With a 14% share in overall
exports, the importance of Sri Lanka as a 3Ws market cannot be undermined.
However, the extent of impact in the near term on the domestic industry is
expected to be limited due to domestic tailwinds and recovery in some of the
other export markets. This will help 3Ws OEMs to offset the impact of likely
restrictions from Sri Lanka. This is borne out by the fact that the dependence
on Sri Lankan market has reduced over the years as OEMs have successfully
forayed into many of the African and Latin American markets.
Giving more insights, Subrata
Ray, Sr. Group Vice President, Corporate Sector ratings, ICRA says, “The
opening up of 3W market in key states along with replacement-driven demand is
likely to drive healthy sales in the near-term, which will help offset the
adverse impact of Sri Lanka’s potential restrictions. Furthermore, on the
exports front, as Sri Lanka’s share in overall exports pie has reduced from 30%
(in FY 2016) to 14% (in FY 2017), countries such as Nigeria and Egypt have
emerged as bigger export markets for Indian OEMs.”
The domestic market, which
witnessed subdued demand trends (down 5% in FY 2017), is reflecting a positive
outlook. This has been driven by factors like discontinuation of cap on permits
(for 3Ws) by major states like Maharashtra and Gujarat, release of fresh permits by Delhi Government
and replacement demand from Karnataka following Government’s decision to
convert all vehicles to four stroke engine and ban diesel vehicles in Bengaluru.
As a result of these developments, the domestic 3W sales have witnessed sharp
recovery over the past few months and witnessed highest ever domestic sales
volumes of 61,680 units in September 2017.
As for exports, India ranks
amongst the leading exporter of 3W globally with export sales of over 272,000
units in FY 2017. Till FY 2016, India’s 3W exports have grown at a CAGR of 12%
(in unit sales) over the past decade driven by a confluence of factors
including rising demand for last-mile transportation from developing countries
with relatively under-developed public transport system, increasing acceptance
of 3Ws over four wheelers for commercial transportation and growing focus of
Indian OEMs in scaling up presence in markets within South Asia, Africa and
Sri Lanka is one of the key
export markets for Indian OEMs but over the past few years, its share has
declined because of sharp reduction in demand (owing to increase in local
taxes) and increasing focus of OEMs to foray into the African and Latin
American markets. As a result, Sri
Lanka’s share in overall exports pie has reduced in comparison to other markets
like Nigeria and Egypt.
“Going forward, continuing
political and economic challenges in some of the key importing nations, which
were accompanied by sharp currency devaluation and often the inability to
repatriate currency, may pose some concerns for 3W OEMs. However the overall
outlook appears positive as domestic sales have started inching upwards, over
15% growth in H1FY 2018, driven by pent-up demand and opening up of permits in
select states and; a 19% growth in 3W exports in H1 FY 2018 driven by rise in
sales to Bangladesh and Egypt,” adds Ray.