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<b>India 2008:</b> No Slowdown in Bicycle Industry

Sales & Trends

LUDHIANA, India – The Indian bicycle industry is booming and manufacturers are flush with orders. In India, government orders have successfully averted a slowdown in the bicycle sector. It’s known that 1.5 million bicycles have already been ordered by Indian state governments under various social welfare schemes in 2009. The government orders are expected to exceed 2 million units in the ongoing calendar.

<b>India 2008:</b> No Slowdown in Bicycle Industry

LUDHIANA, India – The Indian bicycle industry is booming and manufacturers are flush with orders. In India, government orders have successfully averted a slowdown in the bicycle sector. It’s known that 1.5 million bicycles have already been ordered by Indian state governments under various social welfare schemes in 2009. The government orders are expected to exceed 2 million units in the ongoing calendar.

“National elections are going to be held in the middle of the year and government orders will likely to go up to 2.5 million in 2009,” said Satish Dhanda, Vice Chairman, Medium Industry Development Board, Government of Punjab. As a result, Indian bicycle manufacturers are working overtime to meet this demand.

Government

“This is an additional demand created through government orders. The government is buying from the manufacturers but distributing to children who do not have the capacity to buy a new bicycle,” said Dhanda. The domestic demand for bicycles in India is about 10 million units annually, met by five major bicycle makers (Hero, TI Cycles, Avon, Atlas & Hamilton) and about 12 medium to small scale bicycle companies including Sadem, Safari, Seth, Neelam, Puneet Deol and KW Cycles. “2.5 million units is 25% of the local market. Therefore, it is a huge support from the government at a time of slowdown,” added Dhanda.

Over the years medium & small bicycle makers have also spread their dealer network throughout the country and some of them have scaled up their production capacities to the extent of competing with the five major bicycle makers in winning the government orders. “We are manufacturing about three million bicycles annually and supply various state governments besides selling through our own dealer networks all over India,” said R.D. Sharma, MD, Safari Bikes.

On average, the various state governments are buying a bicycle for the equivalent of US$ 45 from the manufacturers, so the revenues are hugely significant for the bicycle makers. “The mass-market segment along with the kids segment is largely unaffected,” agreed Dr D. Raghuram, Sr VP Bicycles and fitness TI Cycles of India. Moreover, India is enjoying a bumper crop this year as well, with good agricultural production, so there is more disposable money in the hands of the population, which translates into higher bicycle sales.

Negligible exports

Strong domestic demand supports the Indian bicycle industry as exports to Europe or the US are negligible. Therefore, there is no impact on the Indian bicycle industry from the global slowdown. “We have no exports to the US and hardly any to Europe. As a result, there is no impact on exports from India’s bicycle industry,” claimed Dhanda.

According to figures from the Engineering Exports Promotion Council, India’s bicycle & components export was US$ 178.39 million in 2005-06. In 2007-08, India’s export came down in rupee terms but appreciated in dollar terms. India exported bicycles & components worth US$ 185.42 million.

Indian exports were down in rupee terms by 7.63% but up 3.94% in dollar terms. With the rupee getting weaker, dollar payments bring booty for Indian exporters in the international market as the greenback remains the favoured currency of Indian exporters. “Indian bicycle exports mainly go to countries in Africa like Nigeria, Ethiopia, Kenya etc and there is less impact on these markets from the global slowdown,” Dhanda believes.  

Moreover, the boom is not confined to the bicycle & component sector: it is also boosting the bicycle tire/tube sector. India is among the major producers of rubber in the world and rubber prices are largely trailing petroleum prices.

“Rubber prices used to be INR 130 per kg when petroleum prices were around US$ 130 per barrel in November-December 2008. Now, the prices have come down to INR 70. Therefore, Indian bicycle tire/tube makers have become competitive in the international market,” said T.A. Thomas, Rubber Marketing Federation Ltd (Rubber Mark) at the recently concluded Rubber Expo in Kolkata. Moreover, the strong greenback favours them in the international market and creates a win-win situation for Indian tire manufacturers.

Manufacturers

Hero Cycles is facing major challenges in its export markets, particularly in Europe, which is being hit by the slowdown. The company’s order intake is down compared to last year. “Our order intake for 2009 is down by 30-35% in comparison to 2008,” concedes Vijay Munjal, Managing Director (Int’l Mktg) Hero Cycles Ltd.

The bicycle major manufactured 4.93 million bicycles for an annual turnover of US$ 208 million. The company only manufactures bicycles against orders, so it doesn’t maintain any inventory for exports. “Due to the global meltdown and high level of devaluation, particularly in African countries, the stock level with our importers and dealers is high. Which is further compounded by a slowdown in sales and lack of funds available to consumers,” said a concerned Munjal. Moreover, there is a shortage in credit availability, which is only available at a high cost. Hero Cycles exported 380,000 million bicycles and recorded export turnover of US$ 28.50 million.  

However, inventory level at most Indian bicycle companies are low to normal. “Inventory levels were low in anticipation of anticipated price corrections until early January. From mid-January, demand has picked up and trade inventory levels are likely to be back to steady levels,” said Raghuram of TI Cycles. The order – intake at TI Cycles is encouraging. ‘No advance booking of orders is taken other than with overseas customers. The order intake trends are encouraging,’ he further noted. TI Cycles manufactured 2.8 milion bicycles in calendar 2008 and clocked turnover of about US$ 140 million.

But bicycle companies are facing the problem of raising funds from the market, something which is not as easy as it used to be. Though companies are flush with domestic orders, the scarcity of money is being felt by manufacturers seeking to support their operations. Now, they being kept busy collecting and looking for funds. “The costs of funds has risen to crunch levels,” said Onkar Singh, Managing Director, Avon Cycles. “Our inventory levels are normal and so is order intake.” Avon Cycles manufactured 1.7 million bicycles in 2008, recording a turnover of US$ 85.75 million. It exported 410,000 million units, valued at US$ 25.1 million in Jan-Dec 2008. 

Atlas Cycles (Haryana) Ltd is expecting growth in order intake in the current calendar. “We are expecting good order intake during 2009 and a growth of around 5% to 7% is expected,” said Gautam Kapur, Joint President, Atlas Cycles (Haryana) Ltd. The company has manufactured 1.2 million units in 2008 and clocked turnover of US$ 56 million. While it exported 58,000 bicycles at export turnover of US$ 2.5 million.

Meanwhile, the company is developing country specific models for the export market. “We plan to promote new models launched by company as well as to develop country specific product, to open-up new markets, currently we are developing new models for Holland,” revealed Kapur.

 

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