Hero Honda took a bow on Friday as institutions, particularly UTI, were offloading on the counter.
As a result, the scrip of the motorcycles major came off its intra-day high of Rs 223.40. By 12:20 IST, the scrip slipped 4.30% to Rs 210.25. Relatively high volumes of over 633,000 shares were witnessed on the counter on BSE by that time.
As per market talk, Unit Trust of India is a conspicuous seller on the counter. In contrast, Hero Honda was trading firm in morning trades as a result of buying by institutions like Birla Sun Life and Morgan Stanley Brokerage (as per rumours). This was a bargain hunting exercise as the scrip had plummeted over the last few sessions to its 52-week low of Rs 208.05 on Wednesday (12 February 2003).
The scrip has been on the downtrend of late on concerns over the company's future growth as well as on fears of a war breaking out in West Asia .
The scrip plunged 19.3% to its 52-week low of Rs 208.05 on 12 February 2003, from Rs 257.90 on 30 January 2003.
Concerns that the company is facing aggressive competition and falling market share has pressured the counter of late. Yet, Hero Honda has been able to maintain profit margins in the last three quarters of FY 2002-03. But , in the current quarter, there are fears that margins may be hit. The company has committed huge expenditure on advertisements and dealer incentives. Hero Honda is a co-sponsor in the Cricket World Cup, currently 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 its sales target of 1.8 million motorcycles in FY 2002-03, it will have to sell over 186,000 vehicles by March this year. This seems like a tall order.
Meanwhile, rumours that the company may cut its production of bikes by 40% in the current month due to huge inventory piled up at the dealers' end also has pressured the stock. Earlier, the company said it had an inventory of about three weeks. But players said the company, in order to achieve its FY 2002-03 sales target of 1.8 million motorcycles, may have piled up a much higher inventory.
Recently, there has also been 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 (SIAM), 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% was redeeming. In the April 2002-January 2003 period (10 months), its 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
