Acute Competition

Updated: Oct 20 2002, 05:30am hrs
Hero Honda Motors (HHML), the two-wheeler major, has posted a robust 42.2 per cent surge in net profit at Rs 139.8 crore during the second quarter to September 2002. In fact, it sold four lakh plus motorbikes up 23.6 per cent and its sales income rose by 19 per cent at Rs 1,236 crore. Undoubtedly the second quarter performance is commendable in a highly internecine competitive motorbike segment.

The growth of motorbikes has come at a the cost of scooters and mopeds. Their share of the two-wheeler segment is around 70 per cent. However, lately, the segment has been under pressure with leading two-wheeler companies entering the market with latest models and various price ranges with an intention to nibble away at the market share.

Consequently, acute competition has not only challenged HHMLs leadership but it has also checked its volume growth. There has been a continuous decline in its sales volume in the last three months. The company sold 1.33 lakh motorbikes in September 2002, 1.36 lakh in July 2002 and 1.39 lakh in June 2002. This is proof enough of rivals benefiting at the cost of HHML.

HHML has devised a strategy of cutting prices as well as launching of new models. It has lowered prices of some of its top selling models. The price of Passion, its leading model, which contributes to around 30 per cent in sales, was slashed twice.It has launched Ambition and Dawn two variants in the economy segment.

The new launches are an important part of the strategy of most motorbike manufacturers as it enables them to incorporate the latest in technology. The fact that Dawn, has yet to click in terms of sales owes to a substantial pricing difference of about Rs 4,000-5,000 between Dawn and Bajaj Autos Boxer, that continues to rule the economy segment. Ambition and Dawn have so far failed to evoke the kind of customer response that CBZ or Passion had once evoked. Splendor that accounts for 50 per cent of total sales volumes continues to the largest selling model while Passion accounts for 30 per cent.

The company has emphasised indigenisation as well as slashed the number of vendors to maintain margins. It reported a hefty 40.2 per cent increase in operating profit to Rs 204.8 crore. The share of raw material (after stock adjustment) in sales was brought down to 68 per cent (69 per cent) and that of other expenses to 12 per cent (13 per cent). This has helped it to improve OPM to 16.6 per cent (14.1 per cent).

The future growth rates in motorcycle volumes are expected to stabilise at around 17-20 per cent even as the entire two wheeler market in general is expected to see a five-six per cent YoY growth. Yet, HHML has set a sales target of 18 lakh bikes, a 26 per cent growth, for FY 2002-03. It would be interesting to see how well HHML tackles the slugfest of intense competition in the motorbike segment during the next couple of quarters.