Hero Honda gains momentum

Hero Honda gained ground on Tuesday on buying support following reports that CD-Dawn, the company's recently launched motorcycle in the economy segment, has garnered a good response in the market.

The scrip of India's largest manufacturer of motorcycles rose by 2.16% to Rs 210.50 on the BSE in afternoon trades, recording a volume of 38,065 shares by 12:20 IST.

Dealers said that there was bargain hunting on the Hero Honda counter following reports that the company's new bike CD-Dawn has eroded the market share of its competitors, especially Boxer. CD-Dawn was launched in mid-April and has mustered a volume of 7,500 units during the month. Meanwhile, the reports said that the success of CD-Dawn has led to a cut in the price of Boxer by around Rs 1,300 per unit.

CD-Dawn is the cheapest 100cc motorbike launched by Hero Honda. It carries a showroom price of Rs 31,899 in Delhi. The company expects to sell 7,000-8,000 units of the bike in the initial months and hopes that sales will soar to 20,000 a month in six months.

The rise in the Hero Honda scrip was also on rumours that the company is likely to register good vehicle sales for the current month following the rise in demand for motorcycles in northern India on account of the marriage season. The demand is also expected to increase following last month's trucker's strike, which hit sales in April 2003. For May 2003, analysts expects the company to sell around 1.35-1.37 lakh bikes.

Dealers said the rise in the Hero Honda stock was also due to attractive dividend yield. For the full year (2002-03), the company had recommended a huge dividend of Rs 18 per share (900%).

Hero Honda has registered a fall in vehicle sales for April 2003 to 1,34,318 units, compared to 1,34,801 units in April 2002. Yet, compared to the 1,15,722 units sold in March 2003, Hero Honda's vehicle sales registered a 16% month-on-month growth. The company's March 2003 sales had tumbled due to the World Cup matches and uncertainty over implementation of value-added tax among others.

Meanwhile, analysts are not optimistic about the Hero Honda stock. They said the company, which has a 45% share of the domestic market for motorcycles, has been witnessing sluggish demand and intense competition in recent months. Analysts expect an earnings de-growth in FY 2003-04 due to pressure on the company's margins.

Hero Honda derives nearly 80% of its sales volumes from the Splendor and Passion models of motorcycles. The executive segment, being over crowded, pricing pressure will continue to increase in the coming months, according to analysts.

After 2004, both Honda Motor Company of Japan and Hero Honda have agreed to carry on their prosperous co-existence. Honda Motorcycles and Scooters India, which is a 100% subsidiary of Honda Motor Company, will launch motorbikes in India from its parent company and Hero Honda will venture into scooters and scooterettes.

For the quarter ended 31 March 2003, Hero Honda posted a net profit of Rs 148.96 crore (Rs 1.48 billion) on total income of Rs 1,248.20 crore (Rs 1,2.48 billion). For the year ended 31 March 2003, the company's net profit stood at Rs 580.76 crore (Rs 5.8 billion) on total income of Rs 5,194.55 crore (Rs 51.94 billion).

BSE code: 500182