With the Indian economy on a rapid expansion path for some years now, few sectors have had as good a run as the two-wheeler market. This year though, while the economy has galloped ahead at 9% a year, bike sales have fallen, with overall sales dipping for the first time in seven years. Not because people’s desire for a bike has diminished, but because funding them has become more expensive with banks pulling back on indiscriminate lending and interest rates hovering at a five-year high.
In an interview with Mint, Venu Srinivasan, managing director of TVS Motor Co. Ltd, India’s third largest seller of bikes, talks about how financing is drying up for those trying to buy bikes, though there may be a recovery in sight for the bike market. Srinivasan also explains why he doesn’t see a threat from the world’s cheapest car, the Rs1 lakh Tata Nano, that was unveiled on Thursday and will start selling later this year. Edited excerpts:
The festival season has come and gone and sales have not gone up as people predicted? How do you see sales going forward?
Complementary growth: TVS Motor managing director Venu Srinivasan says he does not see the Tata Nano as a threat to two-wheelers as people can already buy a second-hand Maruti 800 at that price point. (Photo: Madhu Kapparath/Mint)
I don’t know which people said that, but by and large the expectation in the two-wheeler industry is that it could be in the negative region because there is a lack of finance, particularly going into smaller towns and rural space. Till that turns around, I think it will be difficult for the industry to show growth. Because what has happened is from a completely liberal financing, delinquency has shot to a high level last season in 2007 and it completely dried up thereafter.
But I think on the other hand with trucks growing and cars growing and generally the economic feel-good coming back, in a growing economy one does not see a recession lasting more than a year. So we’ve been through 12 months of negative growth in two-wheelers and I feel we should be done with that by now. So I do hope that next year we will see either a small growth or definitely not a negative growth.
So, what are you doing about improving access to financing?
I think we’ll certainly try to strengthen our finance arm. That’s an action we would take and look for more local financiers as well more actively.
How do you see the Tata Rs1 lakh car impacting two-wheeler sales?
No. I see them as complementing. Because in bad weather, the whole family may need to go, so they may get into a car. And there is a one-lakh car available in the form of second-hand cars already. I can buy a Maruti 800 second-hand for one lakh.
So, its not that at one-lakh price point the car is not available today and (there are) many families with car and motorcycle ownership wherein when the families travel together they use the car and when they go alone they use the motorcycle because you are talking about a difference between 65km a litre and 15km a litre.
I don’t see an impact and as energy costs go up and greenhouse gas and things become bigger issues, more and more two-wheelers with higher fuel efficiency would become the order of the day. Just to tell you—100cc motorcycles used to give 65km per litre of petrol, today a 125cc launched recently gives 75km a litre. There is a significant increase in fuel efficiency?and?drop?in emissions in new two-wheelers coming up.
Are we witnessing any shift in bike buyers’ preferences?
I think the executive segment is certainly seeing a greater growth than the entry segment.
Can we expect TVS to focus more on this segment?
I think this is one segment where we have been absent. We have been playing one segment to make our presence felt. But that doesn’t mean we will stop on entry-level products. There will be more entry-level products as well.
I think sub-Rs50,000 is where 90% of the market is. Therefore, vehicles below Rs50,000 would continue to the focus of our company.
With rising incomes, won’t people go in for higher-priced and more performance-oriented products?
Even with rising income, it’s a commuter product at the end of the day. Once you go beyond, you can go to one lakh car. What we focus on is younger people from rural areas and lower middle class background who are coming into buying for personal transportation will buy vehicles below Rs50,000.
You would forecast motorcycle segment to grow in the next three to four years?
I would think so. And even in next 10 years.
Even at the entry level, do you see people shifting from cycles to motorcycles?
Even today in cities and towns, we don’t see cycles any more. Cycles have declined enormously in the last 10 years because of liberalization. Cycles have become recreational and fitness products, and not really commuting product.
Are you looking at price points, let’s say below Rs30,000?
Certainly, we will do products close to Rs30,000. Already Bajaj Platina is there, Star Sports, which was relaunched in this month, would be at around Rs32,000. Below that? We still don’t know how to go below that. We can assume that 15 years ago, AX 100 sold for Rs32,000. Look at the real price at 1990 level, we have seen a serious reduction in motorcycle prices. Today, we are selling a four-stroke, much more modern bike at Rs30,000.
In terms of new products, will it shift sales?
New products will shift sales from existing products to new products. But, it’s not going to expand the market unless the finance is available. I think people have gone through the delinquency phase and shaking out of portfolio. We should expect that in coming years things will improve.
Do you expect a double-digit growth?
I do not foresee a double-digit growth. Single digit growth, yes.
Because the size of the market is also expanding?
Not because of the size of the market. I think there is nothing to ignite it. What ignited the market two years back was finance.
Your main rivals, Hero Honda Motors Ltd and Bajaj Auto Ltd, are looking at four-wheelers as part of their diversification. You had plans for a three-wheeler. What happened to that?
The three-wheeler will be unveiled this month. We are planning to sell 40,000 a year. First financial year, it will be 20,000-25,000 vehicles.
Is this segment not getting competitive?
Every segment is getting competitive. Look at the number of new car launches next year.
India is the toughest market for doing business today.
What about four-wheeler LCV?
We have no plans. One thing we want to do is geographical expansion for the two-wheeler business, in South America, South-East Asia.
Given that exports will contribute 10% of overall sales, how has rupee appreciation affected TVS?
Rupee appreciation has some impact, but (it is) also offset by cheaper import of raw materials. I think it’s manageable with our internal cost reduction. Definitely it’s painful but it’s manageable. As all raw materials sourced from abroad are denominated in dollar, we do get a natural cover because of that.