Two-Wheeler Finance

July 2019
AGENDA

1. Update from Previous Webinar

2. Two-Wheelers Market

3. Demand for 2W Finance

4. 2W Finance Market

5. Asset Quality

6. Is 2W lending a secured asset class

7. Risk associated with 2W Finance

8. Outlook on Growth, Asset Quality and Profitability

Update from Previous Webinar

3
Updates from Previous Webinar

Profitability
Market share

Capital
Operating model

• At least 20% • Increase in • Compression in • Increase in PE

through online number of NBFCs yields interest
platform in the financing two • NIM constant
next two years wheelers • Reduction in Opex
• NBFCs would be • Increase in NBFC • Reduction in credit
check out option market share cost
• Dealer locations • Sector • Increase in ROA
would be service consolidation
points

Rs 100 crs raised from Elevar Equity

Slowdown in overall 2W industry:
Traditional dealer-based model Yields have been stable/ increased and Faering Capital in FY19 by
Volume growth down to 5% in FY19
continue WheelsEMI
from 15% assumption
Credit cost may increase with
Players like Paytm and Droom increasing competition in the face Orange Retail Finance India Private
Finance penetration increase led by
provide online purchase options of lower growth Limited raised more than Rs 80 crs
Captive NBFCs
through various investor groups

4
Two Wheelers Market

5
 2 Wheeler: Sector Overview: Segment Wise Split
1.60 20.00%

1.40 14.00% 14.80%

15.00%

1.20
No. of Units Sold (In Crores)

8.09% 10.00%

YOY GROWTH (%)

1.00 6.89%
7.31% 5.00%
4.88%
0.80 2.82%
2.90%
0.00%
0.60
-5.00%
0.40

0.20 -10.00%
-11.17%
0.26
1.01

0.29
1.01

0.36
1.05

0.45
1.07

0.50
1.07

0.56
1.11

0.67
1.26

0.67
1.36

0.33
0.15
- -15.00%
FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 Q1 FY 20

Scooter/Scooterettee Motorcycles/Step- Throughs Mopeds Growth Source: SIAM Data

• Post coming off growing economy and favourable financing environment till FY 12, the two wheeler domestic sales continued muted
growth for the years FY 13- FY 16 on account of weak consumer sentiment, unfavourable monsoons and lower GDP growth

• Post FY 16, on account of near normal monsoons and revival in rural consumer demand, two wheeler sales have shown a steady
growth which has continued till FY 19 (Dec). The growth rate was slightly muted in FY 17 on account of demonetization which
impacted the liquidity for buyers for a brief period

• Two wheeler sales have witnessed contraction in Q1 FY 20 across all segments on account of multiple factors like muted rural
demand owing to low crop realization and delayed monsoon, liquidity squeeze, increased on-road price to insurance premium hikes
6
over last year
Private & Confidential
 2 Wheeler: Sector Overview: Segment Wise Share

30.20% 66.45% 3.35%

Q1 FY 20

31.64% 64.20% 4.16%

FY 19

33.28% 62.46% 4.26%

FY 18

31.86% 63.07% 5.06%

FY 17

30.58% 65.02% 4.40%

FY 16

28.15% 67.13% 4.72%

FY 15

24.33% 70.79% 4.88%

FY 14

21.19% 73.10% 5.72%

FY 13

19.08% 75.12% 5.79%

FY 12

Scooter/Scooterettee Motorcycles/Step- Throughs Mopeds Source: SIAM Data

• Motorcycles have been steadily losing market shares to scooters since FY 12 and the share has shrunk from 75.12% in FY 12 to 62.46%
in FY 18

• However FY19 & Q1 FY 20data suggests motorcycle regaining the market share on account of new model launches, strong rural demand
despite subdued festive seasons and increase in on-road prices on account of increase in insurance premiums.

• Scooters, post their continuous years of growth showed some signs of stagnation on account of demand shifting towards entry level motor
cycles and key changes in regulation in West Bengal (major scooter market) on account of buyers requiring driving license to purchase
two wheelers.
7 Private & Confidential
 2 Wheeler: Sector Overview: Motorcycle Segment Growth Rate
1.60 15.00%
13.69%
11.80%
1.40
10.00%
1.20 7.79%
No. of Unites Sold (In Crores)

1.00
3.92% 5.00%
3.68%
0.80 2.50%

1.36
1.26
0.12% 0.00%
0.60

1.11
-0.40%

1.07

1.07
1.05
1.01
1.01

0.40
-5.00%
0.20

0.33
-8.72%
0.00 -10.00%
FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 Q1 FY 20
Motorcycles/Step- Throughs Growth Source: SIAM Data

• Two wheeler segment displayed healthy growth from FY 18 on account of above average marriage season; healthy
rural demand and aggressive pricing at entry level segment by motorcycle OEMs

• However the segment witnessed degrowth in Q1 FY 20 on account of muted demand and one –off factors combining

8 Private & Confidential

 2 Wheeler: Motorcycle Engine Capacity Trends
100.00%
3.83% 3.63% 3.58% 4.91%
90.00% 11.19% 7.49% 6.87% 7.41%
14.16% 10.80% 8.13%
11.43%
8.71%
80.00% 11.51% 8.77% 10.18%

15.61% 19.52% 18.85% 15.41%

70.00% 16.74% 14.34%
17.06% 17.39%
60.00%

50.00%

40.00%
65.62% 64.44% 64.76% 65.09% 62.25% 61.93%
30.00% 58.47% 59.04%

20.00%

10.00%

0.00%
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
75-110 cc 110-125 cc 125-150 cc 150-250 cc > 250 cc
Source: SIAM Data

• Motorcycles with sub-segment (75-110 cc) continues to dominate the market share largely driven by upbeat rural demand on
account of factors like MSP hikes on crops, near normal monsoon for past 3 years and loan waivers in select states.

