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 Vs Bajaj Auto Vs TVS - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 29, 2003

    Hero Honda Vs Bajaj Auto Vs TVS

    It is time to take a re-look at two-wheeler stocks in general considering the fact that all the three majors viz. Hero Honda, Bajaj Auto and TVS are close to their 52-week high levels. Is the optimism warranted or the markets ignoring some fundamental factors?

    To start with, a brief snapshot on all the three companies that are analysed in this article could be of significance. Hero Honda is a pure motorcycle manufacturer with a 44% market share in FY03. The company has been reaping the benefits from being an early mover in the segment. Also, the company has benefited from Honda's fuel efficient technology and a wide distribution reach. However, in the last two years, increased competition in the sector has exercised a downward pressure on its market share.

    Bajaj Auto and TVS, on the other hand, have a diversified product portfolio. Bajaj has presence in geared (market leader), ungeared scooters (fourth largest, step-thrus (market leader) and three wheelers (market leader). TVS is a market leader in mopeds, where growth is hard to come by. Though both these players have been present in the motorcycle market, the real thrust started in FY01. Post FY01, Bajaj and TVS have made significant strides on various fronts like engine technology, distribution network and productivity. In FY03, while Bajaj and TVS gained market share in the motorcycle segment, Hero Honda's share was lower by 600 basis points.

    Having looked at the profile in brief, consider the table below. Except for average blended realisation, Hero Honda scores over Bajaj and TVS, be it on factors like operating margin, return ratios and average sales per employee. On the outset, it may seem that Hero Honda has grown at a faster rate compared to its peers. But in the growth market of motorcycles, Hero Honda has lagged behind TVS and Bajaj, which indicates the kind of progress the other two have made since FY01.

    Parameter* Units Hero Honda Bajaj Auto TVS
    Net sales (Rs m) 51,017 41,552 27,045
    Sales - 3 year CAGR (%) 26.8% 17.2% 21.9%
    Motorcycles sold - 3 year CAGR (%) 27.6% 43.4% 42.4%
    Blended realisation - two wheelers (Rs/unit) 28,988 31,209 22,913
    Mkt share - motorcycles (%) 44.1% 23.1% 19.1%
    Raw material cost/sales (%) 68.0% 64.7% 68.7%
    Operating margin (%) 16.9% 15.3% 9.7%
    Sales/employee (Rs m) 12.8 3.7 6.7
    Return ratios        
    Dividend pay-out (%) 61.9% 26.3% 21.7%
    Return on net worth (%) 68.4% 16.6% 30.3%
    Return on assets (%) 26.7% 8.6% 12.0%
    Valuation ratios        
    Current price (Rs) 300 801 851
    Earnings per share (Rs) 29.1 53.2 55.4
    Price to earnings (x) 10.3 15.1 15.4
    Price to book value (x) 7.1 2.5 4.7
    Market cap/sales (x) 1.2 3.8 0.7
    (*FY03 numbers)

    On the valuations front, Hero Honda trades at a discount compared to its peers despite its track record of healthy dividend payout and better efficiency parameters. One of the key reason attributed to the same in the increasing competition in the motorcycle segment. New model launches from not only Bajaj and TVS, but also from the likes of Kinetic, LML and Yamaha has increased the level of fragmentation. Falling life cycle of new products, robust growth in industry capacity and rising discount levels indicate that it will a rough ride for all two-wheeler majors. Besides, it has to be remembered that Honda and Suzuki are slated to enter the market next fiscal, which could add to the woes.

    The way we see it is that operating margin expansion from FY03 level will be limited in the next three years, if not a decline. There will be a upward pressure in debtor days as manufacturers will try to push for volumes to maintain market share (similar to the tractor industry in FY02). Hero Honda's debtor days already doubled in the last four years. Keeping these factors in mind, the risk profile of two-wheeler stocks are on the higher end of the spectrum.



    Equitymaster requests your view! Post a comment on "Hero Honda Vs Bajaj Auto Vs TVS". Click here!


    More Views on News

    TVS Motor: Inventory Push Erodes Margins! (Quarterly Results Update - Detailed)

    May 22, 2017

    TVS Motor Company ltd has announced its financial results for the fourth quarter of the financial year 2016-17 (4QFY17).

    TVS Motor: Demonetisation Negates the Festive Growth (Quarterly Results Update - Detailed)

    Feb 17, 2017

    TVS Motor Company has announced its financial results for the third quarter of the financial year 2016-17 (3QFY17).

    TVS Motor Company Ltd: Good Festive Season, Exports Under Pressure (Quarterly Results Update - Detailed)

    Oct 28, 2016

    Good Festive Season, Exports Under Pressure!

    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

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    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?

    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


    Aug 21, 2017 (Close)


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


    Detailed Quarterly Results With Charts