India Two Wheelers- What's in a name? Hero- Honda Split... JP Morgan

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 As Hero and Honda have ended their joint venture, there are investor
concerns about the impact of the split and the perceived brand image of the
local entity going forward. To assess the changing customer perception of
the OEM and its products (Splendor & Passion), we ran a survey among
consumers. Methodology: We surveyed customers who are either existing
Hero Honda users or potential buyers who intended purchasing a bike in the
next 12 months. The survey was carried out across three cities – Mumbai,
Pune and Sonipat – to enable a well spread geographic representation. The
customers were selected across different socio-economic classes (SEC B &
C) across age group 18-40 years. However, the findings from our survey
cannot be considered to be a nationally representative trend.
 Key Findings: Based on consumer responses, the key highlights of our
survey were: Consumer awareness of the recent split: While a majority of
the consumers (63%) are aware of the split, they were unsure of the changes
in the product pipeline/branding post the split. Corporate brand is an
important driver of sales: A majority ~ 60% of the consumers highlighted
that they bought the bikes due to the brand equity of Hero Honda, while
40% bought the “Splendor” and “Passion” products. That said, consumers
perceived the local “Hero” group to be dependable as c.75% of the
participants highlighted that they would continue to purchase Hero products
post the split. SEC B consumers appeared more sensitive: as 29% of the
consumers in this segment highlighted that they would hold back on
purchases citing concerns relating to product/technology post the split.
Important criteria for purchasing decision: Customers believe that mileage
and cost effectiveness of the bike are the most important criteria in their
buying decisions.
 Our View: We believe that while the ‘Hero’ group enjoys a healthy brand
recall amongst consumers, there will be a gradual market share loss probably
driven by the more affluent customers. We believe that the current stock
valuations are not factoring in the potential loss of brand equity at Hero
Honda post the split. We reiterate our UW stance.