• Significant degrowth has been observed in 110-125 cc segment on account of lack of new model launches and demand shifting to
125-150 cc segment

• However impact on uneven monsoon in FY 2019 and muted crop realization for kharif crop seasons could play dampeners in the
9 growth pattern of the overall industry Private & Confidential
 2 Wheeler: Motorcycle Sub Segment Growth Trends

80.00%

60.00%

40.00%

20.00%

0.00%
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

-20.00%

-40.00%
75-110 cc 110-125 cc 125-150 cc 150-250 cc > 250 cc
Source: SIAM Data

• All segments showed degrowth in Q1 FY 2020 on account of multiple factors- liquidity squeeze, flattish demand, lower crop realization

• On account of flattish festival demand, there was growth revival witnessed in all segments especially 125-150cc subsegment which had
earlier seen degrowth . The growth was on account of new model launches and aggressive pricing strategies from OEMs

• Two segments saw degrowth in current FY 2019 : 110-125 cc (due to lack of new models) and 250 cc (due to plant issues at Eicher Motors
which is dominant player in this segment)
10 Private & Confidential
 2 Wheeler: Motorcycle Segment : Market Share: OEM
100.00%
8.06% 9.18% 9.83% 10.06% 9.62% 8.20%
90.00%
16.33% 13.83% 13.85% 15.49% 13.53% 14.70%
80.00%
6.16% 6.59% 6.97% 7.45% 7.90%
70.00% 7.27%

60.00% 16.51% 18.53% 18.04% 15.65% 18.69% 18.30%

50.00%

40.00%

30.00%
52.95% 51.87% 51.32% 51.53% 50.70% 50.90%
20.00%

10.00%

0.00%
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Q1 FY 20
Hero Bajaj TVS Honda Others Source: SIAM Data

• Hero Motors continues to dominate the market share of overall motorcycle sales over the years and has continued with nearly 50% market
share as oFY2019 supported by renewed rural demand and marriage season

• Bajaj has shown considerable growth in sales and has grown by approximately 200 bps in FY 2019 on account of aggressive pricing and
new model launches especially due to launch of stripped down version of Pulsar 150 in 125-150 cc subsegment.

• Honda Motors retains the third position in market share primarily on account of dominance of its models in 110-125 cc subsegment while
TVS retains fourth spot in market share
11 Private & Confidential
 Motorcycle Sales & Top Model - No of Motorcycle Sales Growth- No of Units % - (Q4 FY
Units % - (From Mar’18 to Mar’19) 18- Q4 FY 19)

J&K 0.36% J&K

Hero- 38% -23.98%

Dominant Player HP
HP -22.9%
0.24% PB
PB 9.11% UK
2.92% UK 29.9%
HR AP
HR
0.8%
24% 77%
3.27%
RJ UP RJ UP AS
7.23% 14.80% 29.10%
RJ 6.21% AS 45.23% BH 54%
UP 17.83%
Hero -63.41% 2.08% 35.41%
Hero- 65.1%
GJ JH
MP GJ MP WB
27.3% 25.7%
GJ 5.63% 6.51% MP 6.99%
7.43% WB 4,92% 4.20% 51.82%
Hero- 52.98% Hero- 57.01% Hero- 43%
OD
OD 3.55% 11.30%
Hero-54% MH
MH -23.98%
8.54%
MH 8.13% TL
Hero- 41.63% 37.39%
TL 3.71%
Hero- 51%
AP
KA -4.28%
11.47%

0.00% TN -15.00%
2.50% 10.67%
0.00%
7.50% 15.00%
10.00% 30.00%
12 Private & Confidential
Source: SIAM Data
 FY 19:Geography Split: Sales Wise (No of Units) FY 19:Geography Split: Sales Wise (No of Units)

14% 26% 22%

30%
10%

7% 4% 8%

5% 4%
7% 4% 8%
5%
7% 4%
6% 8%
6% 6% 6% 7%

Uttar Pradesh Tamil Nadu Karnataka Maharashtra Uttar Pradesh Bihar Madhya Pradesh
Madhya Pradesh Andhra Pradesh Rajasthan Punjab
Rajasthan Maharashtra Gujarat
Tamil Nadu West Bengal Andhra Pradesh
Gujarat Telangana Others
Orrisa Others
FY 19: Geography Split: Sales Wise (No of Units)
FY 19: Geography Split: Sales Wise (No of Units)

18%
24%
24% 17%
4%
9% 5%
4%
9%
5%
5%
9% 5%
5% 9%
7% 5%
6%
6% 7% 7% 9%

Uttar Pradesh West Bengal Bihar Madhya Pradesh

Maharashtra Gujarat Uttar Pradesh Madhya Pradesh Rajasthan Maharashtra Tamil Nadu Karnataka
13 Tamil Nadu West Bengal Karnataka Andhra Pradesh Andhra Pradesh Orissa Others Private & Confidential
Telangana Bihar Others
 2 Wheeler: Sector Overview: Scooter Segment Growth Rate
0.70 30%

