Latest News | Domestic Bicycle Industry May See a Decadal High Growth of 20 Pc This Fiscal: Report

Mumbai, May 28 (PTI) Riding high mainly on the pandemic-driven pent-up demand, the domestic bicycle industry may see a decadal high growth of 20 per cent this fiscal, according to a report.

Amid this, the bicycle sales volume is expected to touch 1.45 crore units compared with 1.2 crore units last fiscal, ratings agency CRISIL said in the report on Friday.

India is the second-largest manufacturer of bicycles in the world with the industry classified into four segments — standard, premium, kids and exports.

Demand for standard bicycles, which is the largest segment (accounting for half of all bicycles sold in 2020), is driven by government purchases, which are made through a tender process and distributed under various welfare schemes, it said.

Demand for premium and kids bicycles, with market size at nearly 40 per cent, is driven by fitness and leisure needs. While exports and sales of other kinds of bicycles constitute the remaining 10 per cent of the demand, it said.

However, this estimate is only for the organised segment volumes, which roughly account for three-fourths of the total industry volumes, CRISIL said.

The ongoing COVID-19 pandemic has spurred demand for bicycles, owing to improving fitness consciousness and leisure requirements, it said.

"The pandemic-induced constraints on fitness and leisure options increased the demand for bicycles, especially in the premium and kids segments.

"Strong growth in these limited the overall decline in sales volume to just 5 per cent in fiscal 2021 despite a further reduction in government purchases," CRISIL Ratings Director Nitesh Jain said.

He added that the momentum is likely to continue this fiscal also, given the ongoing second wave of the pandemic, and should lead to a 22 per cent growth for the premium and kids segments, Jain said.

The resultant improvement in cash flows, amid higher capital expenditure, will support the credit profiles of CRISIL-rated bicycle manufacturers, which account for around 60 per cent of industry volume, it noted.

According to the ratings agency, in the five fiscal years through 2019, bicycle sales volume logged a modest compound annual growth rate of around 5 per cent.

In the financial year 2020, it contracted a massive 22 per cent as government purchases plunged and a large bicycle manufacturer downed shutters, it said adding that last fiscal saw a turn for the better.

In the past couple of months, however, orders from government departments have started improving. Consequently, demand for standard bicycles is likely to grow after two dull years, said CRISIL.

Overall sales growth this fiscal will support the profitability of bicycle makers for two reasons — improved product mix and a relatively price-inelastic demand in premium and kids segments, it noted.

The premium and kids segments have higher profitability and their market share has increased 1,000 basis points to over 50 per cent now, it said.

The demand in the premium and kids segments is relatively price-inelastic and that allows manufacturers to pass on any increase in the prices of raw materials, such as primarily steel, which accounts for 60-65 per cent of the total cost of manufacturing a bicycle, the ratings agency stated.

CRISIL Ratings Associate Director Rakshit Kachhal said, "We expect the industry's margins to further improve by 110-130 bps this fiscal. While manufacturers will borrow more to enhance their capacities this fiscal, debt metrics will still improve."

While lockdowns have slammed the brakes on sales, pent-up demand can be expected once sales outlets open, it said.

It added that this analysis assumes demand would decline by a third in the first quarter of the current fiscal.

Recovery is expected from the second quarter with COVID-19 caseloads and lockdowns are likely to peak in June, and as vaccinations pick up pace. HRS hrs

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)