Hero Honda on rough patch

Hero Honda was beset by institutional selling on Thursday on concerns that peers like Bajaj Auto and TVS Motor were gaining on the company.

By 12:30 IST, the stock of the motorcycle maker lost 3.15% to Rs 238. Relatively high volumes of 86,018 shares were registered on the counter by then. The scrip has shed 7.7% so far from Rs 234.75 on 30 January 2003.

Despite not being able to cite the particular entities, market buzz has it that institutions are offloading stake in Hero Honda.

Aggressive competition is believed to be eating into Hero Honda's chunk of the motorcycle sales pie. New launches and aggressive marketing is doing the trick for competitors like Bajaj Auto and TVS Motor. According to data from the Society of Indian Automobile Manufacturers, Hero Honda's market share in motorcycles has steadily fallen to 45% in the April-December 2002 period from 49.6% in the year-ago period.

In the same period, Bajaj Auto's market share rose from 21.7% to 23% and TVS Motor's share improved from 14% to 19%.

The company is facing cut-throat competition from Bajaj Auto and TVS Motor, analysts say, adding that the competitors are aggressive in launching new bikes and possess better marketing strategies. Analysts say the only way the company can face up to this competition and increase profitability is by continuously increasing its sales volumes, which looks unlikely for Hero Honda as it has a huge base.

Meanwhile, in January 2003, Hero Honda registered a small 6.3% rise in motorcycle sales to 145,000 units. But compared to the December 2002 sales figure of 125,000 units, the growth rate of 16% is redeeming. In the April 2002-January 2003 period (10 months), sales rose by 22.7% to 1.42 million units from 1.16 million in the year-ago period.

Even as the motorcycle sales figure for January 2003 is being termed modest, players are disappointed that the company's own target of 173,000 units for the month has been missed. Hero Honda has set out a full year (FY 2002-03) target of 1.8 million vehicles. It will have to sell over 186,000 vehicles over the next two months to achieve that target. Analysts feel this may be quite impossible .

There's also concern over the sustenance of the tie-up with Japanese giant Honda. The promoters - the Munjal group and Honda Motor Company of Japan – hold a 26% stake each in the company. There is a feeling that Honda may review its alliance with the Hero group as the former already has a 100% subsidiary.

Earlier, on 10 January 2003, Hero Honda unveiled its third quarter (ended 31 December 2002) results. It registered a 14.7% rise in net profit to Rs 152.8 crore (Rs 1.52 billion), compared to Rs 133.22 crore (Rs 1.33 billion) in the corresponding period of the previous year. Net sales increased by 12.8% to Rs 1,376.04 crore (Rs 13.76 billion) from Rs 1,219.47 crore (Rs 12.19 billion).

On 31 January 2003, the Hero Honda scrip was included in the derivatives segment of BSE as well as NSE. The inclusion in the derivatives list is expected to generate more interest in the stock.

FIIs have a substantial holding of 23.23% in Hero Honda, while domestic funds have 5.68%. The Indian public owns 17.32% and private corporate bodies and NRIs/OCBs 1.76%.

BSE Code: 500182