The two-wheeler (2W) industry is projected to grow by 8-10% in the next fiscal year, reaching new sales peaks following an estimated 12-14% growth this fiscal. This growth will push the industry’s overall volumes past the previous record of over 24 million units set in fiscal 2019. Four key factors driving this expansion include strong rural demand, increased urban interest in premium vehicles, improved export opportunities, and a broader range of models, including electric two-wheelers (e2Ws).
Revenue for original equipment manufacturers (OEMs) is expected to rise by 10-12% next fiscal, slightly lower than the 16% growth forecast for this fiscal, driven by higher sales volumes and a continued shift towards premium products.
Higher revenue and increased exports are expected to drive operating margins to a decadal high of around 15% in this fiscal and the next, up from an average of around 14% over the past three fiscals.
Strong cash flows and liquid surpluses will support OEMs’ capital expenditure (capex) needs, ensuring robust credit profiles. Analysis of the top four manufacturers, which together account for nearly 90% of the industry’s sales volume, reflects this trend. Domestic volumes make up about 85% of total two-wheeler sales, with exports contributing the remaining share.
Says Anuj Sethi, Senior Director, Crisil Ratings Ltd, “Next fiscal, volume growth of 8-10%, will be supported by a 7-8% rise in domestic demand driven by higher rural incomes and increased sales of premium ICE vehicles and e2Ws. Meanwhile, exports should grow relatively faster, at 11-12%, aided by demand from Africa, Latin America, and other emerging markets. Favourable measures in the upcoming Union Budget could further boost this growth.”
Motorcycles account for nearly two-thirds of the Indian 2W internal combustion engine (ICE) market. With rising demand for high-performance vehicles, executive and premium motorcycles (above 110cc) now have more than 50% market share (see chart 1 in annexure). On the other hand, scooters — favoured by urban commuters who are also increasingly preferring larger engine models — have a 32% market share.
The e2Ws segment, comprising mainly scooters, is small at 5% of overall 2W sales volume, but growing rapidly at 27% this fiscal. We expect similar double-digit growth next fiscal as well.
Falling battery costs have narrowed the price gap between ICE and e2W models to 10-12%, down from 30% two years ago. Additionally, 2W OEMs are introducing lower-priced models, which will provide demand tailwinds, especially in the fast-evolving e-commerce sector, supporting growth despite subsidy cuts.
Anil More, Associate Director at Crisil Ratings Ltd, comments, “Established OEMs are expected to strengthen their business profiles with higher sales volumes, a premium product mix, and increased exports. Operating margins are projected to reach a decadal high of around 15% this fiscal, with these margins likely to be sustained next year. This will be supported by effective cost management and optimal use of existing infrastructure, even with the introduction of lower-priced e2W models.”
In addition, strong financial profiles with minimal debt and robust liquid surplus obviates the need for capital expenditure-related debt. This is also despite increasing spending on production-linked incentives and electric vehicle components.
While the overall demand sentiment remains positive for 2Ws, regulatory changes such as stricter emission standards that could raise production costs, supply-chain disruptions due to global geopolitical issues, fluctuations in raw material costs, inflation trends, and movement in interest rates will bear watching in the road ahead.
