Two-Wheeler Industry Driven by Replacement Demand to Grow at 19.4% in FY11 Investment of Rs. 900 - Rs. 1,000 Crore to Drive Capacity Expansion and Product Development CARE Research A study conducted by Credit Analysis and Research Ltd (CARE)'s research division - CARE Research reveals that two- wheeler industry continues to cruse on a fast growth track on the back of stronger replacement demand. The industry is expected to grow at 19.4% in FY10-11. The longer term outlook is also expected to be healthy, with the domestic sales projected to grow in double-digits over the next five years. CARE Research also expects Rs. 900 - Rs. 1000 crore investment in the sector over next 2-3 years for capacity expansion and product development to meet rising demand. CARE Ratings, Managing Director and CEO, D R Dogra believes "Around 1.6 crore two-wheelers are aged above 10 years, as against the domestic sales of 93 lakh in FY10. Thus, the demand for replacing old two-wheelers is a huge growth potential for the industry in coming years." After surpassing the speed breakers in FY08 and FY09, the two-wheeler industry came back in the top gear in FY10 registering a strong domestic sales growth of 26.4 per cent. The acceleration continued in FY11 with the first five months (Apr-Aug 2010) registering a growth of 27.2 per cent. Improvement in consumer sentiments due to revival in the economy, rise in employment levels and increase in personal disposable incomes combined with improvement in systemic liquidity were some of the key factors that influenced this growth. Strong demand scenario in FY10 gave an encouraging respite to the two-wheeler industry, which was impacted adversely during the economic crisis of 2008. The market leader Hero Honda witnessed a healthy growth of 24 per cent in its domestic sales, whereas Bajaj Auto registered a strong rise of around 39 per cent. TVS Motor and Honda Motorcycle and Scooter too registered healthy growth of 20 per cent and 15 per cent, respectively, in their domestic sales volumes. Soaring sales translated to higher capacity utilisation levels, which has led to major expansion drive in the industry that otherwise was nearly held up during the last two years. CARE Research has observed that around 50 per cent of two-wheeler population is more than five-year old, whereas around 20 per cent of the two-wheelers are aged above 10-year. However, this proportion varies in all the three segments. CARE Research estimates that in scooter and moped segments, the proportion of vehicles aged over 10 years is higher, whereas it is much lesser in motorcycle segment. The consumer preference has shifted in the last 8-10 years from metal bodied geared scooters to motorcycles that score high on technology and styling. Thus, the fleet of motorcycles below 10 years of age constitutes significant proportion in overall motorcycle population. Around 40 per cent of the scooters on road have been in use for more than 10 years. Similarly in case of mopeds, this proportion is close to 43 per cent. However, only 11 per cent of the motorcycle fleet is in use for more than 10 years. Age-wise classification of the current two-wheeler population   Scooters Motorcycles Mopeds Overall 0-5 years 6-10 years Greater than 10 years 34% 26% 40% 57% 32% 11% 29% 28% 43% 50% 30% 20% Source: CARE Research estimates   According to CARE Research, the fuel and maintenance costs for a two-wheeler aged above 10 years is higher by Rs. 500 - 700 per month as against that for a two-wheeler aged up to 2 - 3 years. "Lower fuel efficiency and higher maintenance costs of the older vehicles, coupled with availability of newer models with improved technology, better fuel economy and attractive styling would trigger the aspirations to replace older two-wheelers," remarked Revati Kasture, Head, CARE Research. CARE Research estimates domestic two-wheeler demand to maintain the strong growth momentum. CARE Research expects the growth in September 2010 to March 2011 to be around 13.5 per cent, with sales averaging between 935,000 - 940,000 units per month. The lower growth for September 2010 to March 2011 period can be attributed to high base of last year. The domestic sales had witnessed 33 per cent growth in September 2009 to March 2010 period over similar period in 2008-09.