24.40% 24.90%
23.20% 25%
0.60

19.90% 20%

0.50 15%
No. of Units Sold (In Crores)

14.20%

YOY GROWTH (%)

11.80% 11.40%
10%
0.40

5%
0.63 0.63
0.30 -0.32%
0.56 0%
0.50
0.45
0.20 -5%
0.36
0.29 -10%
0.26
0.10
0.15 -15%
-16.70%

0.00 -20%
FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 Q1 FY 20

Scooters Growth Source: SIAM Data

• Scooter segment displayed consistent double digit growth from FY 12 till FY 18 on account of sales post BS III, good monsoon and
festive demand

• This segment witnessed degrowth in FY 2019 despite new model launches on account of Kerala floods (key market for scooters), tight
liquidity conditions for financiers, increase in on road prices due to insurances and muted demand in urban areas
14 Private & Confidential
 2 Wheeler: Scooter Segment: Quarter Wise Growth Rate
2 Wheeler: Scooter Segment: Sales No of Units (%)
Engine Capacity Q2 FY 2018 Q3 FY 2018 Q4 FY 2018 Q1 FY 2019 Q2 FY 2019 Q3 FY 2019 Q4 FY 2019
< 90cc 2.15% 1.98% 2.06% 2.18% 2.40% 2.11% 2.26%

90-125cc 97.23% 97.39% 97.46% 97.36% 97.06% 97.41% 97.43%

125-150cc 0.62% 0.62% 0.48% 0.46% 0.53% 0.48% 0.31%

Scooter Segment Wise Growth Rate • The largest sub segment in scooter is 90-125
60.00% cc and the segment witnessed highest
50.76% degrowth in Q4 FY 2019 leading to degrowth
50.00% in overall scooter sales
40.00%
• < 90 cc subsegment has increased the fastest
30.00% albeit on account of a lower base
25.18%
22.08%
20.00% 24.62% • With overall demand for scooters on decline
12.28% 10.86% during the period and new launches by OEMs
10.00% 13.96% 12.17% in 125 cc category; the 125-150 cc segment
10.96% 4.05%
1.68%
0.09% -2.23% saw sharp degrowth during FY 2019
0.00% 0.62%
Q2 FY 2018 Q3 FY 2018 Q4 FY 2018 Q1 FY 2019 Q2 FY 2019 Q3 FY 2019 Q4 FY 2019
• This trend is expected to continue on account
-10.00% -7.82%
-6.42% -9.92% of relatively high cost and less fuel efficiency
-20.00% -14.56% -14.17% and the demand may be muted in absence of
-15.92%
-20.60% diversified presence of OEMs
-30.00%
< 90cc 90-125cc 125-150cc

15 Source: SIAM Data Private & Confidential

 2 Wheeler: Scooter Sales: OEM Market Share
100%
5% 5% 8% 6% 5% 5.50%
6%
90% 6% 9%
8% 4% 5% 6% 11.10%
80% 15%
13% 15% 15% 16%
19%
18.60%
70%
17% 16% 14% 13%
19%
60% 11% 7.30%

50%

40%

30% 57% 57%

53% 56% 55% 55% 56.40%
20%

10%

0%
FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 Q1 FY 20

Honda Hero TVS Suzuki Yamaha Others Source: SIAM Data

• Honda has been the dominant OEM and has maintained its market share in FY 19 as well on account of healthy scale up in sales of Dio and Grazia
models. The growth of its flagship model Activa reported a degrowth of 4.6% in FY 2019

• TVS strengthened its market position with new model variants of Jupiter and Ntorq gaining incremental volumes and market share and witnessed a
growth of 12.9% in FY 2019.

• Suzuki also gained considerable market share on account of growth shown in new model Burman Street and steady performance of its established
model Access

• Share of Hero has been consistently declining on account of growth in competitors models and losing volumes in models like Duet & Maestro
16 Private & Confidential
 Scooter Sales & Top Model - No of Units % - Scooter Sales Growth- No of Units % - (Q4
(From Mar’18- Mar’19) FY 18- Q4 FY 19)

J&K
J&K 0.48% Dominant Player -36.5%
Honda- 77%
HP
HP -32.7%
PB
0.52% -24% UK
PB AP
4.20% UK -28.5%
HR -35.65%
1.07% -23%
HR
2.42%

RJ UP
UP 6.45% AS 2.71% -26.74% -22.4% BH
RJ 3.45%
Honda- 58% Honda- 43% -30.4%
Honda 60.26% BH 1.17%
Honda- 50%
GJ MP WB
-34.67% -19.7% -24.3%
GJ 8.30% MP: 3.47%
Honda 69%
Honda- 56.72%
OD
-21.3%
MH
MH: 12.42% -24.17%
TL
Honda- 55% 1.68%

KA AP
8.95% -11.89%
KA
Honda- 3.38%
58%
0.00%
-30.00%
2.50% TN
4.69% -15.00%
7.50% 0.00%
10.00% 15.00%
17 Source: SIAM Data Private & Confidential
Source: SIAM Data
Two Wheelers: Negative impact of Regulatory Development
Regulatory Impact Description
Change
BS VI Emission Negative – Increase in • The Government of India has decided to leapfrog from the exiting BS – IV emission norms to the BS- VI,
Requirement Prices post thereby skipping the BS - V norms.
implementation • BS - VI norms will come to effect from 1st April 2020. The cost of better engines conforming to BS VI
emission norms is expected to increase the costs by 10-15%. Although some estimates are lower.
Pre-buying expected in • While first half of FY19 will see flat growth, there could be some recovery in the second half due to
Q4FY20 with deep pent-up demand on festivals and pre-buying of BS IV vehicles (Similar spike was seen before transition
discounts on old inventory to BS IV norms in April 2017. That period saw a deep discounting on older models just before April 2017
for inventory clearance. Better preparation expected from OEMs and dealers this time.)
• Hero may consider exporting more of its BS IV inventory, especially to countries such as Nepal,
Bangladesh and Sri Lanka.

