Hero MotoCorp loses Rs 16,000 cr in mcap in a year; experts concerned about company’s weak spot – premium segment

By: | Published: August 6, 2018 4:44 AM

Over the past year or so, HeroMotoCorp has lost some Rs 16,000 crore in market value. Since December 2010, when the two-wheeler manufacturer parted ways with Japan’s Honda, the stock has under-performed the benchmark.

Auto sector experts say the imminent price war with Bajaj Auto in the entry segment for motorcycles is bound to hurt.

Over the past year or so, HeroMotoCorp has lost some Rs 16,000 crore in market value. Since December 2010, when the two-wheeler manufacturer parted ways with Japan’s Honda, the stock has under-performed the benchmark. That under-performance could now become starker given how analysts are disappointed with the company losing market share in the scooter segment and “marginal presence in the premium motorcycle segment”.

Auto sector experts say the imminent price war with Bajaj Auto in the entry segment for motorcycles is bound to hurt. But that’s a relatively small problem. Most sector experts buy the Hero management’s argument that it does not expect to lose market share in the entry and commuter segments because it has strong brands and price discounting is not a sustainable strategy.

But they are concerned about Hero’s weak spot — premium segment. The Xtreme200 — a 200R motorcycle — currently being launched will be a big test for the company.

The company has set up a big R&D centre in Jaipur and roped in foreign talent and there are several industry watchers who believe the in-house technology developed in Jaipur can do the trick.

The Hero management is also focused on the 125cc scooter segment which now accounts for a fifth of all scooter volumes compared with just 8-18 about two years back. But analysts at Jefferies say that given Hero’s strategy of extending its relatively weak brands — Maestro & Duet 125cc expected pre-festive season — instead of launching new ones, “we believe it could miss out”.

If the Xtreme 200R and the scooter extensions do well, Hero will bounce back. Else, although it is the market leader in motorcycles with a share of 51%, analysts expect the company to grow volumes at around 7.4% compounded in the three years from 2017-18 to 2020-21. That would be a slower pace than the projected industry growth — indicating a loss of market share. The company, however, says it will grow volumes in double digits in the current year. That does not sound impossible because rural incomes are expected to remain strong ahead of the general elections and Hero commands a big share in India’s hinterland. However, whether this will be enough for the company to grow market share remains to be seen. According to Kotak Institutional Equities, Hero’s share in the domestic two-wheeler market is estimated to fall to 34.6% in 2020-21 from 36.6% in 2017-18 whereas the share of Honda is expected to go up to 31.6% from 28.6% in 2017-18.

Arun Nayal

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