TWO-WHEELER INDUSTRY

Third-party insurance premium hike

unlikely to weigh on demand recovery

JUNE 2022
1
Highlights
Click to Provide Feedback
No hikes in third party insurance rates
for entry level motorcycle and scooter
segment (75 cc-150 cc, constituting
~89% of domestic volumes) is a relief
for the industry
However, Inflationary pressures and
elongated semiconductor chip
shortage due to the ongoing Russia-
Ukraine conflict continue to remain
headwinds for the industry
The third-party insurance premium has been revised after a two-year moratorium due to the Covid-19
pandemic, with the new rates coming into effect from June 1, 2022. The rates have been hiked for the
premium category (15%-21% increase for >150 cc category), while there has been no increase for the
entry level motorcycles and scooters (75 cc-150 cc), the largest segment by volumes in the domestic
market (~89%).
The increase in on road price for the premium segment on account of the rate hike is also not
significant (<1%); the rate hike is thus unlikely to have a major impact on consumer sentiments and
comes as a relief for the industry, which has been grappling with muted demand.
The cost of ownership of a two-wheeler has been steadily increasing over the years, impacting
affordability. OEMs have been forced to hike prices on account of multiple factors – raw material
hardening, transition to stringent emission norms and changes mandated by regulations. An increase
in cost of acquisition coupled with heightened crude prices have led to a significant increase in cost of
ownership. A further hike in acquisition cost could have dented the fragile demand sentiments.
Domestic 2W volumes contracted for a third consecutive year in FY2022 and the industry is cautiously
optimistic of a gradual recovery in FY2023. The ripple effects of an elongated Russia-Ukraine conflict
can be severe for crude prices, the semiconductor industry and commodity prices, and has the
potential to disrupt demand/supply of automobiles in the near term. However, a broader vaccination
coverage, reopening of education institutes and corporates, expectation of normal monsoon, all
coupled with a low base, is expected to aid a 7-10% YoY growth in FY2023.
22
www.icra.in
Third-party insurance premium hiked; entry level segment spared

Exhibit: Details of third party premium rates for various segments of two wheeler industry with effect from June 1, 2022

New Rate
Domestic two-wheeler industry
Old Rate
Vehicle Segment Hike (%) segment mix (FY2022)
(Rs.) (Rs.)
150 CC to
More than
350 CC,
Exceeding 75 cc but not exceeding 350 CC, 1%
752 714 -5% 10%
150 cc

Exceeding 150 cc but not exceeding

1,193 1,366 15%
350 cc

Exceeding 350 cc 2,323 2,804 21% >75 CC to

150 CC,
Source: MoRTH Notification, ICRA Research; *Rates have been hiked for two-wheelers<75 cc by ~11%; however there are no major products in this segment available in the market 89%

▪ In September 2018, changes in motor insurance policy for new two-wheelers came into effect, which entailed an increase in third party cover (TPC) from one year to
five years, leading to sharp increase in cost of acquisition.
▪ After a two-year moratorium due to the Covid-19 pandemic, the third-party insurance premium has now been revised again, with the new rates to come into effect
from June 1, 2022.
▪ The rates have been hiked for the premium category (15%-21% increase for >150 cc category), while there has been no increase for the entry level motorcycles and
scooters (75 cc-150 cc), the largest segment by volumes in the domestic market (~89% in FY2022).

33
www.icra.in
Impact of rate hike on overall price negligible for premium segment as well

Exhibit: On road price comparison of 250 cc motorcycle segment before and after rate hike

Impact Analysis
IMPACT ON FINAL
Average On-road price of 250 Average On-road price of 250
cc motorcycle before cc motorcycle after Insurance PRICE (%)
Insurance price hike price hike

Increase in the on road

price on account of the
Ex-showroom 146,000 146,000 - rate hike not significant
in the premium segment
as well (<1%).
RTO 8,750 8,750 -

Insurance 8,100 8,965 11%

HSRP Charges 150 150 -

Rate hike is thus
163,865 0.5% unlikely to have a major
On-road price 163,000
impact on consumer
sentiments.

Source: ICRA Research

44
www.icra.in
Significant increase in cost of ownership over the years has impacted demand

Exhibit: Indicative trend in increase in on road price of 110cc motorcycle over the past few years

Raw BS VI Multiple price hikes enforced by significant and

Change in material Emission continuous raw material hardening
Insurance price norm
Regulations increase transition

Source: ICRA Research

▪ The cost of ownership of a two-wheeler has been steadily increasing over the years, impacting affordability/consumer sentiments and leading to muted
demand. OEMs have been forced to hike prices on account of multiple factors – raw material hardening, emission norm transition and changes mandated by
regulations.
▪ In FY2022, even as there was no impact of regulatory notifications on prices, the OEMs had to pass on raw material hardening impact via multiple prices
hikes; the enhanced cost of acquisition coupled with heightened crude prices have led to significant increase in cost of ownership.

