After subdued 2016-17, the three-wheeler (3W) market is headed for robust growth in 2017-18 as permit restrictions for 3W removed in states such as Maharashtra and Gujarat.
In June last year, following the footsteps of Gujarat, Maharashtra decided to end the Permit Raj in the autorickshaw and taxis service segment in the cities across the state. This brought cheers to 3-wheeler makers, who were still then facing subdued growth.
The three-wheeler (3W) sales have been on a decline in 2016-17 and in the first quarter of FY 2017-18. In FY 2016-17, overall three-wheeler sales fell 4.93 per cent to 511,658 units compared to 538,208 units in 2015-16. All the leading key 3W OEMs - comprising Bajaj Auto, Piaggio, Atul Auto, Mahindra and Mahindra, etc - felt the impact of slowing sales.
Domestic three-wheeler sales started increasing in Q2 FY2018 because of regulatory changes. The domestic three-wheeler volumes grew four per cent in Q2 FY2018 on a y-o-y basis to 154,392 units (the highest quarter sales in 10 quarters), indicating a recovery from the adverse impact of demonetisation and limited permits issued in FY2017.
“After witnessing subdued demand trends, the outlook on domestic market has turned favorable in FY2018 driven by discontinuation of permit-based system (for three-wheelers) by major states like Maharashtra and Gujarat; release of fresh permits by Delhi Government; and replacement demand from Karnataka following Government’s decision to replace two-stroke auto-rickshaws with four-stroke auto-rickshaws and ban diesel auto-rickshaws in Bengaluru. The growth momentum is likely to be maintained in Q4FY2018 as well,” says Ashish Modani, Assistant Vice President and Co-Head, Corporate Ratings, ICRA.
Unlike the light commercial vehicle (LCV) trucks where the goods carrier segment dominates, in the three-wheeler segment the passenger carrier model accounts for a larger share of the market as there is good demand for transporting passengers across short distances in Indian cities. Bajaj Auto and Piaggio Vehicles lead the passenger carrier and goods carrier segments of 3W market, respectively.
According an ICRA report, the industry is fairly consolidated with top-3 players contributing 89 per cent to industry sales in FY 2017. Bajaj Auto has, in fact, gained the market share over the past 12 to 18 months aided by increasing penetration in the diesel segment as well foray into the goods carrier segment. Bajaj Auto is particularly strong in the 0.35T segment of passenger carrier segment with dominant share in petrol and alternate fuel segment. “As on FY 2017, the company had 88 per cent share of the petrol and alternate fuel segment and 71 per cent in the small diesel segment. Over the years, it has also improved its market share in the large diesel segment to 23 per cent,” said the ICRA Research Services report.
Piaggio, the second-largest player with a market share 27.8 per cent (in H1 FY 2018), dominates the goods carrier segment with market share of 50.1 per cent (in H1 FY 2018) and second-largest player in the passenger segment (21.9 per cent), according to ICRA.
Due to low entry barriers, especially in the large diesel segment, many regional players have entered the market over the the past few years. Most of the new entrants in the large diesel passenger 3W segment use common aggregates such as engines, transmissions etc from select ancillaries.
With export sales of over approximately 2,72,000 units in FY 2017, India ranks among the leading exporter of three-wheelers, globally. “During 9 months of FY2018, three-wheelers exports grew by 30.3 per cent primarily driven by economic and political stability in African countries and expansion in new market by the industry players,” says Modani.
Sri Lanka is one of the key export destinations for Indian OEMs. However, over the past few years, its share has declined because of sharp reduction in demand (owing to increase in local taxes) and increasing focus of OEMs to foray into the African and Latin American markets.
As a result, Sri Lanka’s share in overall exports pie reduced from 30 per cent (in FY 2016) to 14 per cent (in FY 2017) and countries such as Nigeria and Egypt emerged as bigger export markets for Indian OEMs, according to ICRA. While exports grew at a healthy pace till FY 2016, the demand contracted sharply in FY 2017 (down 33 per cent) because of continuing political and economic uncertainties in some of the key importing nations, which were accompanied by sharp currency devaluation and inability to repatriate currency.
The Sri Lankan Government is contemplating restricting the import of three-wheelers because of high traffic congestion and high number of accidents due to three wheelers. As of CY2016, Sri Lanka has over 1.1 million three-wheelers, most of which are imported from India. In November 2016, the Sri Lankan Government increased the excise duty on three-wheelers to SLR 1,850 from SLR 1,600 per cubic centimeter (cc) of engine size. The absolute price impact on a typical 199 cc three-wheeler was significant at SLR 49,750. This has led to a sharp decline in the imports and new three-wheeler registrations in 2016.
According to ICRA, the share of three-wheeler exports in overall industry volumes declined to 35 per cent in FY2017 from 43 per cent in FY2016. The decline was due to a 31.7 per cent dip in export volumes to the top five three-wheeler exporters in FY2017. The largest contributor to the decline was Sri Lanka, where the export volumes decline 68.8 per cent because of a significant increase in excise duty. The exports to Nigeria and Egypt declined 50 per cent and 25 per cent respectively in FY2017 because of sharp decline in their currency value.
In June 2017, the Maharashtra government ended the need for permits for autos and taxis in Mumbai, Thane, Pune, Nagpur, Nashik, Aurangabad and Solapur after it discontinued the order that imposed limits on the number of these vehicles on the roads. These restrictions were in place since 1997 where the government order had limited the permits. Doing away with permits in Maharashtra was good news for Bajaj Auto which dominates the three-wheeler segment in Maharashtra. Though permits cost around Rs 18,000, the actual price paid used to be in the range of Rs 1-5 lakh due to corruption. This cost did not include the cost price of the three-wheeler. With permit restriction gone, auto-makers expect the demand for vehicles to go up.
To provide last mile connectivity for city commuters, shared mobility providers such as Ola are aggressively expanding three-wheeler transportation. In fact, Ola Auto is aiming to increasing its three-wheeler fleet size to 250,000 by 2018. This is also opening up new opportunities for manufacturers. The market is likely to cross 1 million units in production in the next couple of years, with domestic market accounting for about 6-7 lakh units. Passenger carrying vehicles are expected to cross a critical half-million mark in the domestic market by 2019-2020.
The removal of permit restriction on 3W in key states and growing demand for shared mobility are expected to usher in new opportunities for 3W makers in the country.
During 9 months of FY2018, 3W exports grew by 30.3 per cent primarily driven by economic and political stability in African countries and expansion in new market by the industry players.
- Ashish Modani,
Assistant VP and Co-head, Corporate Ratings, ICRA
Three factors responsible for volume pick up in domestic three wheeler market in Q2 2017-18 were:
• Maharashtra Government’s decision to remove the cap on the number of auto-rickshaw permits
• 10,000 new auto-rickshaw permits issued by the Delhi Government
• Karnataka Government’s decision to convert two stroke vehicles to four-stroke vehicles and ban diesel vehicles in Bengaluru
Till FY 2016, India’s 3W exports have grown at a CAGR of 12 per cent (in unit sales) over the past decade driven by a confluence of factors including
• Rising demand for last-mile transportation from developing countries with relatively under-developed public transport system
• Increasing acceptance of 3Ws over four wheelers for commercial transportation, and
• Growing focus of Indian OEMs in scaling up presence in markets within South Asia, Africa and Latin America
Courtesy: ICRA Research Services