On a joy ride! Bicycle industry growth to hit decadal high of 20%

As wave after wave of COVID-19 devastated the 'normal' life people were accustomed to and took a toll on health, another concern emerged -- fitness. In order to improve fitness, health conscious people have taken to cycling. The COVID-19 pandemic spurred demand for bicycles, pushing the industry's growth to a decadal high of 20 per cent this fiscal. Sales are also likely to touch 1.45 crore units as compared to 1.2 crore units in the last fiscal.

For the uninitiated, there are four segments in the industry -- standard, premium, kids and exports. Out of that demand for standard bicycles that account for half of all the bicycles sold in 2020 was driven by government purchases, stated a report by CRISIL. These bicycles are procured to be distributed under welfare schemes.

Fitness and leisure requirements drive the demand for premium and kids bicycles that account for 40 per cent of the sales. The remaining 10 per cent is due to exports and demand for other type of bicycles. It must be mentioned here that India is the second-largest manufacturer of bicycles in the world.

The report states that in the five fiscals through 2019, bicycle sales saw a modest compound annual growth rate of 5 per cent. In fiscal 2020, it contracted 22 per cent as government orders dropped. Moreover, Atlas Cycles, one of the largest bicycle manufacturers closed shop. But things took a turn for the better in the last fiscal.

The past couple of months also saw orders from government departments picking up.

"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. The momentum is likely to continue this fiscal, too, given the ongoing second wave of pandemic, and should lead to a 22 per cent growth for the premium and kids segments," said Nitesh Jain, Director at CRISIL.

Profitability will be supported by overall sales growth this fiscal for two reasons:

1. An improved mix of premium and kids segments will ensure high profitability. Moreover, their market share has increased 1,000 bps to over 50 per cent now.

2. Demand for premium and kids segments is not price elastic. Manufacturers can pass on increased rates of raw materials to consumers.

Rakshit Kachhal, Associate Director at CRISIL said that the agency expects the bicycle industry margins to improve by 110-130 bps this fiscal. "While manufacturers will borrow more to enhance their capacities this fiscal, debt metrics will still improve. We see interest coverage rising to ~4.8 times from ~3.6 times last fiscal," he said.

The agency also said that pent up demand must be expected once outlets open.

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