Festive Season Leaves Two-Wheeler Dealers With Inventory Pile-Ups
India's two-wheeler industry has faced three difficult years. First BS-VI norms increased prices and then the pandemic struck.
The festive season may have boosted two-wheeler demand in India, but uneven demand across segments and regions, and lower-than-expected sales left several dealers with inventory pile-ups for the second year in a row.
According to an Uttar Pradesh-based dealer of Hero MotoCorp Ltd., the problem is not much different from what it was last year after festivals, when inventory build-up was quite high. The momentum seen during Navratri was positive, but it fizzled out as the festivals came to a close, said the person quoted above, who spoke on the condition of anonymity citing business concerns.
To be sure, some industry participants expect overall two-wheeler sales during the festive season to be better than last year, even growing by double digits. But it is the muted demand in certain rural markets -- especially in entry-level segments of 100-110 cc motorcycles -- that has kept the volumes low.
“The overall auto retail sales at festivals are expected to grow by a minimum of 40%, with two-wheelers growing in double digits compared with last year,” Manish Raj Singhania, president of the Federation of Automobile Dealer Associations, told BQ Prime. “But certain regions may have been impacted by the erratic rains, which were less than required in some places and stretched beyond the usual season in other areas, impacting agricultural income.”
Singhania expects two-wheeler sales during festivals to go up by 1% compared to the period before the pandemic in 2019.
As Hero MotoCorp is the dominant player in this market, dealers of India's largest two-wheeler maker are most affected by this phenomenon. The company, however, said that the higher festive sales corrected inventory across dealerships.
“During the 32-day festive season, which spanned from the first day of Navratras to the day after Bhai Dooj, the company posted a strong double-digit retail growth of 20% over the corresponding festive period of FY22, thereby strengthening its leadership in the domestic two-wheeler market and increasing its retail market share,” Hero MotoCorp said in a statement on Tuesday.
The Splendor motorcycle maker said a strong festive season has helped it reduce post-festive total inventory to the lowest in five years.
“Most two-wheeler dealers are carrying an inventory of 45 days even after festival sales, while they may want to keep it at around 30 days,” said Sharvik Shah, owner of Rajesh Motors and chairperson of FADA Rajasthan.
The two-wheeler industry is not out of the woods yet, he said.
However, Hero MotoCorp's claims of more sales and a better balance of inventory do get reflected in certain regions.
“Sales in October were even higher than those in October 2019,” said Nikunj Sanghi, managing director of JS Fourwheel Motors Pvt., a dealer of Hero MotoCorp in Alwar, Rajasthan. While the inventory has corrected, it may rise again as the company is expected to push stocks in the next few days, he said.
According to the Uttar Pradesh-based dealer for Hero MotoCorp quoted above, the company has pushed stocks just after Diwali.
Game Of Anticipation
Building inventory at dealerships for festivals depends completely upon the sales expectations. As sales typically spike during the period, the inventory build-up is also high.
If the companies get it wrong, dealers get burdened with more than they can sell, with the peak sales period already behind them. That’s what happened last year, and dealers feared it may happen again.
Despite warning about lower-than-expected sales, it is falling on deaf ears, the dealer quoted above said.
The Road Ahead
The two-wheeler industry has faced three difficult years as the transition to Bharat Stage-VI emission norms increased prices and then the pandemic destroyed the purchasing power of buyers.
People depending on this industry for their livelihoods are desperately waiting for a turnaround, as another challenging year may push several players out of business.
Dealers of two-wheeler companies have been complaining about lower-than-expected sales during the festive season, and those seeing much higher sales than the pre-pandemic period may be an exception to the norm, a former president of FADA said, speaking on the condition of anonymity.
In the coming months, the dealers are expecting increased cash flows in the rural economy from crop sales and demand during marriage season to boost sales, which may help in reducing inventories.
However, higher interest rates and fuel prices may emerge as headwinds, Singhania said. Discounting at the end of the year will rise as dealers look to clear these stocks.