Analysts cut Hero Moto FY13 sales forecast on dismal sales

Moneycontrol Bureau

Hero MotoCorp surprised the street with a 12% decline in August sales, even as rival Honda Motorcycle and Scooter India continued to clock good volumes. Analysts are now concerned if Hero would manage to sustain its growth and leadership in an environment where its erstwhile partner Honda is now in the aggressive mode and the overall sales for the industry as such have been sluggish. Hero sold 4,43,801 units last month, compared with 5,03,654 units it sold in August last year. "The sharp decline in volumes highlights that retail demand has been weak for the past few months and growth at Hero MotoCorp so far was largely driven by channel filling, which led to higher inventories (30 days)," Kapil Singh and Nishit Jain of Nomura Financial Advisory and Securities India said on Monday. Japanese Honda, which was Hero's partner till 2010, in contrast continues to see strong growth in India. Sales at its Indian unit HMSI surged 39% in August at 2,22,768 units. Its motorcycle sales were up 69% and scooter sales were up 20%. Post its breakup, Hero has started rolling out products minus the Honda branding. And that some analysts say is also probably hurting sales, particularly, of its top selling Splendor, a more worrying sign than the overall sluggish growth that the company points out to. "Our interaction with Hero dealers validates what we feared. As per some dealers, dropping the 'Honda' tag from the flagship Splendor Pro and Splendor Plus has impacted conversions by 5-10%. This is clearly worrying as these models combined account for 90% of Splendor and thereby
35% of total volumes," Ashish Nigam and Kunal Jhaveri of Antique Stock Broking said in reported dated Aug 30. They, however, note that there has been no impact on sales of Passion and other brands of Hero, post the removal of Honda tag. The Antique analysts have cut Hero's FY13 volume growth forecast to 6% from previously expected 8% and still see more downside risk to their estimates. The Nomura analysts Singh and Jain also feel there are downside risks to their volume growth estimate of 9% for the current financial year. "Current SAAR (seasonally adjusted annual rate) is indicating a volume decline of 3% in FY13," they said. Motilal Oswal too has cut its volume estimates for Hero by 9% to 61.6 lakh units, compared with 68 lakh units it had expected earlier for FY13, saying the sales decline in August was the third consecutive month of negative surprise by the company. JP Morgan has lowered its earnings estimates on Hero by 7% for FY13-14, citing increasing competitive intensity since Honda's launch of the Dream Yuga, a direct competitor to Hero's Splendor, earlier this year. Hero MotoCorp, on its part, maintains that the sales figures for August reflect market sentiment. The two-wheeler industry in the country has been facing a challenging time due to the overall macroeconomic situation, which has adversely hurt retail sales, both in urban and rural markets, it says. The company expects industry volumes will grow only 4-5% this year and its growth will be in-line with that. Motilal Oswal has still maintained a "buy" on Hero MotoCorp, while Nomura and Antique have a "neutral" and "hold" rating. JP Morgan remains "underweight" on Hero but has cut its target to Rs 1,690 from Rs 1,900. Hero MotoCorp shares were up 0.5% at Rs 1,772.45 on NSE on Monday morning. Also Read: Tata Motors, M&M Aug sales up; Manesar strike hurts Maruti Nachiket Kelkar
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