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Hero Honda: Forging Ahead - Views on News from Equitymaster
 
 
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  • Sep 21, 2000

    Hero Honda: Forging Ahead

    Hero Honda Ltd, has sold 2,39,542 motorcycles for the 1QFY01, a growth of 48% YoY. As a result the company's market share has gone up from 42% in FY2000 to 48% currently. This when viewed in the backdrop that Bajaj Auto has become an aggressive player is a commendable achievement.

    The company has consistently been able to introduce products with superior quality, high fuel efficiency and lower maintenance. This has gone well with customers and resulted in higher demand for its motorcycles compared to other manufacturers. During FY2000 the company launched the CBZ (ee), a four-stroke bike powered with a 156 cc engine and this is the only motorcycle currently available in India with a disc brake option.

    Hero Honda leads the pack
    Motorcycle Companies Units sold
    1QFY01
    % market share
    1QFY01
    Hero Honda 239,542 47.9%
    Bajaj Auto 123,045 24.6%
    TVS Suzuki 89,364 17.9%
    Escorts 41,563 8.3%
    Royal Enfield 6,334 1.3%
    LML 21 0.0%
    Total 499,869 100.0%
    As other players like Bajaj Auto, are planning capacity expansions and new product launches, hence competition for Hero Honda in the current year has gone up. Inspite of this the company continues to forge ahead with new models and a strong brand presence. Bajaj Auto has become the second largest player in the sector, overtaking TVS Suzukiís position in the current year. As the monsoons in the current year have been normal this augurs well for the motorcycle industry next year as rural incomes are expected to rise. This is because 55%-60% of motorcycle demand comes from the rural areas.

    There have been concerns regarding the flow of technology from Honda Motors to Hero Honda as Honda Motors has set up a 100% subsidiary in India for the manufacture of scooters. However it is quite likely that Honda could dilute its stake in its 100% subsidiary by entering into a joint venture. Honda Motors operates via three separate joint ventures in China, hence they could very well do the same in India. The joint venture with the Hero group for motorcycles could complement the company's other joint venture in scooters.

    On the current price of Rs 908, Hero Hondaís shares are trading at 18.9x FY00 EPS of Rs 48.1

     

     

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