55
www.icra.in
Demand remains fragile; increased acquisition cost could have weighed on recovery

Exhibit: Trend in Monthly Two-Wheeler Volumes (Domestic)

1800 30%
1600 -17% -25%
20%
1400 -15%
-2% 10%
-21% 15%
1200 4% -21%
Units in '000

-34% -11% -27%

1000 0%
800 -10%
600
-20%
400 26%

1,049

1,125
1,055

1,253

1,330

1,527

1,540

1,004

1,035

1,181

1,146
-30%
994

353

200
0 -40%
Apr'21 May'21 Jun'21 Jul'21 Aug'21 Sep'21 Oct'21 Nov'21 Dec'21 Jan'22 Feb'22 Mar'22 Apr'22

Two Wheeler Volumes - Domestic YoY Change (%)

▪ Aided by a recovery in rural sentiments post a healthy rabi harvest and pent up demand for festivals and weddings, wholesale volumes of motorcycles posed a
recovery in April; reopening of education institutes and reversal in work-from-home trends in corporate India also supported the scooter offtake, thereby raising
hopes of recovery in prospects of the two-wheeler industry.
▪ As demand remains fragile, with industry facing multiple headwinds (Inflation, escalating petrol and commodity prices, elongated semiconductor chip shortage), a
further increase in cost of acquisition, could have constrained demand recovery for 2Ws in the near term. In this regard, the fact that the entry level two-wheeler
segment has been left out of the insurance price hike, comes as a relief for the industry.
Source: SIAM data, ICRA Research
66
www.icra.in
Industry expected to post modest growth on a severely contracted base

Exhibit: Segment-Wise Growth Estimates (Domestic + Exports) Exhibit: Indian 2W Industry Growth Trend

30.0 20%
FY2021 FY2022 FY2023e
15%
25.0 7%
16%
-9% 0% 6-8% 10-12%
10%
5% -14% 7-10%

Volumes (Mn)
20.0
-12% -3% 5%

-20% -8% 6-8% 15.0 0%

-5%
10.0
-4% -23% (11-12)%
-10%
5.0
-15%
-5% 140% 120-125%
0.0 -20%
FY17 FY18 FY19 FY20 FY21 FY22 FY23P FY24P

Domestic 2Ws 2W Exports 2W Industry (YoY)

Total -12% -3% 7-10%

Source: SIAM data, ICRA Research

77
www.icra.in
ICRA’s outlook on key industry drivers for FY2023

EXPORTS SHIFT TOWARDS EVs

Expected to sustain at healthy levels Favorable Government policies and industry
backed by steady economic and political initiatives to continue augmenting demand;
situation in key markets penetration expected to increase

URBAN DEMAND
FINANCING ENVIRONMENT
Reopening of education institutes and contact
intensive industries could support demand Financiers remain cautious; expect their
outlook to improve with economic recovery
and decline in delinquency levels

RURAL DEMAND SUPPLY CHAIN ISSUES

Another normal monsoon season likely to Semi-conductor chip shortages and
be a positive for rural income and demand container availability issues may
continue to persist

MACROECONOMY INPUT PRICES

ICRA estimates 7.2% GDP growth for Inflationary pressures on core
FY2023, with estimate moderated due commodities and crude prices likely
to geopolitical developments and to persist for 1-2 quarters due to
inflationary pressures Russia-Ukraine conflict

Source: ICRA Research

88
www.icra.in
Click to Provide Feedback

99
www.icra.in
 Analytical Contact Details

Shamsher Dewan K. Srikumar Rohan Gupta Ritu Goswami

Group Head Co-Group Head Sector Head Assistant Vice-President

shamsherd@icraindia.com ksrikumar@icraindia.com rohan.kanwar@icraindia.com ritu.goswami@icraindia.com

0124 – 4545 328 044 – 4596 4318 0124 – 4545 808 0124 – 4545 826

10
 Business Development/Media Contact Details

L. Shivakumar Jayanta Chatterjee Naznin Prodhani

Executive Vice-President Executive Vice-President Head Media & Communications

shivakumar@icraindia.com jayantac@icraindia.com communications@icraindia.com

022- 6114 3406 080 – 4332 6401 0124 – 4545 860

11
© Copyright, 2022 ICRA Limited. All Rights Reserved.
All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has
been taken to ensure that the information herein is true, such information is provided 'as is' without any warranty of any kind, and ICRA in particular,
makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. Also, ICRA or any of
its group companies, while publishing or otherwise disseminating other reports may have presented data, analyses and/or opinions that may be
inconsistent with the data, analyses and/or opinions in this publication. All information contained herein must be construed solely as statements of
opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.

12
Thank You!

13