Fuel on fire, bike makers stare at downtrading
Rahimulla Shaikh always fancied the Discover 125 bike. It would make his daily commute such a song.
But at the point of buying on May 23, this owner of a tailoring shop in Kalyan decided to take home a less expensive, 100cc Platina.
“I was so thrilled with my choice. That day, petrol prices rose by `7.50,” Shaikh said.
Ditto Dharmendra Upadhay works at a chemical factory in the Thane district near Mumbai. He, too, settled for a budget bike, which offered savings of as much as 30% on fuel.
Buying decisions of many commuters appear to have suddenly veered towards lower-cost, higher-mileage bikes, more so after the price of petrol was yanked up.
The problem for manufacturers, said an analyst, is that these economy bikes are not a focus area. “Hence, the marketing spend on them is limited. And margins are lower by 300-400 basis points compared with executive bikes.”
The last financial year, in fact, saw a clear trend reversal in the commuter segment, which breaks up into two broad categories -- bikes costing less than `40,000 and those in the `41,000-45,000 range.
Though the overall commuter segment grew 7-8% last fiscal, sales of sub-`40,000 bikes grew 22% compared with 8% in the previous fiscal. Sales in the `40,000-plus category, on the other hand, grew just 4% compared with a whopping 29% the previous fiscal.
The sub-`40,000 category currently has bikes like Bajaj Platina, Hero Motocorp’s CD Dawn and CD Deluxe, Yamaha Crux and TVS Star.
The `40,000-plus commuter category has Splendor, Discover 100cc and TVS Jive.
“Our Platina sales are somewhere around 55,000-57,000 units, which is a reflection of the economy. Such numbers normally came only during marriage season,” Kevin D’sa, chief financial officer of Bajaj Auto, told analysts during an earnings call.
Roy Kurian, national business head, India Yamaha Motor, concurred. “Fuel prices have gone up in the last few months, which is why customers are now moving to lower cc bikes. They think lower cc bikes would fetch them better mileage.”
“However, the difference could just be in the range of 8-10 km per litre. I think this trend will not continue for long,” Kurian pointed out.
An analyst from a domestic brokerage said the trend is typical of an inflationary scenario.
Headline inflation, or inflation based on the wholesale price index, came in at 7.23% for April, after averaging an uncomfortable 8.85% last fiscal.
This has eroded people’s purchasing power and tamped appetite.
“Hopefully, inflation would taper off soon. However the current quarter and the next quarter look weak for the overall market,” said the analyst, requesting anonymity.
For the record, the overall motorcycle industry grew 12% last fiscal compared with 23% in fiscal 2011.
The executive segment, which sits above the commuter segment and mainly comprises bikes with a capacity of 125cc, logged 18% growth. The sporty segment — priced above `50,000 — grew just 3%.
Industry estimates say the two -wheeler segment is expected to grow at 12% in the current fiscal.
Auto sales hit bump in May; Maruti, GM, Ford, TVS slow down
Auto sales in India moderated in May with the country's largest car maker Maruti Suzuki, General Motors, Ford and TVS Motor posting declines in their numbers due to post-Budget price hikes, high interest rates and rising fuel prices.
Hyundai Motor, Tata Motors and Mahindra & Mahindra, however, witnessed sales going up.
During the month, the country's largest two-wheeler maker Hero MotoCorp registered its highest ever monthly sales.
Maruti Suzuki India recorded its domestic sales at 89,478 units compared to 93,519 units in the year-ago period, registering a fall of 4.32 per cent.
Rival Hyundai Motor India Ltd's (HMIL) domestic sales grew by 2.85 per cent to 32,010 units from 31,123 units in the same month last year.
"The recent hike in petrol prices has depressed market sentiment, with the macro-economic indicators providing no cause for cheer, the demand outlook doesn't look very bright," HMIL Director (Marketing and Sales) Arvind Saxena said.
Homegrown auto major Tata Motors' domestic passenger vehicles sales for May stood at 20,503 units, a growth of 5.68 per cent over 19,401 units sold in the same month last year.
