costs are stable),” the report says. It added, however, that despite this dim prospect, the industry will manage more than 80% capacity utilization of its factories, negating “the risk of an increase in discounts.” It is expected that the slump in motorcycle demand will be countered by the growth in demand for scooters and rising volumes buoyed up by the export segment.
The report also says that, “A number of motorcycle manufacturers are actually investing in fresh capacity including Hero Moto, Honda Motorcycle and Scooter India, Yamaha and Royal Enfield. Once this fresh capacity–collectively worth more than half a million units a year–comes on stream, the capacity utilization levels of existing plants may be hit unless demand makes a smart recovery.” (September 19, 2012 )