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Hero Honda reported the highest-ever sales, crossing
0.5m units in Oct’10, driven by new launches and
variants. However, the company has reported below
average growth and lost market share in the two months
of festival season from Sep-Oct 2010. Maintain
UNDERPERFORM.
Sales of 505,553 units in Oct - Hero Honda reported the
highest sales figure in its history as well as the history of the
two wheeler industry with 505,553 units, a growth of 42.7%
yoy and 16.6% mom. This was driven by successful new
launches like Splendor Pro, Super Splendor and festival
season buying. As per our interaction with the management
production for the month was around 275,000 units where
as inventory built up of around 30-35,000 units in the month
of September (mainly on account of floods in North India in
September and hence shipment of vehicles was impacted to
that extend in the month.
Ytd growth of 14% yoy - Ytd volume grew 14% yoy to
3.025m units with our estimate of residual growth at 20.4%.
In 1H FY11 the company launched a mix of new models,
variants and refreshes (totalling six launches), which is
expected to drive volume momentum in 2H FY11.
HH growth during festival season below industry
average - The two wheeler industry (comprising the top
there players) saw an average growth of 28% yoy during the
festival season (Sep-Oct). Hero Honda, however, performed
below this average with a 24% yoy growth. It also lost
150bps market share to competition.
Growth below industry average in motorcycle segment -
During the festival season (Sep-Oct), the motorcycle
segment (comprising of top three players) saw average
growth of 26%yoy. HH, however, grew below this average at
21% (excluding estimated scooter volume from total sales),
and lost 200bps yoy in motorcycle market share to
competition.
Valuation: Maintain Underperform - HH trades at 16.7x
FY11E and 14.5x FY12E. The risk that the joint venture is
facing looms on the stock’s performance. Maintain
Underperform with a price target of Rs 1,875.
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