5-year TP Negative – Increase in • The Supreme Court mandated 5-year third-party (TP) insurance post Sep-18, shooting up the premiums.
insurance Prices • Honda estimated an impact of 6% on the price of its products due to insurance ruling
• Insurance premium for 100-125 cc bikes have increased from ~ Rs 1800 to ~ Rs 5,000

ABS and CBS Negative – Increase in • 2Ws having an engine capacity higher than 125cc are mandatory to have anti-lock braking system (ABS)
requirement Prices and for two-wheelers below that capacity are mandatory to have combined braking system (CBS) from
April 1, 2019. So cheaper models will not be available in FY20, impacting demand.

Driving License Negative • The WB government introduced stringent rules from Jun-18 barring sale and registration of two-
requirement in wheelers in the name of people without driving licences.
West Bengal • This saw a decline of ~60% in 2W sales in WB which earlier had a demand of ~ 1 lac units a month
• There have since been relaxations to the rules like payment of fee for learning license while buying 2W,
but purchases have been delayed for more clarifications.

18
Two Wheelers: Demand Drivers

• General commute to fulfill business • Higher disposable income

requirement
• Demand during festive season in October and
• Necessity for entry level jobs November

• Last mile connectivity for delivery requirements • Good monsoon helps with rural demand
of E-Commerce and Food delivery companies
• Urban demand from youth and women
• Commitment towards electric fleet
• High end bike as status symbol
• Rural demand for multiple use cases

Business need Consumption need

2W is more of a necessity – growth expected to pick up again along with recovery in the economy
19
Two Wheelers: Push for Electric Vehicles
Uncertainty regarding development of Electric Two Wheelers

Push from Opportunity for new Infrastructure

Dealer Network Financiers Risks
Government players Bottlenecks
• Set up a deadline • EVs may require • Battery: Major cost • OEM offers needed • Will need initial • Hurried transition
for transition to all new business component – may to support sales support from
electric two models and will be see tech updates OEMs • Timely Scaling of
wheelers by 2025 an opportunity for related to capacity • Servicing and support
up to 150cc start-ups. and charge time repairs network to • Larger players like infrastructure
be updated captives and banks
• All major OEMs • Many new local • Charging network may lead the • Technological
have raised players coming up to be put in place. • Financial viability financiers developments and
concerns over such with tech research Will need and business hence
mandatory shift in and manufacturing government model to be re- • Impact on LTVs obsolescence risk
a very short time. setup support assessed based on
depreciation and • Disruption of
• Incentives provided • Flipkart declared • Production and • Online sales may used market to be existing business
through tax relief intensions of Ancillary chain to pick up with e2W a key consideration model
and more steps converting 40% its be set up in place
expected to delivery fleet to EV • New Dealer tie-ups
support EV sales by Mar 2020 • Factoring in risk in
• Lack of for e2Ws may be pricing considering
standardization required limited ecosystem
• Ola Electric across players and understanding
Mobility has raised of the:
funds to support its
• Life of e2W &
ambition of
components
operating 1 million
EVs by 2021 • Resaleability

20
Demand for Two Wheeler Finance

21
Two Wheeler Finance: Demand and Growth
2W Finance growth to exceed the volume 2W Finance Market - FY19
growth of 2W industry

Factors contributing to higher growth

28,485 ; 32%
• Higher prices: ATS increased by c. 8-10% 43,000 ; 49% 45,000 ; 51%

• Higher finance penetration

15,885 ; 18%
The 2W Finance market expected to reach 630 ; 1%
~Rs.90,000 crores by 2024 with:
• 10% annual volume growth in 2W Self Financed/ Unorganised NBFCs Pvt Banks Others

• Average price of Rs 55,000 per unit

2W Finance Market - FY18
• Increased penetration of 60%
Demand for used 2W finance to increase
24,570 ; 30%
• Increased cost and lower affordability of new 2W
41,770 ; 52% 39,000 ; 48%
• OEM efforts to make used 2W an organized
market like Best Deal from Honda (Certified Pre- 12,870 ; 16%
owned outlets) 1,560 ; 2%
• More organized players to take up used 2W
finance with lower ticket size and lower tenure Self Financed/ Unorganised NBFCs Pvt Banks Others

22
 2 Wheeler Sales- No of Units %- (Mar’18- Mar’19) 2 Wheeler Financed- No of Units % - (Mar’19)

