• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

B. Krishnakumar

AFTER passing through a rough patch in recent quarters, Hero Honda appears to be headed towards better times. The recent launch of two models has met with reasonable degree of success. This has helped the company stage a sharp growth in sales volume in October.

Taking into account the improvement in the agricultural sector and the prevailing soft interest regime, the demand for two-wheelers and the growth prospects for Hero Honda appear encouraging. Long-term investors could include the stock in the portfolio at the current price of Rs 375.

Hero Honda is the market leader in the motorcycle market. The muted success on the model launches front, coupled with the sharp pick-up in sales volume of competitors, resulted in a loss in its market share.

As a result, the company's earnings growth slowed down in the recent quarters. For the first half of this fiscal, the post-tax earnings improved 13 per cent and the turnover by four per cent to Rs 2549 crore.

However, the recent product launches such as CD-Dawn, Splendor Plus and Passion Plus could help the company recover lost ground. The launch of CD-Dawn has helped the company stage a comeback in the entry-level motorcycle segment and the success of Splendor Plus and Passion Plus have helped it re-establish itself in the executive price segment of the motorcycle market.

On account of this, the company reported a healthy 21 per cent increase in motorcycle sales for October 2003 after a slackening trend in sales volume in the earlier months, and a 9 per cent increase in motorcycle sales for the first half of this fiscal.

Going forward, the decision to launch a revamped version of the Ambition model is a positive development. Reports indicate that the demand for Spendor Plus and Passion Plus remain robust, which could again have a positive impact on the company's performance.

Hero Honda also plans to launch a new model in the next financial year, which could be critical in terms of sustaining the recent recovery.

The performance of the upgraded versions of existing models — CBZ and Ambition would be other key drivers of growth.

The launch of a motorcycle by Honda at a later date cannot be ruled out. This is a cause for concern from a long-term perspective.

Though Honda has indicated assured support to Hero Honda, the launch of motorcycles by Honda could lead to a conflict of interest.

Taking into account the extensive rural reach of the company and the sharp improvement in the farm sector, the near-term business prospects appear positive.

The company has also withdrawn the earlier promotional offers, which would have a positive impact on profitability.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Karnataka Bank's `Swarna Nidhi'

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line