FE Indicus SPECIAL: MOTORCYCLE MARKET IN INDIA A Monthly special feature on industry sectors/sub-sectors from Indicus Analytics The passenger car segment is the glamorous part of the automobile sector. Its sibling, the motorcycle segment, is less talked about. However, in the context of India and other developing economies, it is this segment that has consistently been the prime mover of the auto sector and has set a scorching pace during the past two decades, which will take some beating. Apart from the high growth, the post-licensing era has seen motorcycles firmly displace scooters as the preferred mode of two-wheeler transportation. More than 10 million two-wheelers were sold in India during 2009-10 and it continues to show double-digit growth rates. Whereas motorcycles as a segment have grown at a CAGR of 17.4% during the past 16 years, other two-wheelers have been virtually stagnant, growing at a meagre CAGR of 1.8%, clearly demonstrating the customers’ choice. Consequently, the share of motorcycles in the two-wheeler mart has risen from 30% to 80%. In 16 years, the annual sales of motorcycles have grown by a multiple of 13 – and the future promises to be as exciting as the immediate past. In future, we expect to see the volume growth persist, though the percentage growth is likely to decline slightly on the back of a substantially increased base. Demand drivers The demand is being driven by a variety of factors, which show no signs of abating. Given the poor public transport infrastructure, high levels of migration and purchasing power levels, motorcycles are the natural means of transportation for a very large segment of the population. Further, as the scale of operations have grown, motorcycle manufacturing has become more efficient, driving down prices. Motor cycle prices today are only about 70-80% above the levels of 20 years ago in nominal terms. Incomes, on the other hand, have grown manifold – an entry level executive drew Rs 3,000 per month 20 years ago, whereas today he/she draws at least seven times more. Consequently, motorcycles can be purchased by paying less than two months' salary. In addition, financing is so much easier to avail today. Whereas, urban transport is expected to improve very significantly, the improvements will be limited to very few cities, and even in those cities, are unlikely to address all the needs in a short time span. Demographic sweet spot Motorcycle manufactures find themselves addressing the demographic sweet spot of the great Indian consuming universe and will be able to benefit for a long time to come. As soon as a slack develops in urban demand, the rural demand not only fills it very fast, but also fuels it further. And, the rural segment is still a few years away from a decent public transport infrastructure. The key drivers of demand are the households earning Rs 3,00,000 to 5,00,000 per annum. As income rises on the back of rapid economic growth, many households are shifting upwards and upgrading to cars. However, such is the pyramid that an even higher number is moving into this category from lower income categories. The motorcycle segment is addressing a key demographic sweet spot, which will fuel the demand for years to come. As many as 11 million urban households and 4.4 million rural households have annual household incomes in the Rs 3-5 lakh category. The next category consists of 25 million urban and 23 million ruralhouseholds. At least a quarter of them (11-12 million) will move into the purchasing segment during the next five-ten. This is almost the same number as at present. Penetration The overall penetration of two-wheelers in India is of the order of 28% of the households. In the urban segment, the penetration is of the order of 45%, whereas in the rural segment, the penetration is only about 12% of the households. Clearly, the big drive in future will come from the rural segment. Within the urban segment, of the five SEC segments, the pen