Prospects brighten for two-wheeler companies as above normal monsoon is predicted

Sudden buoyancy seems to have set into the domestic two-wheeler industry, triggered by forecasts of an above normal monsoon. The last two years have seen a deficit monsoon that weighed upon rural incomes and affected purchase power in rural market where more than 40% of two-wheelers are sold.

A private forecaster, Weather Risk Management Services, estimated last week that monsoon rainfall this year will be above normal in most parts of the country. The Indian Meteorological Department, the government forecaster will release its first estimates of monsoon on April 20.

Stocks of two-wheeler majors have already started reacting positively. The stock price of Hero MotoCorp, the nation’s largest two wheeler maker, hit a 52 week high of Rs 3,009 on Tuesday. The stock has rallied 20% since the start of the calendar year. Last week, TVS Motor’s stock touched a 52 week high of Rs 329.

Two wheeler sales grew by just 0.86% in the last calendar year. However, semblance of a recovery in sales is already visible. In February, Hero’s domestic sales went up by 13%. Overall, the industry grew by near 13% in February. For Hero, March was even better as sales grew by 14%. The company sits on a strong 39% share in domestic market. Domestic sales of TVS Motor increased by 19% in March.

“Timely measures by the government and a good monsoon will be essential to sustaining this positive trend,” Pawan Munjal, chairman, managing director and chief executive officer at Hero MotoCorp said last week.  

Unlike most of the previous months, when the growth in two wheeler industry was being driven by scooters, motorcycles have also started contributing now. In February, motorcycle sales of the industry went up by 11%. In 2015, sales of motorcycle, which form 65% of two wheeler volumes, had declined over 3%. The rural market is critical for motorcycles. Scooters, which are largely sold in urban areas, grew by 13% in 2015.

“We have a growth forecast of 7-8% for the industry this year. If rainfall is good, growth can be even higher at 8-9%,” said Roy Kurian, vice president (sales and marketing) at Yamaha Motor India.

 The government had announced a slew of measures in its Budget to drive the rural economy by focusing on increasing rural incomes. “The increased government focus and investment is positive along with the increase in wages of government employees from Seventh Pay Commission will be positive. But monsoon will be most critical,” said said Abdul Majeed, partner at Price Waterhouse.