INSUBCONTINENT EXCLUSIVE:
into account the annual expenses a biker makes on a vehicle
The components include costs related to fuel, insurance, financing and maintenance.
The weight of auto stocks in the portfolios of FPIs and
domestic mutual funds stood at 8.9 per cent and 10 per cent, respectively, at end of June 2018, compared with the weight of 9.2 per cent in
Moderation in volume growth could mean lower earnings growth, with PE premiums to long-term averages likely shrinking over time.
Projected
volume growth for domestic two-wheeler companies in the current and next fiscal years could be 3-5 per cent because of the rising cost of
Before August 2018, the Street was pencilling in volume growth of 9-10 per cent for domestic two-wheelers, which may come down 5-6 per
cent.
The Supreme Court has mandated purchasing five-year third-party insurance and personal accident insurance for bikes, and that is the
immediate trigger for higher ownership costs.
This has increased the prices of entry level bikes by Rs 3,000-4,000 per vehicle and premium
bikes in the range of Rs 5,000-6,500
The increase in third-party insurance has a substantial impact on the cost of entry-level bikes, considered the most price-sensitive
segment.
The M1 or entry-level segment accounts for nearly a quarter of the total bikes sold in FY18
Furthermore, petrol prices have also risen nearly 10 per cent in the past two months
Additionally, the ILFS fiasco may leave NBFCs with less funds to finance bike purchases, particularly at the bottom end of the spectrum
About 35-40 per cent of twowheelers are financed, with NBFCs dominating this credit flow.
The cost of ownership is expected to remain
elevated due to upcoming safety regulations and new emission norms to be implemented by 2020
The government has mandated providing anti-lock braking system (ABS) and combined braking system (CBS) in two wheelers from April 2019,
which could raise prices by Rs 500-2,500
Similarly, vehicles must be compliant with BS-VI standards from April 2020
This could translate into another increase of at least Rs 5,000 per vehicle.
Due to these factors, the cost of ownership of two-wheelers is
expected to rise 10-21 per cent between August 2018 and April 2020, compared with 2-4 per cent annually in the past ten years
This will likely have a big impact on the replacement purchase as consumers defer upgrades.
