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Wednesday, July 29, 2015

Motorcycle inventories mount at dealerships as dispatches stay high


Motorcycle inventories have risen at dealerships across the country as companies continue to despatch high volumes despite poor demand, helping them show impressive sales at least on paper.

Companies report data of despatches to dealers and not final sales to buyers.
As a result, the level of unsold stocks at dealerships of market leader Hero MotoCorp Ltd and those of Honda Motorcycle and Scooter India Pvt. Ltd(HMSI), which is the second largest in this segment, have risen to levels usually seen only during the festive season, said dealers.

Dealers of both TVS Motor Co. Ltd and Bajaj Auto Ltd said that unsold stocks at their end have only been marginally higher.

The trend also means that motorcycle makers may have to brace for a dull festive season.
The unsold stocks at Hero dealerships, for instance, have gone up 2.5 times from 15 days (which is the norm for Hero) to two months, said executives at Hero dealerships declining to be identified.

Following a circular from the company a month ago to make more room for stocks, some have bought additional warehouse space to accommodate unsold stocks, said the dealers.
In an email response, a Hero MotoCorp spokesperson conceded that the inventories are high, adding that the company has been taken corrective measures.

“Owing to a sluggishness in the market, the industry had built up stocks,” said the spokesperson, adding that the inventories are currently at about five weeks.

“Going forward, we will continue to adjust our production and inventory levels as per market requirements,” the spokesperson added.

Hero sold 1,600,552 motorcycles and scooters in the three months to June, down 4% from a year ago, according to the Society of Indian Automobile Manufacturers, or Siam.



Yadvinder Singh Guleria, senior vice-president, sales and marketing, at HMSI, said that while the unsold stocks are at less than one month at dealerships for both motorcycles and scooters, the sales of motorcycles have been a drag.

The inventory levels for motorcycles have risen to about six weeks, he said, attributing it to a drop in the sales of the so-called mileage or economy segment.

The sales of such motorcycles dropped 3.2% to 1,759,153 units in the three months to June, according to Siam.

One out of three motorcycles sold in India belongs to this segment and a majority of these sales comes from markets that are beyond the top 15 to 20 cities.

With rural demand taking a hit due to deficient rainfall and a poor crop yield last year and the unseasonal rainfall this year that damaged crops, motorcycles sales have been declining.

“The market for 100-110 cc motorcycles have been dropping consistently, showing no signs of revival since November 2014,” said Guleria, adding that demand may pick up in the second quarter if rainfall picks up.

HMSI, which draws close to one-fourth of its sales from the rural markets, saw its motorcycle sales skid 10% to 381,493 units in the three months to June.

Meanwhile, Bajaj Auto, which was underperforming the motorcycle market till recently, has seen a pickup.

Following the launch of a new Platina (electric start) and CT100 earlier this year, the Pune-based firm has not only arrested a decline in sales volumes but has also grown marketshare from 17.74% to 17.91%.

Eric Vas, president (motorcycles) at the company, said Bajaj Auto had been matching wholesale despatches with retail sales over the past year.

“As the market is under pressure, it (inventory) has gone up by a few days,” said Vas, adding that the inventories are at about 30-35 days. In the case of the newly launched Pulsar range of motorcycles, the company has a 40-day waiting period, he said.
According to Nitesh Sharma, an analyst at brokerage Phillip Capital (India) Pvt. Ltd, motorcycle sales during the festive season will be guided by the spread and volume of rainfall in the remaining two months.

Sharma expects the overall two-wheeler market to expand 5-6% by the end of the fiscal, led by scooters, which will continue to outpace the growth rates seen in the motorcycle segment.

Guleria said having read the shift in demand from motorcycles to scooters early, the local arm of the Japanese two-wheeler maker took steps such as investing in a flexible manufacturing line and expanding reach.

Both the initiatives have helped the company in reporting steady sales growth.
HMSI despatched 1,014,262 units of two wheelers in the April-June period led by a 20% increase in scooter sales.
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