The economy apart, Honda?s a tough challenge
Hero MotoCorp may have wowed investors in January when, at the Auto Expo, it launched its very own hybrid scooter, designed in-house from scratch, without any help from its technology partner for just under three decades. Its latest quarter results where volumes fell 14% and profits 27% yoy, however, suggest the company has a long haul ahead. The collapse was largely driven by the fall in industry volumes from 12.3 million two-wheelers in September 2011 to 10.7 million in September 2012 but, within this, strong competition from its erstwhile partner Honda ensured Hero MotoCorp?s market share fell from 45.31% to 42.69% in the same period. Unlike rival Bajaj Auto whose sales and margins fell less, Hero wasn?t able to keep a tight control on its expenses either; so, with sales falling, these went up in proportionate terms.
Depending upon the market picking up may be a good strategy in most times, but Honda?s market share was up to 13.2%s in FY11 and is projected to rise to 24.1% in FY15 while broking firm CLSA projects Hero?s falling from 44.7% to 40.6%?not surprisingly, in the first half of this year, both Hero and Bajaj have underperformed the Sensex as well as other auto shares. CLSA highlights the return of the scooter?from 22% in FY02, its share fell to 12% in FY07 but is already 21% right now. What?s also interesting is that, CLSA points out, neither Hero nor Bajaj is a market leader in the fast-growing scooter segment?from 6% in FY02, Honda?s share in this market is 51% today; in the 125cc bike segment whose market share is rising, Honda?s market share has risen 5 percentage points in the last one year while Hero?s has remained constant; in the 125+cc segment, Hero has fallen 2.2% while Honda is up 4.5%. All of which points to the fact that Hero has to move a lot beyond its traditional marketing strengths.
Losing market share is natural when a newcomer of Honda?s strengths comes in, but Hero?s biggest challenge right now is to grow its volumes, and it can?t just depend upon the economy picking up. While there has been a spate of recent results, especially that of L&T, that suggest the economy may have bottomed out?L&T?s order book has grown 11% yoy in September and 3.5% qoq?other capital goods suppliers like BHEL, yet to declare Q2 numbers, saw a 17% yoy fall in the total order book size at the end of June 2012. Also keep in mind IIP grew just 0.4% in April-August this year compared to 5.6% in the same period last year, exports fell 6% versus 54% growth last year, and passenger vehicles grew 5.3% during April-September compared to 5.9% last year. And commercial vehicles, the all-important lead indicator, has seen negative growth in the last four months?between April-September this year, it fell 4.6% as compared to a 24% rise in the same period last year. With India?s FDI/FII partners looking a bit frosty right now, like Hero, India too will have to make it on its own.
