The Hindu Business Line : No speed-breakers for 2-wheeler cos in second quarter

The three major listed companies — Hero Honda, Bajaj Auto and TVS Motors — clocked strong profit growth: having managed to tempt customers with new launches that made the best of buoyant festival season demand. Interestingly, TVS Motors and Bajaj Auto launched new models in the three-wheeler segment also.

Sales pick up

Leading the pack is Hero Honda, which has posted an impressive 21 per cent growth in the number of vehicles sold in the quarter compared with last year. Better realisations saw the company register a healthy 26 per cent growth in net sales for the quarter. Though Bajaj Auto managed just about one-third of Hero Honda’s volume growth, its net sales grew by 15 per cent for the quarter. Trailing its peers is TVS Motors, which clocked flat volumes.

Effect of launches

The picture changes if one is to consider the half-yearly performance. Though Hero Honda retains its leadership with volumes expanding 24 per cent year-on-year, TVS Motors has outdone Bajaj Auto. While TVS Motors managed a year-on-year sales growth of 10 per cent, Bajaj Auto is yet to regain its last year’s position as sales for first six months are still down.

The dip in sales clearly indicates that the aggressive launch of the Discover in mid-July, ahead of the festival season, helped Bajaj Auto make a comeback in the recently concluded quarter.

But this also reflects the adverse impact of Bajaj Auto’s earlier decision to exit the entry-level bike segment. Bajaj Auto’s sales in the 125-250 cc segment fell 7 per cent for the half-year ended September, despite the launches of the Pulsar 220 and new versions of the Pulsar 150 and the Pulsar 180.

Introduction of new models by India Yamaha Motor and Hero Honda in this segment has eaten into Bajaj Auto’s share in the premium bike segment. Nevertheless, one needs to remember that most of the launches happened in mid-October when the festival demand was nearing an end and the full effect of these launches is expected to trickle in the coming quarters. In the coming months, the rivalry between Bajaj Auto and TVS Motors may heighten when the latter starts to sell the Flame.

Money matter

Though on a net profit level, it may seem that TVS Motors has outperformed its rivals posting a 136 per cent growth (mainly helped by ‘other income’ and tax credits of Rs 3.23 crore), on an operating profit level Bajaj Auto has done better than its peers.

While Hero Honda and TVS Motor saw a 15 per cent and 6 per cent increase in the cost of raw materials respectively, Bajaj Auto managed to keep this cost 3 per cent below last year’s levels due to its shorter-term contracts with suppliers. Higher realisations than rivals’ saw the company register a 94 per cent growth in operating profits this quarter.

With sales on a strong wicket, the key challenge for two-wheeler makers in the quarters ahead will be to sustain the volumes growth with new launches and keep the input costs low, especially as they all focus on executive and premium bikes. In addition, increasing export demand, particularly for Bajaj Auto, may expose the companies to a weakening dollar.

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