J&K
J&K 0.65%
0.40%
HP
HP 1.59%
PB
0.32% 2.37% UK
PB 1.21%
3.36% UK HR
0.90% 1.8%
HR
2.95%
UP
RJ AS
UP 7.13%
RJ AS 4.06% 3.06%
13.93% BH
5.26% 2.30% 3.74%
BH
4.84%
GJ JH WB
GJ JH MP
MP WB 6.72% 1.66% 5.74%
6.55% 2.37% 4.46% 3.19%
5.78%
OD
OD
3.96%
3.42%
MH MH
9.60% 11.94%
TL TL
3.79% 3.08%

AP KA AP
KA 5.07% 8.61% 6.44%
6.27%
0.00% 0.00%
TN 5.00% TN 5.00%
8.74% 10.83%
10.00% 10.00%
15.00% 15.00%
Source: SIAM Data Source: Equifax 2W Report
 NBFC 2W Portfolio Concentration (As of March 19) Private Bank 2W Portfolio Concentration (As of March 19)

J&K
0.18% J&K
0.54%
HP
0.31% HP
PB 0.32%
2.98% UK PB
0.9% 3.69% UK
HR 0.94%
3% HR
3%
RJ
RJ
4.27% UP- 9.74%
BH 4.79% UP -8.94%
BH
4.35%
3.47%

GJ JH WB JH
MP GJ
6.10% 1.71% 7.2% MP 1.86% WB
4.52% 6.76% 5.99%
4.76%
OD
4.09% OD
4.39%
MH MH
12.08% TL 12.57%
4.36% TL
4.57%

KA AP
5.20% AP
6.94% KA 4.10%
6.62%
0.00% 0.00%
TN
8.98% 5.00% TN
5.00%
9.01%
10.00% 10.00%
15.00% 15.00%

Source: Equifax 2W Report

 NBFC : New Sourcing (Last 12 Months- March 19) Private Banks : New Sourcing (Last 12 Months- March 19)

J&K
0.18% J&K
0.54%
HP
0.28% 0.03% HP
0.63% PB 0.30%
0.02%
2.35% UK 0.88% PB
1.0% 0.1% 4.57% UK
HR 0.1%
0.84%
3% 1.65% HR
0.21% 0.48% 3%
0.03%
RJ
4.48% UP- 11.39% 0.02% RJ 0.4%
BH UP -7.51% 0.32%
0.16% 4.63% BH
4.83%
3.87%
JH
GJ WB
MP 0.33% 1.79% GJ 0.4% JH
6.35% 6.8% MP WB
4.85% 0.4% 6.42% 2.39% 4.37%
0.34% 4.36% 1.62%
0.25% OD
OD
3.92% 0.17%
MH 4.81% 0.42%
MH
11.20%
0.88% TL 9.56%
4.34% 0.02% TL
3.01%
5.37% 0.6%

AP 0.27%
KA AP
5.47% KA 0.04%
0.43% 7.01% 4.14%
0.30% 6.32%
0.00% 0.00%
TN 0.22% TN
9.20% 5.00% 5.00%
11.7% 2.6%
1.79% 10.00% 10.00%
1.06%
15.00% 15.00%

Source: Equifax 2W Report

 2W Non Captive Portfolio Concentration (As of Mar 19) 2W Captive Portfolio Concentration (As of Mar 19)

J&K
J&K
0.65%
0.25%

HP
0.29% HP
PB 0.38%
UK PB
3.94% UK
3.00%
1.1% 0.61%
HR HR
3% 4%

RJ
RJ UP- 7.43% 5.78%
UP -13.07%
4.42% BH BH
2.42% 6.33%

JH JH
GJ MP WB GJ MP
1.64% 5.8% 2.44% WB
7.40% 4.32% 5.03% 5.94% 6.43%

OD OD
MH 4.07% 5.26%
14.46% MH
7.41%
TL TL
4.72% 4.17%

AP AP
KA 3.66% KA
5.32%
6.58% 6.72%
0.00% 0.00%
5.00% 5.00%
TN TN
9.39% 10.00% 7.99% 10.00%
15.00% 15.00%

Source: Equifax 2W Report

 2W Non Captive : New Sourcing (Last 12 Months- Mar 19) 2W Captive : New Sourcing (Last 12 Months- March 19)

J&K
J&K
0.58% 0.07% 0.25%

HP
0.29% HP 0.04%
0.64% PB 0.34%
UK 0.27% PB
3.30% 0.1% UK 0.1%
2.73%
1.2% 0.51%
HR HR
3%
0.11% 4% 2.47%
0.6% RJ 0.96%
RJ 0.11% 6.50% 0.09%
0.85% UP- 7.32%
0.72% UP -15.54%
3.57% BH BH
3.11% 7.29%
0.52% JH JH
GJ MP WB GJ
1.7% MP 0.52% 2.64% WB
0.03% 7.37% 3.80% 5.9% 0.1% 0.05% 4.98% 5.85% 0.58%
6.47%
OD OD
MH 3.82% 0.25% 5.03% 0.23%
12.99% MH
1.47% 6.20%
TL 1.21% TL
5.05% 0.35% 3.87% 0.3%

AP AP
KA 1.11% KA
4.77% 0.5% 5.39% 0.37%
0.44% 7.02% 6.22%
0.00% 0.00%
5.00% 5.00%
TN TN
11.10% 10.00% 7.61% 0.31%
1.52% 10.00%
0.21% 1.71% 15.00% 15.00%

