Hero Honda is in reverse mode as concerns over growth emerge following aggressive competition in the fast-paced motorcycle segment .
The scrip of the largest motorcycle maker in the world has found itself being whittled down of late as a result. On Wednesday, it hit a new 52-week low of Rs 211.65 in mid-morning trades.
At 11:39 IST, the scrip was at Rs 212.50, down 3.56%. Volumes of over 274,000 Hero Honda shares were registered on BSE by that time.
The downward trend of late has been quite alarming in fact. The scrip slumped 21.85% to Rs 211.65 from Rs 257.90 on 30 January 2003. Concerns over the company's growth prospects, has seen the scrip plunge 90% from its 52-week high of Rs 402 on 27 February 2002.
As per market talk, Unit Trust of India is offloading stake in the motorcycle maker today in addition to the continued selling over the last few sessions. On Tuesday, Life Insurance Corporation of India and General Insurance Corporation were believed to have sold on the Hero Honda counter.
One point that speaks well for the company is the fact that, despite tough competition, Hero Honda was able to maintain its profit margins in the last three quarters of FY 2002-03. However, in the current quarter, there are fears that margins may be hit. The company is committing huge expenditure on advertisements and dealer incentives. Hero Honda is a co-sponsor in the Cricket World Cup, being held in South Africa. Analysts also say, that in the face of cut-throat competition, Hero Honda may not be in a position to hike bike prices.
Also, if the company plans to achieve sales target of 1.8 million motorcycles in FY 2002-03, it will have to provide incentives to dealers. Hero Honda will have to sell over 186,000 vehicles by March 2003 to achieve its targets.
Meanwhile, rumours that the company may cut its production of bikes by 40% in the current month due to huge inventory levels piled up at the dealers level has also contributed to the selling on the counter of late. Earlier, the company said it had inventories of about three weeks. But players say the company, in order to achieve its full year (FY 2002-03) sales target of 1.8 million motorcycles, may have piled up a much higher inventory.
Recently, there has been a churning of portfolio by investors, from Hero Honda to Bajaj Auto, following hopes that the latter may perform well in the motorcycle segment. Also, there were reports of late, that competitors like Bajaj Auto and TVS Motor have eroded the company's market share in the bike segment.
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%.
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.
There is also concern over whether the company's tie-up with Japanese auto giant Honda will sustain. The promoters - the Munjal group and Honda Motor Company - hold a 26% stake each in the company. There is a feeling that Honda may review its alliance with the Munjal group as the former already has a 100% subsidiary in India.
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).
Earlier, the Hero Honda scrip was included in the derivatives segment of BSE as well as NSE.
FIIs have a substantial holding of 23.23% in Hero Honda, while domestic funds have 5.68%. The public owns 17.32% and private corporate bodies and NRIs/OCBs 1.76%.
BSE Code: 500182
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