Within the auto sector, the June quarter sales of the two-wheeler segment seems to be better than that of passenger vehicles and commercial vehicles.
On an average, the three listed firms, Hero Honda Motors Ltd, Bajaj Auto Ltd and TVS Motor Co. Ltd, which collectively account for most of the domestic two-wheeler sales, posted growth of around 18% over the year-ago period. This is in spite of headwinds such as rising retail interest rates, product price and fuel price hikes.
True, the growth rate is down to half of that a year ago. But the drop is not as sharp as that seen in cars, where growth has faltered to single digit 6-7% in the June quarter, despite discounts and freebies that were reportedly offered to push sales in the last few months.
One reason is the lower price point of two-wheelers and the mode of finance. “Since nearly three-fourths of the total two-wheeler sales are self-financed, interest rate hikes have not impacted sales in the magnitude that car sales have been,” says Surjit Arora, analyst at Prabhudas Lilladher Pvt. Ltd. Nearly 70% of cars are bought through borrowed funds.
Besides, in an inflation-ridden economy, motorcycles and scooters are likely to be preferred over the lower-end small cars due to better fuel efficiency. So far, two-wheeler makers have been able to raise prices to pass on rising input costs, at least partially, to the consumer.
Of the pack, market leader Hero Honda was in the spotlight, as its sales in June grew by one-fifth from a year ago, while sales during the June quarter jumped by 23%, the highest among peers and despite a high base.
Analysts say this could be due to the wedding season in northern India, which accounts for a major chunk of the firm’s sales. Low dealer inventories also boosted June sales.
Besides, strong export growth for both Bajaj and TVS added to sales, as the firms have been gaining strength in African, Latin American and neighbouring countries.
A better-than-expected June quarter for two-wheelers is a key milestone crossed, as come September, the festive season would fuel sales. The only factor that could thwart demand is sensitivity to further price hikes of two-wheelers, if any. One would have to wait and watch to see if softer commodity prices will hold out.
That said, shares of two-wheeler firms are fairly priced, as they trade at over 13 times estimated FY12 earnings.