Source: Equifax 2W Report

Two Wheeler Financiers

28
2W Finance: Key features for Major Players

Banks Captive Financiers

• Cross sell to existing customers with pre • Schemes to support sales of OEMs
approved limits • Better credit quality customers targeted
• Focus on Salaried individuals or with • High LTV and low IRR
income proof • Mandatory leads from the dealers
PB • Bank payments required • Incentives given to dealers
• High LTV and low IRR
• Inventory funding of the dealers
UP
RJ
Large Pan India NBFCs Regional NBFCs
• Lower credit
JHchecks • Customers with limited documentation
MP • Aggressive schemes for customers with • Rural focus - Farmers, no income proof
better credit quality • Reliance on local knowledge
• Focus on collection effectiveness • Collection mechanism (including cash
MH • High IRR and average LTV collection)
TL• Trade advance and incentives for dealers • High IRR and average LTV
• Trade advance and incentives for dealers

Similar range of product offering by various financiers

Parameter Average Ticket Size LTV IRR Tenure Processing fee
Captive NBFCs 10k – 150k Up to 95% 22-31% 1 – 4 yrs 1 – 3%
Other NBFCs 15k – 200k Up to 95% 22-28% 1 – 3 yrs 1 – 6%

29
2W Finance: Key emerging characteristics

For walk-in customers at dealers, first point of contact defines acquisition

Higher Risk
• FI/CPV being done away with
• No CB checks
• No central oversight/ control on
disbursement decision

• Key focus on models and geography

• TLCredit policy with model-wise grid
defining acceptable risk (LTVs)

Faster TAT

• LTV would be the key differentiator

• Asset quality not directly related to LTV; collection efficiency is the key
driver for asset quality
30
2W Finance: Role of Technology

Increased use of Technology

• App-based solutions on mobile and tabs for all operations

• Use of APIs to verify Bureau, UID and PAN data

• Credit decisions being based on models with help of bureau data

• Use of geo-tagging for negative areas - defined at more granular level now

• Capturing latitude-longitude data during FIs and collection visits

• Data analytics being used for targeted collection efforts

• Use of photos and videos for assessing value of used or repossessed assets

• Better data integration with improved MIS capabilities and automation of reports

• System based checks and measures being built for policy adherence

31
 2W Finance: Salient features
Process Activities Comments
Sourcing • Field team along with dealers and sub-dealers. Dedicated sales executive at • Dealers and sub-dealers provided incentive to refer
these locations clients through commission and trade advance
• Customer comes to dealer/ sub-dealer location • Relation with local dealers critical for sourcing
• KYC documents collected from the client • Agents of financiers helps with sales at dealer locations

Appraisal and • LTV and pricing list available for 2W models • FI being done away by many players if comfort
approval • PBIncome check either through documentary evidence or assessment by field available through documentary evidence to reduce TAT
officer • Some players have integrated IT systems to manage
• Some of the credit terms seen are as below: the entire lead origination, documentation and
o CIBIL checks approval process
UP •
RJ o Owned home or long presence at same address Branch staff recruited from local areas – they have a
o Local reference check deeper understanding of the customers.
• Approvals may vary from model based or HO based to branch level authority • Salaried customer granted loans at favorable terms
JH
MP
Collateral • Reliance is placed on the security of the 2W model being financed • Valuation of used 2Ws a key determinant for LTVs
• Leading models with better secondary market are financed at higher LTVs • Models with better secondary market financed at more
• Guarantee is generally compulsory for student profiles and customers aggressive terms
MH without permanent residence
TL
Collection • Cash collection is seen in this segment, though the companies are shifting to • Given the weaker credit profile of the borrowers,
non-cash models depending on the target customers collections constitute the most critical function for 2W
• Collection teams may be in house or outsourced collection agencies. finance companies
• The collection may also be divided between in-house team and agents based • Repossession activity involves cost related to
on PAR status repossession agent, yard charges, loss on sale of
• Local connections may be used to facilitate collection process in rural areas repossessed assets, etc.
• Repossession is done where client is not expected to pay back

32
RoA and Capital raised
• 2W finance yields are high to cover for high opex and weaker
credit profile. Yields expected to remain stable with
increased ticket size.
• Cost of funds to be impacted by market liquidity conditions
• Opex ratio to reduce with more use of technology. However,
2W finance is an opex heavy model with sourcing
PB commission to dealers and cost related to collection team.
• Credit costs may rise with increased competition and relaxed
sourcing norms. Collection efficiency will be critical
UP
RJ • RoA to remain stable

Recent equity investments in the 2W Finance sector

• Rs 100 crs raised by WheelsEMI from Elevar Equity and Faering Capital in FY19
MH
• Orange Retail Finance India Private Limited raised more than Rs 80 crs through various investor groups
• Many of the smaller players saw equity infusion from their promoters
• Multiple players in talks to raise funding from PE players
• PE investments received by diversified financiers
• Easier to start 2W Finance with low capital base due to small ticket size and targeting few regions
• Market big enough to absorb new players

33
Asset Quality

34
 2 Wheeler Finance Market: Key Performance Trends- March 2019
2W Portfolio Performance: Lender Category: Mar 19 2W Portfolio Share: Amount Outstanding: Mar 19
25.00%
21.88%

20.00%
17.48%
27.92%
14.85%
15.00% 36.57%

11.12%
10.00% 9.28%

5.98%
32.37%
5.00%
3.43%
2.54%
1.39%

0.00%
Non Captive NBFC Captive NBFC Pvt. Bank Non Captive NBFC Captive NBFC Other PSU Bank Pvt. Bank
PAR 0 PAR 30 PAR 90
Source: Equifax 2W Report
Source: Equifax 2W Report

• 2 Wheeler finance market is dominated by NBFC and the market share is slightly higher for captive NBFCs (c. 32%) in comparison
to non captive NBFCs (c. 28%); while private banks have a market share of (c.37%).

