Two-Wheeler Sales Show India's Rural Demand Engine Is Starting To Rev Up

One key indicator of India's rural consumption is showing signs of shaking off a prolonged slump. Sales of scooters and motorcycles rebounded to soar above pre-pandemic levels this festive season.

Bajaj Auto's domestic two-wheeler sales for November grew 77% year-on-year to over 2.19 lakh units, whereas exports for two wheelers declined 6% YoY to 1.30 lakh units last month. On an aggregate level, two wheeler sales for the automaker grew by 33% year-on-year.

Two-wheeler sales surged by more than 20% during the 42-day festive season this year, according to data from the Federation of Automobile Dealers Association. Three- and two-wheelers recorded the biggest jumps of 41.4% and 20.7%, respectively. The period covers the first day of Navratri to 15 days after Dhanteras to factor in the lag for vehicle registration.

"Record-breaking sales were reported in several categories, with rural areas particularly contributing to the surge in two-wheeler purchases," Manish Raj Singhania, president of the dealers' lobby, said. "Despite initial underperformance during Navratri, particularly in the passenger vehicle sector, the situation improved under Deepawali, ending with 10% growth."

Hero MotoCorp Ltd., India's largest two-wheeler maker, recorded over 14 lakh units in retail sales during the 32-day festive period, a 19% jump over the previous year. This surpassed their previous best retail sales of 12.7 lakh units recorded in 2019's festive period.

The two-wheeler industry attributes the jump to stable pricing and a fairly regular monsoon. Nomura predicts sustained two-wheeler sales growth, outpacing passenger vehicle volumes, as incomes recover and government spending rises ahead of elections.

Even considering an extended 67-day festive period from Ganesh Chaturthi to 15 days after Dhanteras, domestic two-wheeler sales gained 18% on year compared to 8% for passenger, according to Elara Securities Research Nov 29. note

Rural sales growth for motorcycles is outpacing scooters, the brokerage said. It anticipates Hero MotoCorp benefiting from the industry's resurgence and the premiumisation trend in its product portfolio.

Reports from brokerages suggest low inventory levels, a contrast to last year's surplus caused by subdued demand in specific rural markets. Nomura said the two-wheeler industry's inventory has dropped to less than four weeks and anticipates 25% year-on-year growth in November.

Motilal Oswal noted momentum among dealers, particularly in the northern regions, driven by the ongoing wedding season.

Honda Motorcycle & Scooter India Pvt. dealers revealed a 3-5% year-on-year decline in volumes during the late festive period due to limited inventory of key models like the Activa and SP125, the brokerage said, citing interactions with companies. This situation benefited TVS Motor Ltd., which secured a larger market share in the 125cc category. Inventory levels across manufacturers decreased by 5-7 days post-festival.

Jay Kale, an auto analyst with Elara Capital, said lower inventory levels will enable growth in the coming months.

"We are still below FY19 volume peaks on a whole-year basis, and we expect FY24 growth to be at 10%," he said. "A good festive season was necessary for the industry to achieve this full-year growth assumption."

Kale, however, cautioned that there is some bit of pent-up demand, which could normalise.