Shriram City Union Finance Limited - Karvy

Overall Demand Drivers in the Two Wheeler Industry [Source: CRISIL – Retail Finance – Auto – May 2011]1. Demographic trends: Going forward, growth in two-wheeler demand would come mainly from risingpopulation in the relevant age and income groups (which is defined as population in the age group of 16-45years and income bracket of ` 0.1-0.5 million) and increasing use of personal transport. Growth in relevantpopulation in urban areas is expected to have slowed down to about 5 % during 2005 to 2010, while it isexpected to increase to 7.3 % in rural areas. Two-wheelers are estimated to have fairly penetrated therelevant population in both the rural and urban markets. However, growth in demand is mainly expected tocome from rural markets.2. Need for mobility and shift in preferred mode of transport: A growing population and rising economicactivity is expected to increase consumers' need for mobility. Other contributors to mobility are anincreasing female workforce, especially in urban areas, and the rising trend of drifting away fromagricultural employment in rural areas. Thus, there is likely to be a modal shift in demand for transport.Going ahead, the share of private modes of transport is expected to increase in comparison to public modesof transport. In rural markets, demand for transport arises from rudimentary means like walking, bicycles,animal-drawn vehicles and tractors. Going ahead, we expect dependence on walking and bicycles to shift infavour of two-wheelers and buses. Thus, increasing need for mobility and the substitution effect will driverural demand for two-wheelers. Urban markets are likely to stagnate as here the shift is expected to be infavour of four-wheelers from two-wheelers and public modes.3. Improving finance disbursement to support two-wheeler demand: Players have come out with schemessuch as Direct Cash Collection (DCC) systems where cash is collected every month on a door-to-door basisand loans are given to people who do not have access to formal payment options like a bank account. Suchschemes along with the increasing risk appetite of two-wheeler players are expected to support sales in theindustry.Cars and Utility Vehicles IndustryThe domestic cars and utility vehicles (UV) industry grew by 33 % during the first half of 2010-11 primarily backedby higher disposable incomes, easy availability of finance and price-competitive model launches by players. Theindustry's domestic volumes are expected to grow by 23-25 % for 2010-11. In 2010-11, car and UV domestic salesvolume increased by 28.7 per cent and 27.4 per cent, respectively. Sales volume increased on account of increasedconfidence among consumers with economic recovery and reduced uncertainty over income growth. In 2011- 12,car sales volume is forecasted to further grow by 15-17 per cent and UV sales volumes to grow by 9-10 per cent.The volume growth would mainly be driven by the small car segment, which has become the focal area for manyoriginal equipment manufacturers. [Source: CRISIL – Retail Finance – Auto – May 2011]Segment-wise assessment of demand driversThe small car segment accounts for the largest proportion (about 78 %) of overall domestic car sales volumes. Themid-size segment, which accounts for about 20 % of domestic car sales, depends on upgradation demand andadditional demand. An expected rise in corporate profitability, better financing environment and improved customersentiment would drive growth in the industry. Domestic sales in higher segments (the executive, premium andluxury segments) are expected to grow at 19-21 % in 2010-11 owing to the availability of internationally-renownedbrands and the perceived prestige attached to bigger cars and due to improved business confidence and bettercorporate profitability. International brands are likely to enhance their presence in India in these segments. [Source:CRISIL – Retail Finance – Auto – May 2011]Domestic utility vehicle (UV) sales are likely to be driven by strong growth in the personal UV segment, on the backof new model launches and an increase in the addressable market, driven by the increase in per capita income.Higher-end sports utility vehicle sales will also grow aggressively, due to the launch of new models and the statusascribed to owning one. However, sales of commercial UVs are expected to grow at a moderate rate. [Source:CRISIL – Retail Finance – Auto – May 2011]67