The hike in third-party insurance premium for two-wheelers is unlikely to materially impact demand, according to ICRA.
The upward revision came into effect on June 1.
The ratings agency expects a 7-10% year-on-year volume growth in India's two-wheeler industry in 2022-23, despite inflationary pressures and prolonger global chip shortage due to the Russia-Ukraine war.
After a two-year moratorium due to the pandemic, third-party insurance premium rates have been raised 15-20% for the premium category (more than 150 cc vehicles). The entry-level motorcycles and scooters (75 cc-150 cc), which accounts for 89% of overall two-wheeler volume, have been spared.
The increase in third party insurance premiums is, therefore, unlikely to materially impact two-wheeler demand, ICRA said. For the premium two-wheelers, the hike translates to less than 1% increase in on-road price, which is also not significant.
The increase, however, comes as a relief for the industry, which has been grappling with muted demand, it stated.
Domestic two-wheeler sales contracted for a third consecutive fiscal in FY22, as consumer sentiment remained muted due to the pandemic.
The cost of ownership of a two-wheeler has been steadily increasing over the years, thereby impacting affordability, said Rohan Kanwar Gupta, vice president for corporate ratings at ICRA.
"Original equipment manufacturers have been forced to hike prices on account of multiple factors, such as higher raw material costs, transition to stringent emission norms and changes mandated by regulations, especially with regards to safety standards," he said. "In FY22, even as there was no impact of regulatory notifications on prices, the OEMs had to pass on raw material costs through multiple price hikes. As a result, enhanced cost of acquisition, coupled with heightened crude prices, have led to a significant increase in the cost of the ownership."
FY23, however, has so far been good. An uptick in motorcycle sales in April and May reflects the recovery in rural sentiment post a healthy rabi output, ICRA said. Reopening of schools and colleges and offices have supported scooter volumes.
Still, demand remains fragile, the ratings agency said, and another increase in acquisition costs would have limited recovery for two-wheelers in the near term. That the entry-level segment has been left out of the insurance premium hike is a relief for the industry, it said.
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