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Written by Indicus Research   
Tuesday, 28 September 2010 05:21
More than 10 million two-wheelers were sold in India during 2009-10 and it continues to show double-digit growth rates.
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.


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 penetration is lowest among SEC D and E.

In all the urban segments, there is plenty of head room for growth. Among the major states and Union Territories, if we look at SEC A alone, we find that several states with poor urban local transport infrastructure have low to medium penetration of two-wheelers.

International Trends

The international trends suggest that the growth of the two-wheeler markets will continue unabated for some time. In value terms, the BRIC motorcycles market grew by 14.7% between 2004 and 2008 to reach a value of $32.4 billion (Brazil alone growing by 32% pa). By 2013, the market is forecast to have a value of $54.7 billion (source: DataMonitor).

The global motorcycle demand has been growing at 6-7% pa and is estimated to be about 80-85 million units per annum. India has emerged as one of the key players with a domestic market that is nearly about 11% of the global market and growing significantly faster. The high base implies that India and Indian companies are set to enter a stage where they are likely to be the preferred suppliers for motorcycles. This is likely to lead to further innovations and efficiency gains.

Of course, the Indian market is significantly different with the segment below 150 cc being the dominant segment. This is unlike the developed world, where it is the larger bikes that dominate the market volumes. Indian consumption is also likely to shift significantly toward international trends, but in the foreseeable future, it is the smaller bikes that will remain the mainstay.

At present as many as 72% of the bikes are in the entry segment (defined as 75 to 125 cc), and 27% are in the executive segment (defined as 125-250 cc). Only 1% of the bikes are in the premium segment.

The premium segment is expected to continue to be a niche segment and its share is not expected to grow beyond 2-2.5% over the next decade. However, that itself implies that it will be a market of about 2,00,000 to 2,50,000 annual units, which is substantial and attractive. (As a comparison, the declining Japanese market currently consumes only about 3,50,000 motorcycles annually in the above-250 cc category, having fallen sharply over the past few years).