Demonetisation Effect: Two Wheeler Industry Limping Back To Normal

The industry seems to be limping back to normalcy with the impact of demonetization becoming moderate by smaller volume contraction in January 2017. Sales in February and March 2017 are expected to be flattish.

By Carandbike Team

1 mins read

Published on March 11, 2017

Highlights

The two wheeler industry saw a major drop in volumes post demonetisation
Sales in February and March 2017 are expected to be flattish
Scooters will outpace motorcycles in volume growth

The Indian two wheeler industry is slowly recovering from a liquidity crisis brought about by demonetisation in November 2016. According to an ICRA report, the liquidity crunch following demonetisation resulted in volume compression of 11.3 per cent during the period of November 2016 – January 2017 over the corresponding previous period. The industry seems to be limping back to normalcy with the impact of demonetisation becoming moderate by smaller volume contraction in January 2017. Sales in February and March 2017 are expected to be flattish. "Overall, the domestic two wheeler industry closed the first ten months of FY2017 with a growth of 8.3 per cent, which although better than the industry growth rates over the past four fiscals, remain a far cry from the double digit growth reported prior to November 2016 when demonetization was announced," the ICRA report notes. For FY2017, ICRA expects the domestic two wheeler industry to close the financial year with a growth of about 7-8 per cent. Volumes are likely to improve in FY2018, and while the gap in growth rates will narrow, scooters will continue to outpace motorcycles in volume growth in FY2018, according to ICRA. In YTD figures of January 2017, scooters, while continuing to outpace the industry growth, reported 12.5 per cent YTD growth, although it was much lower than the 24.7 per cent reported till September 2016. Motorcycles, however, reported low growth levels of 5.1 per cent in the aftermath of demonetisation. ICRA notes that the agency checked with two wheeler dealers to gauge the sentiment and general sales trends. Most dealers indicated that sentiment has improved considerably since December 2016, when there was a steep decline in sales. Since the beginning of January 2017, however, two wheeler sales have begun to pick up, with alternate modes of payment like cheques, NEFT, RTGS, credit and debit cards. Many dealers are positive about the expectations of a complete recovery, expecting sales to normalise over February and March 2017. Overall, ICRA has reiterated its stable outlook on the Indian two wheeler industry. Over the medium term, the agency expects to report a volume compounded annual growth rate (CAGR) of 8-9 per cent with demand expected to be driven by structural factors like favourable demographic profile, growing middle class and urbanisation trend. ICRA expects increased penetration of organised finance into Tier II and Tier III cities as well as rural centres supported by favourable interest rates over the medium term.