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India's two-wheeler sales are expected to contract by 1-4 per cent year-on-year (YoY) in FY22 due to weak festive season performance, ICRA said on Monday.

Accordingly, the rating agency cited that the relentless increase in prices of two-wheelers coupled with record-high petrol rates kept consumers away from dealerships. "The entry-segment (75-110cc), which dominates 2W (two-wheeler) sales in India, has remained subdued this year, reflecting extensive (and extended) impact of the second wave of the pandemic. The lacklustre festive season performance also highlighted continued wariness among the low-income population regarding big-ticket purchases," said Rohan Kanwar Gupta, Vice President and Sector Head, Corporate Ratings, ICRA.

"On the financial front, given the high operating leverage of the industry, subdued demand and elevated raw material costs are expected to keep the operating margins constrained for the two-wheeler OEMs (original equipment manufacturers) in the current fiscal," Gupta said. Besides, the agency said rural offtake has lagged urban, possibly due to moderated agri-sentiments caused by uneven monsoons and delayed harvesting across regions.

Furthermore, for the urban markets, the agency's report said that the delay in reopening of schools and colleges, weak income sentiments due to job losses or salary cuts and extended work-from-home policies by corporates, have impacted its sales. Additionally, it claimed that finance companies have remained cautious because of an increase in delinquency levels. India's domestic two-wheeler sales for the first seven months of FY22 were flattish at 8.05 million on a YoY basis, despite a "severely contracted base", it added.