Hero and Honda ready to face-off in scooters market

Posted By: Religare
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Hero and Honda ready to face-off in scooters market
It seems Hero Honda (soon to be named Hero MotorCorp) is taking its rivalry with its old partner, Honda that now runs Honda Motorcycle and Scooter India (HMSI), to the next level.

Following the rivalry on the motorcycle front, the two are set to lock horns with each other in the scooters segment. Both the companies are gearing up to take this sector by storm; this is understandable as the scooter sales in 2010-11 increased by 41.79 per cent to 2.07 million units in the domestic market.

“Our scooter sales have outgrown that of the overall two-wheeler category last year. Sales of Pleasure have shot up 70 per cent over the previous year. We are now increasing capacity to roll out 2,300 scooters a day from the earlier 1,500 units."

While HMSI, the undisputed leader of the market in the scooters segment with a 43% share, is planning to launch a fourth product, the other three being Activa, Dio, and Aviator, their competitor has no immediate plans to add more products to its scooter line that currently boasts of the solitary Pleasure.

The company, however, has huge plans from this product. HHML sells around 35,000 units of Pleasure every month and has decided to increase their production capacity by 50% this year, in a bid to catch up with HMSI. Hero Honda has a market share of 16.5% in this segment with 342,991 units sold last year as compared to 893,335 of HMSI.

In the Motorcycles segment, however, the situation is completely opposite. Hero Honda is the undisputed market leader with almost 50% share and it is HMSI playing catch up. The Japanese company is looking to introduce product(s) in the 100-110cc range to eat into HHML's ahre and is also planning to invest INR 14 billion to double its manufacturing capacity to 1.2 million units at its second plant in Tapukara, Rajasthan, and to set up a third plant in Karnataka this fiscal.

View: With the two companies parting ways. It will not be easy for Hero Group, as the technology edge will be with Hondo Motors. In the scooters market Honda already has made a successful product and is now improvising. 

Even in the motorcycle space, Bajaj has managed to create winning team which is improvising on its technology. From an investor's perspective, trading at a PE of 19x, and considering that it will now not have access to Honda's new technologies it would be a better idea to stay away from the company. Either the company should be trading at a better valuation of it should come up with a new successful technology team, until then its a wait and watch story. 

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Read more about: automobile, hero honda motor, bse, nse, bajaj
Story first published: Wednesday, July 6, 2011, 10:30 [IST]
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