X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Hero Honda: Has a new era Dawn(ed)? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 15, 2004

    Hero Honda: Has a new era Dawn(ed)?

    After languishing behind its peers like TVS Motors and Bajaj Auto for most part of the last year, motorcycles major, Hero Honda, seems to be back in the reckoning. While the company's entry level offering 'CD Dawn' has met with a favorable response, the volume sales for the month of January 2004 have also been impressive (35% growth on a YoY basis). With rural income likely to receive a boost on account of the good monsoons, the revival would not have come at a more opportune time for the company. In this article, let us analyse the company's recent performance.

    Hero Honda was the biggest beneficiary of a shift in trend from geared scooters to motorcycles. As a result, the company's topline grew at a much faster pace as compared to its rivals like Bajaj Auto and TVS during the period FY98 to FY02. The market share of the company reached the 50% mark in FY02, a great deal of improvement if one considers that its market share in FY98 was 45%. However, on account of lack of competent models and also introduction of better quality and fuel-efficient models by its rivals, the topline of the company grew at a much slower rate in FY03. Poor monsoons also affected the rural demand in FY03. As a result, the market share of the company declined and stood at the FY98 levels of 45%.

    The loss in market share was largely a result of the company's dwindling fortunes in the entry level and the power segment. While the volumes of the former fell 22%, the power segment suffered a 3% fall in volumes in FY03. Aware of this, the company launched a new model 'CD Dawn' in the entry-level segment, positioned at an extremely competitive price. The move seems to have paid off as the model contributed 26% of the total sales for 9mFY04 period and also took some pressure off its flagship brand 'Splendor'. As far as the power segment is concerned, the company has just strengthened its range for this segment with the launch of Ambition 135. Whether the bike will be able to eat into the market share of 'Pulsar', which is the market leader in this category remains to be seen.

    Motorcycle trends...
    ('000 units) Dec-02 Dec-03 Change 9mFY03 9mFY04 Change
    TVS 59.6 52.5 -11.9% 539.1 525.4 -2.5%
    Bajaj Auto 69.0 71.6 3.8% 641.7 760.6 18.5%
    Hero Honda 125.1 160.2 28.1% 1,281.3 1,477.4 15.3%
    Total 253.7 284.3 12.1% 2,462.1 2,763.5 12.2%

    On the operating performance front, we believe that intense competition on account of newer models being launched every year and higher raw material costs could cause a pressure on operating margins. However, on a relative basis, we believe that Hero Honda would command a higher margin on account of its concentrated business interest i.e. motorcycles.

    As far as the financial health is concerned, two wheeler companies on account of their strong cash flows are almost zero debt companies and Hero Honda is no different. With a substantial Rs 12 bn in the form of cash and liquid investments, the company is fully equipped to meet any challenge from its competitors in the form of newer models or a game of price wars.

    The stock is currently trading at Rs 475, implying a P/E of 14x annualised 9mFY04 earnings. Motorcycles currently account for almost 76% of the total two wheeler market in the country. It is believed that the market shares will stabilize at around the 80% levels. Therefore, the growth prospects look promising from a 2 to 3 year perspective. While the competition would only get more intense from here, the company's track record of continuously introducing successful fuel-efficient models and also its strong cash flows would ensure that it adequately rewards its shareholders. However, threat of cannibalization from motorcycles to be launched by Honda Motorcycles remains a key cause of concern.

     

     

    Equitymaster requests your view! Post a comment on "Hero Honda: Has a new era Dawn(ed)?". Click here!

      
     

    More Views on News

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    Hero Motocorp Ltd: Finishes the year with multiple Headwinds. What next? (Quarterly Results Update - Detailed)

    May 22, 2017

    Hero Motocorp ltd has announced its financial results for the fourth quarter of the financial year 2016-17 (4QFY17). During the quarter, revenues were

    Hero Motocorp Ltd: Volumes Disappoint (Quarterly Results Update - Detailed)

    Feb 20, 2017

    Hero Motocorp ltd has announced its financial results for the third quarter of the financial year 2016-17 (3QFY17).

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    HERO MOTOCORP SHARE PRICE


    Aug 22, 2017 (Close)

    TRACK HERO MOTOCORP

    • Track your investment in HERO MOTOCORP with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    HERO MOTOCORP - FORD COMPARISON

    Compare Company With Charts

    COMPARE HERO MOTOCORP WITH

    MARKET STATS