• The portfolio performance of the private banks has been relatively more robust in comparison to NBFCs. Amongst NBFCs, the
captive NBFCs have display relatively stronger portfolio performance in comparison to non captive financiers

• Other players like PSU Banks and other banks (SFB, DCCB, RRB etc) which have been clubbed under the category “Others” don’t
have significant market share.
 NBFC 2W Portfolio- PAR 90% (As of March 19) Private Bank 2W Portfolio- PAR 90% (As of March 19)

J&K J&K
1.14% 0.47%

HP HP
1.5% 1.62%
PB PB
2.28% UK
3.67% UK
2.79%
HR
4.1% HR AP
2% 2.42%
3%

RJ RJ UP AS
3.47% UP- 2.30% 2.15% 1.72% 1.28%
BH BH
1.28% 1.23%

JH GJ MP JH WB
GJ MP WB
2.09% 3.03% 1.56% 1.64%
5.17% 2.31% 1.83%
2.79%
OD
OD
1.95%
2.83% MH
MH
2.86%
4.33%
TL TL
37.39% 2.25%

AP AP
KA
KA 2.19% 1.59%
1.88%
2.69%

TN 0.00% TN 0.00%
2.09% 1.50% 1.37% 1.50%
3.00% 3.00%
5.00% 5.00%
Source: Equifax 2W Report
 2W Non Captive Financier Portfolio- PAR 90% (Mar’19) 2W Captive Financier Portfolio- PAR 90% (Mar’19)

J&K J&K
0.36% 1.30%
HP
HP
PB 1.6% 1.68%
2.0% UK PB
2.6% 3.41% UK
HR 3.9% AP
2% HR 2.42%
3%

RJ
UP- 1.31% RJ UP AS
1.92% BH 2.62% 2.34% 1.04%
1.53% BH
0.92%
GJ JH
2.83%
MP 1.6% WB GJ JH
WB
1.39% 1.4% MP 1.49%
3.87% 2.2%
2.69%
OD OD
1.54% 2.82%
MH
MH
2.68%
TL 3.78%
2.03% TL
2.91%

AP
KA AP
1.20%
1.65% KA 2.33%
2.48%

TN
1.20% 0.00% TN 0.00%
1.50% 1.90% 1.50%
3.00% 3.00%
5.00% 5.00%
Source: Equifax 2W Report
 2W NBFC Roll Forward Rate (0-90) (Mar’19) 2W Private Bank Roll Forward (0-90) (Mar’19)

J&K J&K
16.23% 6.96%
HP
HP
20.64%
PB 23.90%
UK PB
24.05%
20.45% 27.5% UK
HR 26.82%
28% HR AP
33% 18.09%
RJ
UP- 24.01% RJ UP AS
26.23% BH 18.88%
26.30% 28.97%
21.20% BH
21.02%
GJ JH JH
MP WB
20.80% 19.45% GJ 23.84% WB
19.37% 15.02% MP
29.83% 20.54%
24.97%
OD OD
16.66% 27.15%
MH
MH
16.93%
TL 23.21%
20.05% TL
17.99%

AP
14.94% AP
KA KA 8.24%
20.76% 21.27%

TN
15.20% TN
14.95%

Source: Equifax 2W Report

 2W NBFC Roll Backward Rate (90 to <90) (Mar’19) 2W Private Bank Roll Backward (90 to <90) (Mar’19)

J&K J&K
28.97% 43.70%
HP
HP
3.37%
PB 10.21%
UK PB
8.29%
4.47% 15.9% UK
HR 14.49%
3.4% HR AP
9.3% 18.09%
RJ
UP- 3.75% RJ UP AS
4.47% BH 13.17%
7.04% 8.26%
7.04% BH
13.64%
GJ JH JH
MP WB
4.55% 6.08% GJ 12.31% WB
7.50% 8.86% MP
8.61% 14.42%
14.26%
OD OD
10.96% 11.40%
MH MH
8.17% TL 13.68%
11.32% TL
18.75%

AP
AP
KA 13.54%
24.16%
10.14% KA
17.31%

TN
9.04% TN
20.37%

Source: Equifax 2W Report

Is 2W lending a secured asset class?

40
2W Finance: Hypothecation and Traceability of 2Ws
Financiers name in the RC book of the vehicle
• Many instances in rural areas where the vehicle remains unregistered for a long time
• Registration may take 2-3 months

Focus on resolution without repossession

• Arresting the portfolio at initial buckets important
• Roll forward rates increase from ~8% in X bucket to ~44% in 2 bucket and to ~66% in higher buckets
• Only 6-7% of the cases in higher buckets may go for repossession. Repo loss seen ~35-40%

2Ws may not be traceable post default on account of following factors:

• Skip customer
• Accident
• Legal hinderance due to involvement in crime like theft
• Mortgage/ sale of 2W for small amount (but customer is still traceable)

But Non-traceability not an issue for 2W financiers

• Based on feedback, these cases are negligible (less than 1% of cases where bounce is seen)
• It is even less of an issue in rural areas where most customers are reachable at permanent address
• No visible difference in traceability across types of lenders

