What the two wheeler industry wants from Budget

Current Status

The Indian two wheeler industry is current bright spot in the automobile industry. After worst recession in calendar year 2008, the two-wheeler industry bounced back quickly, consistently recording y-o-y growth from February 2009 onwards.

The two-wheeler industry has consistently improved on sequential basis as well as y-o-y basis after falling down to levels of 5,52,058 two wheelers sold in December 2008 to 808075 two wheelers in May 2009.

In FY09, the total 2-wheeler sales grew by 5 per cent from 8068991 vehicles in FY08 to 8,44,1844 vehicles in FY09.

The growth in two wheelers were triggered by couple of factors such as 4 per cent excise duty cut announced in stimulus package in December 2008, fuel price reduction of Rs 5 per litre in petrol and Rs 2 per litre in diesel as well as the unaffected and untapped demand from the rural market.

In case of 3 wheeler industry, the domestic sales have perked up from low of 19048 vehicles in Dec 2008 to 30036 vehicles in May 2009 post excise duty cut of 4%. However, 3-wheeler industry continues to struggle with lack of credit as well as Light commercial vehicles eating into its marketshare especially in goods carrier segment. Nevertheless, Bajaj Auto is launching 2 three wheelers in FY10 one in goods carrier and other in passenger carrier.

Two wheelers: Sales at a glance

Details	Apr 2009 - May 2010	Apr 2008 - May 2009	Var %
Scooter/Scooterettee	209031	182293	14.67
Motor Cycles/Steps -Through	1282316	1172775	9.34
Mopeds	83658	69570	20.25
Electric Two Wheelers	1332	2390	-44.27
Grand Total	1576337	1427028	10.46

Source: SIAM

Three wheelers: Sales at a glance

Details	Apr 2009 - May 2010	Apr 2008 - May 2009	Var %
Passenger Carriers	61892	59495	4.03
Goods Carriers	12339	15815	-21.98
Grand Total	74231	75310	-1.43

Source: SIAM

Industry expectations

Retain the existing excise duty on 2 & 3 wheeler at 8%.
Release a measure to boost retail lending in big way in PSU banks
Abolish fringe benefit tax.
Analysts/market expectations
Reduce interest rates on auto loans and credit availability on 2 wheeler and 3 wheeler loans. The lack of finance and high interest rates limits the growth in both the 2 wheeler and 3 wheeler industry.
Retain the existing excise duty on 2 & 3 wheeler at 8%. The reduction in the excise duty to 8% enabled the revival of the 2 & 3 wheeler sales. Thus retention of the same will provide support for 2 & 3 wheeler industry to continue to grow.

Companies to watch

Bajaj Auto, Hero Honda, TVS, Mahindra & Mahindra

Outlook

Currently, the 2 wheeler industry is thriving thanks to excise duty cut and conscious effort of players to focus on the untapped unaffected rural demand and premium bike segment. In contrast, 3 wheeler industry's growth is still muted despite revival from the downtrend.

A focus on credit availability to 2 & 3 wheeler loans and lowering of interest rates could boost their sales especially the 3 wheeler industry's. If the customs duty on steel, aluminium etc is raised, then it will be negative for the auto industry in general and 2 & 3 wheelers in particular.