Cruising along

Motorcycle sales rev up ahead of festive season

Hero Honda, Bajaj Auto and TVS Motors, which together account for around 80 per cent of motorcycle sales in the country, have turned in a smart 30 per cent y-o-y growth in September.

Between April and August, the growth in domestic sales of motorcycles had been just over 19 per cent. The growth in September, therefore, was exceptionally better.

One reason for the high sales could be latent demand, since both Hero Honda and Bajaj Auto had faced problems with their respective suppliers earlier in the year.

To a larger extent, however, higher sales could be explained by companies pushing sales to dealers ahead of the festive season. While that does not explain the y-o-y growth (companies would have done the same thing last year), the timing of the festivals - Dushera and Diwali are a good ten days earlier this time - seems to have made the difference this time around.

Given the keen competition and also possibly the anticipation of strong demand, it is not surprising that companies are pushing products to dealers even harder this time. Even on a month-on-month basis, the top three players have grown 15 per cent in September.

Bajaj Auto continues to lead the growth charts with a 42 per cent growth in motorcycles in April-September compared with a 17 per cent growth for Hero Honda (on a much higher base) and a 22 per cent growth for TVS Motors.

According to analysts' estimates, the highest growth has been in the entry segment for Bajaj Auto. Evidently, higher petrol prices have hardly made any dent in motorcycle sales.

Shipping Industry

Freight rates have shown signs of improving after the recent hurricanes in America. For instance, in the tanker segment, where the majority of domestic capacity is focused, there have been signs of an uptick in segments such as VLCC.

Spot freight rates in the VLCC segment averaged approximately $30,172 a day in the September quarter compared with $26519 in the June quarter. In fact, spot rates in this segment had averaged as low as $19201 a day in June.

VLCCs are used to transport crude oil from the Middle East to refiners in the West, which is in demand owing to the upcoming winter season.

However, in the case of Suezmax, average spot freight rates in the September quarter have declined about 17.5 per cent to $24,469 a day on a sequential basis. Suezmax carriers are used to transport products for relatively shorter journeys.

Similarly, the Baltic Dry Index, which averaged about 2431 in the September quarter, is about 32 per cent lower on a sequential basis.

Weakness in the dry bulk segment is being attributed to the growing capacity coming onstream "" analysts estimate that an additional 20.6 million deadweight ton capacity will come on stream in CY05. Spot freight rates in the September quarter are considerably lower on a y-o-y basis for most segments.

To minimise the impact of lower spot freight rates, shipping companies have entered into long-term contracts. Also, considerable emphasis has been placed on improving capacity utilisation.

The markets, however, seem to be more concerned about the fact that September quarter wouldn't be exciting-Business Standard's Index of shipping stocks has gained merely 2 per cent over the past one month compared with an over 10 per cent gain in the broader market.

Analysts expect Shipping Corporation to grow profit by 5-7 per cent sequentially and an 8-10 per cent profit growth in the case of GE Shipping (adjusting for the separation of its offshore division).

Geometric Software Solutions

Geometric Software Solutions, among the first Indian companies to issue a formal profit warning back in 2000, is at it again. It has said that its bottomline has been adversely impacted in the September quarter.

Geometric had planned for a double-digit increase in revenues and had added to its manpower and facilities on that basis. Ramp-up by clients, however, were below expectations and, consequently, utilisation levels were affected, which in turn adversely impacted the bottom line.

The Geometric stock took an expected beating on Tuesday - it fell 8.5 per cent to below Rs 100 a share. It has now fallen over 21 per cent since mid- and small-cap stocks started correcting in late September.

Prior to the correction, Geometric traded at about 23 times trailing earnings. Its valuation has now fallen to 18.3 times consolidated 12-month earnings till June 2005. The company hasn't given a fresh guidance, but its forward earnings multiple should be in the region of about 15-16 times FY06 earnings.

While valuations are not stretched, the fact that earnings growth has been lacklustre in the past two quarters is a concern. According to the company, although the pipeline continues to be healthy, the conversion into actual orders has gone slow.

Geometric works with partners to a large extent, who in turn outsource the product lifecycle management requirements to it. Much of the delay in ramp-ups is in relation to these kind of orders.

According to the company, nothing much has changed in terms of traction in the market, nor has the structure of the market changed in any unfavourable way for the company.

Medium-to-long term growth prospects, therefore, remain intact. Although earnings growth may not be as high as 45-50 per cent (earlier guidance), the fact that valuations have come down to about 18 times trailing earnings indicate that much of this is already factored in.

With contributions from Mobis Philipose and Amriteshwar Mathur