>Auto Sector 2 wheeler (PINC RESEARCH)

Indian 2-wheelers industry after showing impressive performance over 1992-2007 is facing a tough environment for the last two years. We believe that this phase is temporary and 2-wheelers will again move into growth phase. Given their operational efficiency, ease in maneuvering city traffic and low cost of ownership, 2- wheelers continue to be the preferred mode for daily commuting. We expect domestic 2-wheelers market to stabilise by FY17 with penetration levels of 135 vehicles per thousand population. We expect entry of low cost cars to have some impact on 2-wheelers demand especially in scooters segments.

● Base correction over the last two years: Over the last two years, the 2-wheelers industry has seen a base correction especially in the entry level segment. This should provide a platform for the sustainable growth in future.

● Low dependence on financing: During FY02-07, increasing penetration of financing led to strong growth for the industry. However with high default rates, financing flow has been restricted over the last two years. This augurs well for the industry and now onwards, we can expect growth in the industry on its own merits rather than finance stimulation. Return of financing will provide upside to our volume estimates for the industry.

● Global financial crisis to impact exports : 2-wheelers exports from India are expected to be adversely impacted by global financial crisis. We forecast exports growth to slowdown to single digits in FY10 & post that we expect a growth of 15%.

● Rationality in players’ behaviour: Over the past one year, we have observed rationality in players’ behaviour, which has led to profitability improvement despite increase in raw material cost. We expect that this trend to continue and players will refrain from indulging in price war.

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