Raunchy ride

Hero Honda: Banking on brand positioning

Sachchidanand Shukla

Hero Honda’s (HHM) performance during the quarter to June 2001 has been on the expected lines. It notched up a commendable 30 per cent topline and bottomline growth. HHM, with 47.8 per cent share as on March, 2001, dominates the domestic motorcycle market with its fuel-efficient four-stroke bikes, capitalising on the shift in consumer preference to motorcycles from scooters.

Successful brand positioning coupled with quality and fuel efficiency have held it in good stead. It has emerged winner in domestic competition as well as in the face of imports from China. Recent fiscal imposts have helped thwart the threat of dumping. Two-wheeler manufacturers got a shot in the arm following the amendment to the announcement in the Union Budget 2001-02 that raised the duty on two-wheeler imports to 60 per cent from 35 per cent.

HHM bike sales rose 28 per cent to 3,06,930 units (2,39,542 units). The recent launch of “Passion” has served the purpose of flanking its bread and butter model “Splendor” that happens to be the largest selling motorcycle model in the world and contributes over 60 percent to HHM sales. The topline rose by 30.7 per cent to Rs 952 crore, while total expenditure went up by 29.7 per cent to Rs 818.6 crore. As a result operating profit jumped 41 per cent to Rs 133 crore as did OPM with 114 basis points. Hero Honda dispensed with discounts as a result of which sales improved in the north that helped boost margins.

Interest costs were nominal as HHM is virtually a debt free company. Depreciation and tax provisions rose by 48 per cent and 36.5 per cent respectively. Net profit, thus, went up by 30.7 per cent to Rs 78.8 crore.

It must be recalled here that during the corresponding quarter last year, HHMs net profit had dropped 9.8 per cent due to provisions for investment losses and higher selling costs incurred to support two new model launches.

So far HHM has been able to ward off competitors by holding on to its market. However, its major rivals Bajaj and Suzuki have lined up a slew of new models that can put up a stiff competition to the company’s vehicles. In that case Hero Honda will find it increasingly tough to repeat its growth story in the long run.