Mahindra & Mahindra's (M&M) domestic passenger vehicles segment registered a growth of 26.66 per cent, having sold 21,154 units as against 16,702 units during May 2011.
"We are happy to have achieved a growth...in spite of difficult and uncertain market conditions. All our brands, especially those in the personal category are doing well," M&M Chief Executive, (Automotive Division) Pravin Shah said.
Car maker General Motors India's sales declined by 27.01 per cent at 6,079 units during May this year. It had sold 8,329 units in the same month of 2011.
Another car maker Ford India reported a fall of 14.33 per cent in its domestic sales to 6,036 units in the reporting month from 7,046 units in the same month last year.
"Despite the challenging market conditions, Ford is confident in the long-term future of the automotive market in India... We are working to offer more diesel vehicles to keep up with increased demand," Ford India President and Managing Director Michael Boneham said.
Toyota Kirloskar Motor (TKM) witnessed an over two-fold increase in car sales to 15,501 units in May, driven by robust demand for its all models. It had sold 7,470 units in the corresponding month last year.
Rural woes could savage 2-wheelers
Just when everyone was wondering what more could go wrong with the Indian economy, the disturbing news that the kharif crop could be savaged by a prolonged dry spell in most parts of the country, has supplied the answer: everything.
Rural economy has been the main driver of India’s growth over the last few years. Two-wheelers, consumer goods and cement are among the few sectors that have outperformed the markets, thanks to their strong growth in rural India.
While consumer goods will be least impacted by a sub-optimal crop, two-wheelers and cement will be the worst hit. Cement prices are already falling; two-wheelers have not yet felt the impact.
Clearly, monsoons, agriculture, rural incomes and two-wheeler sales are all closely linked. Though rainfall is expected to be normal, pre-monsoon showers (which make soil moist and facilitate sowing) are 24% below normal. These showers are important to grow paddy, a major kharif crop. States like Punjab and Haryana are advising their farmers to shift from paddy to other crops.
As monsoons remain key to India’s crops, delay in rainfall would either affect yields, if the farmer chooses to stick with paddy, or lower returns for him, if he plants a new crop. A delay in the kharif crop, experts warn, could also affect the output of the rabi crop.
Even if rainfall were normal, fewer pre-monsoon showers would still take a toll on the paddy crop. The resultant lower rural incomes would then impact the larger economy, despite adequate buffer food stocks containing inflationary forces.
Punjab-based Hero MotoCorp is one of the most vulnerable stocks in the two-wheeler space. It derives nearly 46% of its revenue from rural markets.
Increasing competition and rising raw material prices have already affected Hero’s performance in the March quarter: it sold fewer vehicles on-year. However, sales and realisation were flat, compared to the December 2011 quarter. A weaker currency impacted its raw material cost, leading to a lower operating profit. A higher other income component and lower effective tax rate arrested the fall in net profit which dropped by only 2%.
Apart from the monsoon impact, the company could also see increased competition from its erstwhile partner Honda. Hero MotoCorp and Bajaj Auto have lost a major chunk of their market-share on account of Honda entering the market on its own. Post capacity expansion, Honda is expected to get more aggressive. The company is expected to launch its 110 cc bike Dream Yuga which will compete directly with Hero’s Splendor. Analysts expect Honda to launch a series of products which will directly confront Hero’s top-selling brands.
Another cause for concern for Hero shareholders is that the company is not yet completely equipped on the research and development (R&D) front. This could affect the launch of new motorcycles. As R&D was earlier the remit of its foreign partner Honda, analysts believe Hero has not yet been able to break through that shell.
Hero’s stock, like those of other two-wheeler firms, has been impacted by macro woes and fuel price hike. What makes it more vulnerable than others is that the holding of foreign institutional investors (FIIs) is almost double their holding in its rival Bajaj Auto. If Hero fails to perform due to either external factors or factors under its control, FIIs could sell hugely.
Technically, the stock has taken support at `1,825 below which it could touch `1,700.
Rural woes could savage 2-wheelers
Just when everyone was wondering what more could go wrong with the Indian economy, the disturbing news that the kharif crop could be savaged by a prolonged dry spell in most parts of the country, has supplied the answer: everything.
