High rates pull down 2-wheeler sales by 9%

With Bajaj Auto's poor quarterly results out, research analysts expect the other two-wheeler majors Hero Honda Motors and TVS Motors to follow on the same lines and post a drop in profits.

With interest rates rising to as high as 14-15 per cent, overall two-wheeler sales in the country stood at 1,741,539 during April-June 2007, a decline of 9 per cent over the corresponding period last year. Motorcycles sales, which were hit even worse, declined by about 15 per cent during the corresponding period last year. Raw material costs, in the meanwhile , have gone up by around 15 per cent.

Two-wheeler companies have been extending Rs 1,500-2,000 as dealer discounts per unit since the interest rates peaked.

An auto analyst with Edelweiss Securities said, " Hero Honda might report about 20 per cent drop in net profits. As volumes have been flat because the company has pushed a lot of stock to the dealers, the top line may not show much decline. But, the margins of the company will be under a lot of pressure as it has gone down by as much as 200-250 basis points." The company reported a net profit of Rs 237.74 crore during April-June 2006.

The country's biggest two-wheeler manufacturing company witnessed a 2.34 per cent drop in motorcycle sales during the quarter. It posted a negative sales growth of around 8 per cent in the 100cc segment, which is considered to be its core area. Exports were down 28 per cent over the same period last year.

On the stocks of the company, the analyst said, " It is tough to say what it is deriving the strength from. It looks overpriced by 13-14 times of what it should have been." The stocks of the company were placed at Rs 672.95 on July 12 showing a decline of only 2.3 per cent from what it was a week ago.

TVS Motors, regarded as a "volume player", has been the worst hit as its motorcycles sales were hit by as much as 40 per cent during April-June 2007 over the same period last year.

Its 100cc segment, which accounted for about 90 per cent of the overall motorcycle sales has shown a negative growth of 36 per cent during the period.

Operating profit had already touched a low of 1.1 per cent during January-March '07. The company posted net profit of Rs 21.2 crore during April-June 2006.

Vaishali Jajoo, an auto analyst with Angel Broking said, " We are expecting an over 40 per cent decline in net profit for TVS, as both the margins and volumes have taken a severe beating."

However, about the stocks of the company which have gained 8 per cent in the last one week, she said, " The happy movement is because of long term investors. Because of company's aggressive expansion plans and new models scheduled in October and January, sales will hopefully resume. Moreover, we generally see stabilisation during the second half of the year." Abdul Majeed, an analyst with Price Waterhouse was of the same opinion.

Angel Broking has given neutral rating to both Hero Honda and TVS stocks.