Event: We spoke with India Yamaha Motor?s (IYM) management recently. We are concerned about the rising competition in the two-wheeler space. While Honda Motorcycles & Scooters India (HMSI) is likely to be aggressive in the volume segment, IYM is very keen to raise its market share in the premium segment. We have analysed the recent sales trend for the domestic motorcycle segment. We maintain Underperform on Hero MotoCorp (previously called Hero Honda) and Neutral on Bajaj Auto.
Impact: Yamaha has a market share of 15% in premium motorcycles. It is targeting a 20% market share in this segment in the next six months. Since August 2010, Yamaha has gained 6% share, while Bajaj has lost 8% share in the premium segment. In the 150cc segment, IYM launched SZ in Oct?10, in addition to its already successful FZ16 bike. Now both these models have about 5% share.
IYM has 400 dealers and 1,200 touch points currently (HMCL has 1,200 dealers, BJAUT will reach 600 by March 2012 and HMSI has 450 dealers). The expansion of touch points (through sub-dealers) is a focus area for the company. The response to 150cc bikes in tier-3 towns has been better than expected and the company will focus on increasing penetration in these towns. Further, as it grows penetration, it expects volume segment bikes Crux and YBR100 sales to pick up.
As per Yamaha?s management, Bajaj?s new bike Boxer 150, priced at R43k, is an interesting move but Yamaha doesn?t foresee any significant threat to its volumes. Yamaha believes the profitability of the sector will depend on the way HMSI responds post its capacity expansions. Yamaha plans to increase promotions on its bikes if it sees any demand slackness post-festive season.
India?s motorcycle market grew 15% in August, with HMCL growing at 20%, TVS at 13% and Bajaj at 8%. Since Apr 11, Hero has grown ahead of the market, while Bajaj and TVS? sales have been weaker. Some of Hero?s outperformance can be attributed to the much lower base last year; hence we expect a moderation post-October 2011.
Model mix has been unfavourable for Bajaj. Sales of Bajaj?s economy bike, Platina, grew 46% in Aug 11 but its premium bike, Pulsar, declined 10%. Premium bikes contributed 29% to Bajaj?s sales in Aug ’11 as against 35% in Aug’ 10. Moreover, Discover sales have also been muted at 3-4% in the last two months. Bajaj?s sales included 9,251 units of Boxer 150, which have lower margins.
Outlook: Two-wheeler outperformance is likely to be short-lived. Strong cash flows and high dividend yields make two-wheeler producers attractive in the current macro-environment. However, as our longer-term concerns persist, we maintain an Underperform on HMCL and Neutral on BJAUT. HMCL trades at 15.7x (times) FY13 PER (price-to-earnings ratio), a 22% premium to BJAUT.
?Macquare