Two-wheeler sales in rural areas up 60% in H1 of 2024

Experts believe this trend is likely to continue, supported by good monsoon season and government initiatives

MUMBAI: The two-wheeler (2W) segment saw a recovery in the first half (H1) of 2024, driven primarily by emerging performance in rural areas. According to the Federation of Automobile Dealers Associations (FADA), rural contributions increased by approximately 57 to 60 per cent in the first quarter of 2024 (April to June), indicating rising demand for two-wheelers in these regions.

Experts believe this trend is likely to continue, supported by a good monsoon season and government initiatives focused on rural development. Overall two-wheeler sales in the first half of 2024 increased by 11.76 per cent compared to the same period in 2023, despite challenges such as extreme heat and the election period.

Analysts highlight that adequate rainfall, affordability, and the lack of public transport options in rural areas are critical factors influencing this recovery. They note that the new coalition government’s focus on rural development could further bolster two-wheeler sales. Key factors to watch include agricultural output driven by adequate rainfall and potential reductions in fuel prices to maintain affordability.

The formation of a new coalition government is expected to lead to an increased focus on rural development, potentially resulting in more government capital expenditure and schemes aimed at boosting rural incomes and disposable spending power. Improved rural economic conditions would directly benefit demand for entry-level two-wheelers and scooters, which hold a major market share in rural India.

Echoing this sentiment, K. N. Radhakrishnan, chairman, managing director, and chief executive officer of TVS Motor Company, revealed in the fourth quarter of FY24 investment call that they expect healthy growth for the two-wheeler industry this year, driven by both urban and rural markets. He sees significant opportunities in the scooter segment, which caters to both men and women in urban, semi-urban, and rural areas due to improving road infrastructure in rural India.

TVS is optimistic about the rural market, expecting a normal monsoon to bring positive momentum. Radhakrishnan highlighted that young generation rural customers are not just budget-conscious but also aspirational, looking at premium products like Apache, Raider, or Ntorq. TVS estimates the rural share in its domestic sales to be around 45 to 50 per cent, with financing penetration at a healthy 56 per cent.

Analysts also predict that maintaining affordability and controlling the overall cost of ownership will be crucial for driving two-wheeler sales in price-sensitive rural markets. Thus, a reduction in fuel prices supported by tax reductions can positively impact two-wheeler sales.

The recovery is expected to benefit manufacturers like Bajaj Auto and Hero MotoCorp. Bajaj’s launch of the Freedom 125, a CNG-powered motorcycle, offers a cost-effective alternative for rural consumers, while Hero MotoCorp’s strong presence in the entry-level segment positions it well to capitalize on increasing rural demand.

Analysts emphasize that the rural market has been a major driver of two-wheeler sales for nearly a decade. They believe that with a good monsoon, higher minimum support prices for crops, and increasing rural economic power, motorcycles remain a practical choice for rural roads and conditions, ensuring sustained growth in this segment.

In rural markets, motorcycles continue to be more popular than scooters, likely due to their practicality for rural roads and conditions. Although total two-wheeler sales from January to June 2024 marked an 11.76 percent increase, reaching 8,982,502 units compared to the same period in 2023, there was a slight decline of 0.189 percent in sales compared to the latter half of 2023.

Earlier, uneven precipitation impacted farm cash flows and consequently, rural demand, raising concerns about a consistent recovery for the industry. Credit rating agency ICRA remains cautiously optimistic about sustained demand recovery despite multiple headwinds, including elevated ownership costs, persistent inflationary pressures, and rising financing rates.

The combination of a growing rural economy, a positive monsoon season, and government support programs are putting more money in the pockets of rural residents, who are increasingly turning to two-wheelers to meet their transportation needs.