PV penetration rate increasing

Retail auto demand growing faster in under-penetrated states. We analyse the trends in passenger vehicle (PV) and two-wheeler (2W) retail demand across top-15 states/UT in India in this note. The data suggests that the PV segment has low penetration in most of the states in India, whereas the two-wheeler segment has high penetration levels across most Indian states. The data suggests that new vehicle registrations in states with lower level of penetration have outpaced industry growth rates.

Penetration data of passenger vehicles in top-15 states/UT shows that India has low PV penetration (21 PVs per 1,000 people). Delhi (98 PVs per 1,000 people), Haryana (60 PVs per 1,000 people) and Kerala (55 PVs per 1,000 people) have the highest PV penetration in FY2018. Bihar (4 PVs per 1,000 people), West Bengal (9 PVs per 1,000 people), Chhattisgarh (11 PVs per 1,000 people) and UP (11 PVs per 1,000

people) have the least PV penetration in FY2018. Due to low penetration, Bihar, Chhattisgarh and UP have outpaced the industry growth by

growing at a CAGR of 20.4%, 14% and 16%, respectively over FY2005-18 against the overall growth rate of 10.1% in the PV segment.

New PV registrations have increased by 7% YoY in FY2018 in top-15 states/UT, despite taxi segment registrations falling by 58% in the top-5 cities. We believe that the PV industry has decent growth potential in the long term; however, medium-term demand growth will be driven by capacity addition in the taxi segment (Uber/Ola etc) in the cities.

We also analysed the market share of top-5 PV OEMs in these states/UT Maruti Suzuki has a weaker presence in low-penetrated states such as Bihar (39.3% market share), Chhattisgarh (43.6% market share) and UP (47.7% market share) as compared to its overall market share of 50% in FY2018. M&M has strong presence with 25,7%/12.7%/13.7% market share in Bihar/Chhattisgarh/UP, as compared to its overall market share of 7.6% in the PV segment in FY2018. In 2QFY19, Maruti Suzuki market share inched up to 46.1%/47.4%/52.2% in Bihar/Chhattisgarh/UP, showing signs of increasing focus towards lower-penetrated markets.

Two-wheeler registration

Penetration data of two-wheelers in top-15 states/UT shows that India has decent two-wheeler penetration (112 two-wheelers per 1,000 people). The data shows that every second household has one two-wheeler in India assuming

single ownership of two-wheelers in a household. Delhi (216 two-wheelers per 1,000 people), Tamil Nadu (185 two-wheelers per 1,000 people), Gujarat (165 two-wheelers per 1,000 people), Haryana (161 two-wheelers per 1,000 people) and Kerala (160 two-wheelers per 1,000 people) have the highest two-wheeler penetration in FY2018. Bihar (41 two-wheelers per 1,000 people), West Bengal (57 two-wheelers per 1,000 people) and UP (81 two-wheelers per 1,000 people) have the least two-wheeler penetration in FY2018.

Due to low penetration, Bihar, West Bengal and UP have outpaced the industry growth by growing at a CAGR of 21.8%, 17.8% and 10.7%, respectively over FY2005-18 against the overall growth rate of 9.5% in the two-wheeler segment.

Despite having high levels of penetration, the two-wheeler industry has grown at par with the PV industry. We believe that due to the challenges posed by infrastructural constraints, consumer preferences have shifted towards purchasing a two-wheeler over a PV as their second vehicle of preference. The growth is also driven by increasing penetration of scooter, as scooters are more flexible and comfortable for everyone including the female population.

New two-wheeler registrations have increased by 9.8% YoY in FY2018 led by Bihar (+27.7%), Madhya Pradesh (+27%) and AP and Telangana (+16.4%). We expect two-wheeler industry growth rates to moderate as penetration level continues to rise.

We also analyzed the market share of top-four two-wheeler OEMS. Hero Motocorp has a stronger presence in low-penetrated states such as Bihar (59% market share), West Bengal (39.5% market share) and Uttar Pradesh (51.9% market share)

as against its overall market share of 36.6% in FY2018. However, Hero Motocorp is losing market share in states where scooter penetration is increasing rapidly.