Rural economy has been the main driver of India’s growth over the last few years. Two-wheelers, consumer goods and cement are among the few sectors that have outperformed the markets, thanks to their strong growth in rural India.
While consumer goods will be least impacted by a sub-optimal crop, two-wheelers and cement will be the worst hit. Cement prices are already falling; two-wheelers have not yet felt the impact.
Clearly, monsoons, agriculture, rural incomes and two-wheeler sales are all closely linked. Though rainfall is expected to be normal, pre-monsoon showers (which make soil moist and facilitate sowing) are 24% below normal. These showers are important to grow paddy, a major kharif crop. States like Punjab and Haryana are advising their farmers to shift from paddy to other crops.
As monsoons remain key to India’s crops, delay in rainfall would either affect yields, if the farmer chooses to stick with paddy, or lower returns for him, if he plants a new crop. A delay in the kharif crop, experts warn, could also affect the output of the rabi crop.
Even if rainfall were normal, fewer pre-monsoon showers would still take a toll on the paddy crop. The resultant lower rural incomes would then impact the larger economy, despite adequate buffer food stocks containing inflationary forces.
Punjab-based Hero MotoCorp is one of the most vulnerable stocks in the two-wheeler space. It derives nearly 46% of its revenue from rural markets.
Increasing competition and rising raw material prices have already affected Hero’s performance in the March quarter: it sold fewer vehicles on-year. However, sales and realisation were flat, compared to the December 2011 quarter. A weaker currency impacted its raw material cost, leading to a lower operating profit. A higher other income component and lower effective tax rate arrested the fall in net profit which dropped by only 2%.
Apart from the monsoon impact, the company could also see increased competition from its erstwhile partner Honda. Hero
MotoCorp and Bajaj Auto have lost amajor chunk of their market-share on account of Honda entering the market on its own. Post capacity expansion, Honda is expected to get more aggressive. The company is expected to launch its 110 cc bike Dream Yuga which will compete directly with Hero’s Splendor. Analysts expect Honda to launch a series of products which will directly confront Hero’s top-selling brands.
Another cause for concern for Hero shareholders is that the company is not yet completely equipped on the research and development (R&D) front. This could affect the launch of new motorcycles. As R&D was earlier the remit of its foreign partner Honda, analysts believe Hero has not yet been able to break through that shell.
Hero’s stock, like those of other two-wheeler firms, has been impacted by macro woes and fuel price hike. What makes it more vulnerable than others is that the holding of foreign institutional investors (FIIs) is almost double their holding in its rival Bajaj Auto. If Hero fails to perform due to either external factors or factors under its control, FIIs could sell hugely.
Technically, the stock has taken support at `1,825 below which it could touch `1,700.
Hero investment to merge with Hero
The country's largest two-wheeler maker Hero MotoCorp today said it plans to merge a promoter group firm Hero Investment with itself and the board will take up the proposal its meeting next week.
The move comes 10 days after the Brij Mohan Lall Munjal-led Hero Group undertook a restructuring of family shareholding in two Hero MotoCorp Ltd (HMCL) promoter firms Hero Investment Pvt Ltd (HIPL) and Bahadur Chand Investments Pvt Ltd (BCIPL).
"A meeting of the board of directors of the company will be held on June 04, 2012, inter alia, to consider and approve the proposal of amalgamation of HIPL with HMCL," Hero MotoCorp said in a filing to the BSE.
During the scheduled meeting, the board will also consider the scheme of amalgamation, the valuation report and other matters incidental and connected to the said proposal, it added.
Shares of Hero MotoCorp today closed at Rs 1,821.90 on the BSE, down 0.82% from their previous close.
Earlier on May 21, Hero MotoCorp had said BML Munjal's wife Santosh and his second son Suman will transfer their shares in HIPL and BCIPL to other sons, Pawan and Sunil.
All the family members are partners of the firm Brij Mohan Lall Om Prakash (BMOP). Both these two transactions in HIPL and BCIPL will take place "on or about June 5, 2012".
Post this transfer, Pawan and Sunil will hold 33.21% stake each, while Suman will own 33.20% stake on behalf of BMOP in BCIPL. Besides, Suman holds 0.38% on his personal capacity.