This is substantiated by using write-offs as a proxy for assets not being traced
• Write-offs were at ~1% of the average AUM on overall basis for the smaller 2W NBFCs and even lesser for the large players

Relaxed FI and credit norms may lead to higher non traceable cases in future

41
 2W Finance: Repossession: Breakeven Point Determination
2W Repossession Sales Analysis 2W Repossession Loss Analysis
60000 700 80.00%
70%
600 70.00%
50000
59%
60.00%
500 54%
40000 59% 49% 55%
52% 50.00%
400
30000
40.00%

663
653

628
623

617
300
20000

518

514
30.00%

200
10000 20.00%

100 69 58 67 55 65 10.00%
55 51
0
BAJAJ HERO HONDA MAHINDRA SUZUKI TVS YAMAHA
0 0.00%
Average of Loan Remaining 43643 40043 44523 43331 42876 33899 52944
BAJAJ HERO HONDA MAHINDRA SUZUKI TVS YAMAHA
Average of Sale Value 17843 20345 21444 13163 17475 15730 23970
Average of Loss 25800 19698 23079 30168 25402 18169 28973 Average time to Repo Average Time to Sale from Repo Loss %

• Repossession dump from our partner entities was analyzed to arrive at behaviour of various models and resale values of these models in
order to determine recovery rates

• Hero and Honda; on an average have higher resale value in comparison to other models; in contrast to models like Bajaj and Yamaha
whereby the average outstanding is nearly the same

• Additionally, the time taken to sale from date of repossession is also lower in Hero & Honda vehicles in comparison to other vehicles
indicating higher demand for resale for these models
42
Risks associated with Two-Wheeler Finance

43
Emerging Risks

Product
• Increasingly an off-the-shelf loan product: Talks of extending loans without vehicle hypothecation
• Top-up loans (loan against vehicle) to retain customer with no defined end use
o Very limited book
o Offered to existing customers, with established track record
o Defined LTVs considering the current and expected market value

Process
• No underwriting, despite increasing loan amounts. To become more acute going into FY21, with BS VI jacking up prices
and hence finance amount
o Being managed by focussing on key models, strong local knowledge

Portfolio
• Increasing ticket size even for entry level vehicles with price rise and higher LTVs

Collection
• Repossession as a collection strategy to further lose steam due to higher LTVs
o Bank transactions with stronger customer and connect on field/ feet-on-street
o Social pressure (guarantors) points being created

44
Key challenges

On-boarding
• Lack of discipline/ process during sanction
o Unlike other operating models of finance, no customer awareness process
o Absence of importance of financier in the customer’s lifecycle
Loan repayment
• High bounce and soft delinquency
o Borrowers wanting to follow 30 day repayment cycle from date of purchase irrespective of EMI date
o Slippages allowed for bounce charges and penal interest
• Inability to quickly resolve higher buckets of delinquency
o Borrowers are not able to clear multiple installments in one go
o Continue to remain at risk even if they pay one installment every month after skipping few months
• Limited borrower knowledge in accident cases
o Claims to be filed within 90 days post accident
o Borrowers dump the vehicle and stop paying, thereby leading to default and very low recovery on repo

45
Outlook – Two Wheeler Finance

46
Outlook – Emerging NBFCs

Emerging Non-Captive Players Outlook Remarks

Two-Wheeler OEM Sales Subdued ➢ 2W sales have reduced in recent months after years of sustained growth
Growth ➢ Hike in prices have impacted demand. Further price hike seen from Apr-20 with
implementation of BS VI emission norms.
➢ 2W demand expected to bounce back – being a necessity product
Two-Wheeler Finance – AUM Healthy ➢ 2W Finance to have higher growth than 2W volumes with higher prices
Growth ➢ High growth on a relatively smaller base with increasing geographical presence
➢ Emerging NBFCs to target 40-50% growth in AUM at the least
Asset Quality Moderate ➢ Asset quality to deteriorate with more seasoning and expansion of operations
➢ High growth rate to keep credit cost in check with increasing denominator
➢ Credit cost rise of ~1% to be seen gradually as it moves towards industry
average with increase in AUM
➢ Focus on collection efficiency and local knowledge
Profitability Relatively ➢ Improvement in profitability on achieving optimum operating efficiency as they
Healthy continue to expand to new geographies

47
Outlook – Large NBFCs

Large Non-Captive Financiers Outlook Remarks

AUM Growth Relatively ➢ Growth to outpace 2W volume growth with higher ticket size, to reach up to 20%
Healthy over next couple of years
Asset Quality Moderate ➢ Higher credit cost as focused efforts required to manage a granular portfolio
➢ Credit cost seen to be ~2.5%
Profitability Moderate ➢ Profitability from 2W portfolio to be stable with RoA ~3.8%
➢ Support from diversified business lines and better funding profile

Captive Financiers Outlook Remarks

AUM Growth Healthy ➢ Increasing finance penetration to help growth

➢ Expect to grow 20-25% over next couple of years
Asset Quality Moderate ➢ May deteriorate if customer selection weakened to push for higher sales of OEM
➢ Credit cost for 2W finance seen between 2.0% to 2.25%
Profitability Moderate ➢ To be under pressure with primary objective to support OEM growth
➢ Better positioned in terms of funding profile

48
Thank You!