Hero Honda upbeat on sales, expects to retain 50% market share

Hero Honda upbeat on sales, expects to retain 50% market share

New Delhi: Hero Honda Motors Ltd expects to maintain 50% market share in motorcycles and expects sales to improve, although demand conditions made it hard to raise prices, a top company executive said.

Hero Honda, the top company in India’s motorcycle market, the world’s largest after China, also expects high double-digit growth in scooters, Anil Dua, the company’s head of sales and marketing, told Reuters in an interview on 7 September.

“Given the upcoming festival season and the belief that interest rates have peaked, we expect sales will improve," he said.

Hero Honda, in which Honda Motor Co has 26%, in August posted a 12% rise in sales from a year earlier, helped by new launches, after they had declined for three months.

India’s central bank has raised interest rates five times since June last year. Rates on vehicle loans have risen by an estimated 300-350 basis points, hitting sales, particularly of motorbikes and small cars, and leading auto makers to cut production and give discounts.

Auto firms have also been hit by rising raw material costs, which they have not been able to fully pass on to the customers in the sluggish market.

“Raw material prices have been hardening, but given the market situation it won’t be easy to take a price increase," Dua said.

Tata Motors Ltd, India’s top vehicle maker, said this week that demand for automobiles may not rise in the festive season unless interest rates fell significantly.

Hero Honda has delayed the start of production at a new plant in northern Uttarakhand state to the fiscal year from April 2008 due to softer demand. The plant will have an initial capacity to make 500,000 units, which will be tripled eventually.

Rivals Bajaj Auto Ltd and TVS Motor Co are moving away from the low-margin 100 cc segment which Hero Honda dominates, and developing new portfolios.

Shares in Hero Honda, valued at $3.2 billion, trade at 14.6 times forecast earnings, compared to 18.8 times for Bajaj.

Hero Honda shares were up 1.7% at Rs663.50 at 0651 GMT in a Mumbai market that was up 0.4%.