Hero MotoCorp holds on to market share in FY14

New launches, cost-cutting measures to boost growth and margins in FY15

Hero MotoCorp seems to have all the three ‘P’s in place: product, price and positioning. Soon after it split with Honda, many analysts expected it to lose market share to its erstwhile partner Honda. But, the numbers so far suggest Honda’s eating into Bajaj Auto’s market share, not into Hero’s. The Street’s perception towards Hero is turning favourable. The company has put in place a strategy to improve margins over the long term by cutting costs. And, what the market likes best is the manner Hero has held to its leadership position in the domestic motorcycle market.

Between April 2013 and February 2014, Hero’s share in the domestic motorcycle market declined marginally to 52 per cent, from 53.3 per cent in the year-ago. Bajaj Auto’s share (in the domestic market) is down to 20.2 per cent from 24.5 in the previous year. Honda has increased its market share from 11.6 per cent last year to 15.4 per cent. Clearly, Honda’s growth has done more damage to Bajaj than to Hero. Between FY11 and FY14, Hero has lost 2.6 per cent market share, while Bajaj Auto has lost 6.5 per cent. Surjit Arora of Prabhudas Lilladher believes Hero’s volumes will grow nine per cent in FY15, given the strong distribution reach and wider product portfolio, thereby maintaining its turf in the motorcycle segment, with a market share of 52.5 per cent.

  Given the flat growth this year, a nine per cent growth target might seem big, but Hero has a number of new product launches ready for this year. In April, the company is slated to launch Hero Xtreme, based on the CBZ Xtreme, but with different styling. By the end of the year, it will launch Hero Leap, a hybrid scooter, and Hero Dash, a 111cc scooter. According to IIFL, customers of Hero will have a wide variety to choose from in the years to come and this will help the company cater to the demand of niche segments as well. While research and development costs might increase, the growth in volumes will give it leverage.

The company’s also doing a lot to improve efficiency. Hero is working on consolidating the vendor base and importing components from China to cut costs. It is also controlling the spending on advertisement. However, this is a long-term vision, believe analysts, and will take a year or so to play out. The Street expects Hero’s earnings growth to average 30 per cent annually between FY14 and FY16. Factoring this in its FY16 price-to-earnings ratio of 11.2 is for the long-term investor. The stock has moved up nearly 10 per cent in the past month; therefore, the near-term return would be capped.