HIPL and BCIPL will continue to hold 43.33% and 8.67% stake in Hero MotoCorp. There will be no change in the shareholding of the two-wheeler maker.
The share transfer exercise comes two years after the Munjal family had announced a family settlement agreement, following which their 26% stake in erstwhile Hero Honda was consolidated in the name of Suman.
He had acquired the stake held by his cousin Vijay Kumar Munjal and uncle Satyanand Munjal in HIPL and BCIPL under a family-settlement pact.
Brij Mohan Lall Munjal had five children. The eldest son Raman has expired. Suman is his second son. His third son Pawan is the Managing Director and CEO, while fourth son Sunil is the Joint Managing Director of Hero MotoCorp. The youngest is daughter, Geeta Munjal.
TVS testing new 125cc bike?
A brand new 125 cc bike from TVS was seen testing in south India, according to a report in Autocar India. The new bike will add to the current commuter range of products for the company. The company currently sells two variants of Flame in the 125 cc category. Apparently, though the bike looked showroom-ready, it is not clear when TVS would launch it. The new model is armed with six-spoke alloy rims, smart stitching for its riding saddle and a flush-mounted tail-light at the rear. TVS currently sells the Jive, Star City, Max and the Apache Series of bikes.
Two-Wheelers Companies Ride high on Fuel Price Hike
The runaway petrol price, which has singed many, has found an unexpected beneficiary in the Indian auto market: motorcycles and scooters.
With customers looking for cheaper mobility options over pricier cars, after the steepestever jump in fuel prices, the demand for the more affordable motorcycles and scooters is likely to go up in the coming months.
Traditionally, the demand for two-wheelers has been stable in the Indian market, but a spike in fuel prices or interest rates, always bring them into play, in a much bigger way.
“With each jump in fuel price, the cost of running a car goes up tremendously. Based on the changing economic scenario, where inflation is already forcing people to curtail spending, customers look for cheaper transport options to manage their budgets,” said a senior executive of Hero MotoCorp, India’s largest two-wheeler company.
Petrol now costs a record Rs 73.18 a-litre in New Delhi and Rs 78.57 a-litre in Mumbai after Thursday’s 11% hike of Rs 7.50 by the government.
“Demand for motorcycles for personal transportation has been strong in India. But in a grim economic scenario, where both vehicle and fuel prices are shooting up, customers fall back on cheaper mobility options, such as bikes and scooters. As the economy expands, everybody needs mobility and since they can’t afford expensive transport, they stick to affordable options,” said Sageraj Bariya, managing partner of Equitorials, an independent research firm.
India’s top-selling bike, the 100-cc Hero Splendor, starts at an exshowroom price of Rs 42,950 in New Delhi, while the cheapest car in the country, Tata’s Nano, is priced at Rs 1,43,284, according to the companies’ websites. Hero Pleasure scooter sells for Rs 41,700 in Delhi and Maruti Suzuki’s lowest-priced car, the M800, sells for about Rs 2,04, 902, as per ex-showroom prices in Delhi. What’s clear is that the difference in basic prices and the total cost of operating them is influencing demand patterns in the Indian market.
Motorcycle manufacturers are gaining at the expense of car companies, such as Volkswagen, General Motors, Honda Siel, Tata Motors and Ford Motors, who have posted lower sales in the recent past, as consumers are putting off their plans of buying new cars. The dwindling demand for cars is already forcing carmakers and its apex body, Society of Indian Automobile Manufacturers, to cut its full-year growth forecast of 10-12% for this fiscal. The high interest rates, coupled with rising fuel prices and a jump in car prices, have knocked down car sales to decade’s lowest of 3.4% in April, while the twowheeler segment grew at a fairly healthy pace of 11%, in the same month. “The impact becomes clear as demand for scooters has been consistent and strongest across all segments of passenger vehicles with a visible strong shift in urban centres. While customers were battling high interest rates in times of double-digit inflation, the steepest-ever increase in fuel price should spur demand for fuel-efficient scooters and bikes,” says Atul Gupta, vice-president of Suzuki Motorcycle India.