Chennai: It’s the green and orange effect. Demand from rural and semi urban markets — most of which are green and orange zones — is driving two wheeler sales and will power the segment’s bounce back as well. A bumper rabi harvest (winter crop) and some government schemes which have increased money in the hands of consumers and two wheeler companies as well as financiers are already seeing positive signs.
Two wheeler financiers say that despite lower cash flows, rural is doing better in the first two weeks of showroom reopening. “Our loan disbursal in smaller towns and cities has begun. We have so far released more than 30000 loans (as against 90000 earlier). The collections are also better. In April, a complete lockdown month we managed 54% collections and in May, so far we have collected 60%,” said YS Chakravarthy, MD& CEO, Shriram City Union Finance.
“While we continue to lend 70%-75% loan to value (LTV), the absolute amount of loan may be lesser as vehicle cost has increased post BS6 and also insurance has become costly. In some cases, where we normally lend for 24 months, we have increased it to 30 months as cash flows may be a problem for some sections,” he added. Shriram City is India’s largest two wheeler financier by volume.
“Rural demand for two wheelers is expected to be comparatively better than its urban counterpart on account of better rural income sentiments. With water levels in reservoirs above average in 2019 a bumper rabi harvest is expected, which is estimated to increase overall rabi profitability by around 6%, due to the 10% increase in sowing for the winter crop. Furthermore, with expectation of a normal monsoon, the upcoming kharif season is also expected to fare well,” said Hetal Gandhi, director, Crisil Research.
Already, two wheeler companies are seeing some pick up. “While one weekago, daily average retails at our open dealers was around 50% of pre-lockdown levels, this figure is today close to 70% level. Rural sales contribution today stands unchanged at 28% to our pan-India retails. Not only are most urban touch points which drive two-wheeler sales in red zones and are yet to open; but the status of opened network too is changing on weekly basis. But our internal study on enquiry customers shows that 55% to 60% of our customers are those who enquired earlier while around 50% of those who enquired pre-lockdown are willing to purchase within 1 month even now,” said Yadvinder Singh Guleria, director, sales & marketing, Honda Motorcycle & Scooter India:
According to the just-released Crisil report two wheelers will be down 21%-23% in the current fiscal while passenger vehicles are 24%-26% and trucks and buses down 26%-28%. However, analysts are already factoring in the rural demand while reporting numbers.
For its Q4 results, analysts said TVS will do better despite COVID pressure due to the rural footfalls. TVS Motor, which sold 2.8 lakh motorcycles in the January-March quarter (as against 3.75 lakh units the year before) sells 55% of its two wheelers in rural markets compared to 45% in urban markets. In its latest report equity research firm Motilal Oswal Financial Services noted that two wheelers are seeing resurgence in inquiries ( upto 50% of normal at operational dealerships). “Demand is returning driven by preference for personal vehicles rather than the public transport, and higher disposable income in rural market due to good harvest,” said the report.