Motorcycle Stall [Asia WSJ]
Indian Bike Makers' Shares Slide
By ABHRAJIT GANGOPADHYAY
July 16, 2007; Page C10
KOLKATA, India -- The plentiful monsoon rains that usually herald better times for Indian consumer-goods companies aren't doing anything this year for a traditional beneficiary -- the motorcycle business.
Historically, a hefty monsoon means better crops, higher farm incomes and strong sales for makers of scooters and motorcycles such as Hero Honda Motors, Bajaj Auto and TVS Motor in rural areas where most Indians live.
Bike makers may still see a short-term pickup because of the monsoon. But analysts say share prices are unlikely to get very far.
All three stocks are trading near five-month lows, while the benchmark Sensex has surged 17% since the fiscal year began April 1. While this may present a short-term buying opportunity, the long-term outlook for the stocks hinges on several external factors, said Vaishali Jajoo, analyst at Mumbai's Angel Stockbroking. Interest rates -- which have risen steadily this year -- and steel and aluminum costs are important factors, she says.
For the past five years, the scooter and motorcycle business has surged. India is the world's second-largest market after China for motorized two-wheelers, with nearly nine million sold a year. But now, "it's a testing time for bike makers," says Dipak Acharya, who helps manage 600 million rupees, or about $15 million, at Mumbai-based BoB Asset Management.
Until this year, Hero Honda, Bajaj Auto and TVS Motor had double-digit sales growth annually, fueled by the booming economy and easy loans boosting demand for bikes priced as low as 30,000 rupees, or about $750. But after a series of interest-rate increases, India's less-affluent rural buyers are shying away from borrowing.
As nearly 60% of bike purchases are made with loans, makers of two-wheelers are facing a demand slide that is forcing them to cut prices to maintain market share. Even then, sales are declining for the three.
From April to June, Hero Honda sold 802,853 bikes, a drop of 3.6% from a year earlier. Bajaj Auto saw a 12% drop in number of vehicles sold, to 545,742. TVS reported a 20% drop to 260,424 units.
"We have gone 'underweight' on the sector," says K.K. Mittal, who manages a $350 million portfolio for New Delhi-based Escorts Asset Management, which has sold its shares of bike makers in the past few months. "The long-term growth story looks pretty weak." Since the end of March, Hero Honda has lost 1.5%, Bajaj has lost 10% and TVS has gained 6.6%.
Huzaifa Suratwala, an analyst at Mumbai-based Emkay Share & Stock Brokers, says the impact of rising interest rates will come mainly in the six months ending Sept. 30. He is hopeful some models, likely to be introduced in the second half, will lift sales. He says he isn't convinced there will be a sustained increase that raises share prices.
Mr. Suratwala has a "hold" on Bajaj, with a 12-month target of 2,544 rupees -- 17% above the Friday level. He has the same rating on TVS, with a target of 75 rupees. Mr. Suratwala says he thinks both will continue to underperform the Sensex for at least a year because of uncertain growth prospects. The analyst has a "sell" on Hero Honda, which hasn't announced launch dates for new models. He is targeting 716 rupees.
Although Hero Honda and Bajaj are shifting in the face of slowing demand and meager exports, they are coming up against foreign makers who see India as a lucrative market.
Many Indian bike makers "want to concentrate on heavy bikes in niche segments, a strategy that foreign bike makers like Yamaha Motor will follow in India," says Sachin Mathur, head of Crisil Research, a division of Indian rating firm Crisil.
Bajaj has said it will stop selling bikes priced around 30,000 rupees after this quarter and shift to the premium end where prices top 50,000 rupees. |
