Honda Outpacing Its Competitors

After months of low sales being reflected in sluggish or negative YoY sales growth figures, the July 2012 figures for four-wheelers saw a bounce-back with top auto makers marking growth in the range of 6.8 per cent and 18.34 per cent. Relatively, smaller players in the four-wheeler market though have seen negative growth with Ford India and General Motors’ sales declining by 16.9 per cent and 23 per cent respectively in July 2012 over July 2011. 

Meanwhile, there’s a sea change seen in the story of the two-wheeler industry in India. The sector has been operating on completely different dynamics with slower growth, in line with the overall automobile industry, but that growth being largely captured by Honda Motorcycle and Scooter India (HMSI). Since the beginning of FY13, Honda’s over 45 per cent growth in sales over the corresponding month in the previous year has been gradually and consistently increasing and has now reached 56.9 per cent for July 2012. Among the top four two-wheeler players in India, everyone other than Honda witnessed negative YoY growth for July 2012. Hero Motors, Bajaj Auto and TVS’s sales declined YoY by 1.39 per cent, 5.38 per cent and 15.1 per cent respectively. 

The segment wise details of Hero Motors cannot be known since the company doesn’t release the data but in the case of Bajaj Auto, there has been a decline of 2.90 per cent in the sale of motorcycles and of 22.63 per cent on the company’s commercial vehicle front (three-wheeler passenger and goods carriers). The company was also hit hard in exports, posting a decline of 12.84 per cent on account of an impact in Sri Lanka and Egypt. There was a 50 per cent hike in the import duty in Sri Lanka in April 2012 after which distributors started to clear inventories out and exports dropped drastically. In June 2012, Bajaj cut the price of two-wheelers and three-wheelers in Sri Lanka by up to 10 per cent but exports still remain hampered. Egypt too was affected due to political turmoil, thereby affecting exports.

TVS Motors’ performance took a beating on all the possible fronts other than three-wheelers where it saw a marginal growth of 0.3 per cent. The overall sales for the company once positioned in the top three saw de-growth of 15.1 per cent. Motorcycles and scooters declined by 24 per cent and 17.1 per cent respectively, hampering the overall growth. The figures are indicative of a YoY growth in the mopeds segment, where TVS continues to be the market leader. Exports for TVS grew negatively by as much as 32.8 per cent.

Honda, on the other hand, sold 80.27 per cent more motorcycles with sales reaching 1,09,493 in July 2012 versus 60,740 in July 2011. The company sold 1,29,601 scooters in July 2012 over 91,642 sold in July 2011, displaying a growth of 41.42 per cent, thus making the cumulative growth come to 56.90 per cent YoY. These robust figures have been seen and maintained since a long time with FY12 growth too at 30 per cent with the company literally ignoring sluggish market conditions and demand.

We expect the two-wheeler sales to pick up as the festive season approaches and demand begins to slide upwards. Offers and discounts would also provide some stimulus to the demand and Q3 being the quarter with the highest sales in the year would provide some optimism for auto makers in general. Moreover, the demand would skew towards the highs seen earlier with an interest rate reversal thus making the outlook positive in the medium-long term. We maintain our earlier recommendations of buying Bajaj Auto at current valuations and Hero Motors on dips while avoiding TVS Motors.