What Honda Shine 100’s aggressive pricing means for Hero MotoCorp

Hero MotoCorp Ltd continues to struggle in the face of weak domestic demand for two-wheelers. The problem is more severe for the company, when compared to peers such as TVS Motor Co. Ltd and Bajaj Auto Ltd, given that Hero MotoCorp derives a significant portion of its volumes from the entry level segment. Rural demand has remained under pressure and the fresh risk of the possibility of 2023 being an El Niño year has only added to woes.

Against this backdrop, Honda’s launch of a 100cc bike, Shine 100, does not bode well as the product is priced aggressively and may lead to Hero losing market share. Shine 100 has been priced at ₹64,900, ex-showroom. Analysts at Kotak Institutional Equities note that the introductory price of Honda Shine is 3% lower than Hero HF Deluxe with similar features.

Moreover, Honda Shine 100 is on-board diagnostics (OBD) - 2 compliant whereas Hero HF Deluxe would see price increases starting April. Recall that Hero had announced price revision of up to 2% across specific models and markets effective 1 April on account of transition to OBD-2 norms. This means the price gap with Honda Shine 100 will only widen.

“We expect Hero and Bajaj Auto to lose market share given aggressive pricing of Shine 100. We are building Hero’s <125cc domestic motorcycle segment volumes to grow by 5% year-on-year in FY2024E,” said the Kotak report. Hero’s market share in domestic motorcycle segment dropped to 45.8% in the nine months ended December from 53% in FY16, they added.

Further, Hero’s new launches in the premium and electric vehicle (EV) segments are yet to gather momentum. The automaker’s EV, Vida, formed less than 1% of total two-wheeler EV volumes in March, according to Vahan data.

To be sure, Kotak analysts have cut FY2023-25E earnings per share estimates for Hero by 3-7% on lower volume and Ebitda margin assumptions. Catalysts for the Hero stock appear few and far between. In 2023 so far, shares of Hero are down by over 17%. In comparison, the Nifty Auto index has fallen 6%.