There's something about motorcycles that gives them an aura matched by very few four-wheelers. This is largely due to the fact that the proximity of the rider to both the motorcycle and the environment is unrivalled. To be able to enjoy a ride, the rider needs more than just the ability to operate the controls. He or she also needs to be more aware of his environment and to be able to react swiftly to hazards.

Hero Honda understands this. Safety has always been one of Honda's priorities worldwide, a concern for the rider that manifests itself as the Hero Honda Good Rider program. The program aims to arm riders with the skills and knowledge they need to be safe in traffic and enjoy the ride.

As part of the Good Rider program, showroom has safety advisors who are responsible for training customers. Everyone who purchases a Hero Honda has to undergo instruction in the art of riding safely, which includes operational instructions that form the foundation of his riding skills. Starting with the daily checks to ensure that the motorcycle is in perfect operational condition, the program then covers, through operational instruction, critical issues like effective braking which go a long way towards establishing a strong foundation for riding safety.

This is followed by sessions on traffic rules and signs as well as a detailed look at typical situations that the rider will encounter in traffic. Since the rider will not always be on a motorcycle, the program, which lasts about 2 hours, also includes a section on pedestrian safety. The instruction takes place at the dealership's safety corner, which simulates a variety of circumstances that a rider could face in real life. The instructor guides the learning rider through this program, keeping a close check on how the rider is performing at the controls. At the end of the program, the rider is more aware of how to maintain and ride his motorcycle, as well as how to react to typical situations that traffic throws up everyday.

The program ends with the customer walking out with his new Hero Honda and a certificate confirming that he has been through the safety program. He also receives literature that can be perused to refresh safety procedures at a later date. Being prepared is winning half the battle, and when he rides out of the showroom the customer will be prepared for the vagaries of Indian traffic.

To expand the initiative, Hero Honda has also conducted rider training sessions for large organizations that use a lot of motorcycles, like the police forces. The program includes a full range of safety instruction with advanced riding sessions in particularly difficult and hazardous situations like a simulated long stretch of broken road. Hero Honda also plans to create India 's first riding school, where anyone who wants to learn can come.

Revenues matter too: Targets $1 Bn in 2002-03

India has finally got a world leader in manufacturing with "no problem". Hero Honda Motors Ltd. (HHML) has attained the distinction of being the largest two-wheeler company in the world in volume terms. With a new factory on the anvil, it is gearing itself for Operation One Billion, targeting $1 billion revenues in 2002-03. "Next year, we will enter the (dollar) billionaire's club (in revenues). After Operation Million for volumes in 2001-02, our slogan for the next year is Operation One Billion," said Mr Pawan Munjal, Director & CEO, HHML.

The distinction of being the largest two-wheeler company in the world came in the calendar 2001, with sales rocketing past the one million mark in the first nine months of the current fiscal. This performance was in conjunction with Splendor, launched in 1995, becoming the world's largest-selling bike. In the calendar 2001, of the 1.3 million units of motorcycles, HHML sold a total of 7,19,000 units of Splendor. For the current fiscal ending March 2002, HHML has revised its volume targets for motorcycles to 1.4 million units.

The company is also planning to increase its manufacturing capacity with a third factory in the next fiscal. "In order to proactively and effectively meet the increasing consumer requirements, we are also planning a third plant to increase capacity beyond two million motorcycles," informed Mr. Munjal. HHML is undertaking an in-house feasibility study for the proposed third factory.

While commenting on the partnership with Hero Group, Mr Yoshihide Munekeni, chairman and representative director, Honda Motor Co, Japan , said, "Honda hopes to provide more Indian customers with satisfaction and contribute further to the Indian society in collaboration with Hero Honda and Honda Motorcycle and Scooter India Pvt. Ltd."

In the same vein, Mr Brijmohan Lall, CMD, HHML, added "to meet the current and future needs of customers, we have submitted to Honda a product plan for 10 new two wheeler models over the next five years and, of these, three products are already in the pipeline". To support these initiatives, expansion in R&D functions in India is on the cards.

WITH 1.3 MILLION BIKE SALES.

Hero Honda has become the world's largest two-wheeler company after selling 1.30 million (13 lakh) motor cycles in calendar year 2001.

Honda Motor Co Japan's chairman Yoshihide Mumekuni, while announcing this at a press conference on Tuesday, said Hero Honda and Honda's wholly-owned scooter manufacturing subsidiary in India, Honda Motorcycle and Scooter India (HMSI), are working closely to achieve maximum share of the Indian two wheeler market.

Hero Honda has launched 'operation one billion' (023) to achieve a turnover of $1 billion and sell 1.65 million motorcycles during 2002-03. The company is in the process of raising its installed capacity from 1.5 million units to 2 million units.

Mr. Munekuni said HMSI, which launched active scooter in July last year will expand production capacity from the present level of 1,20,000 units to 250,000 units by the beginning of 2003.

Both Hero Honda chairman Brijmohan Lall and Mr. Munekuni played down the post -2004 scenario when, as per an agreement between the two joint venture partners, HMSI will be free to introduce motorcycle in the Indian market while Hero Honda can enter the scooter market.

"Our partnership with Hero group is going on very well. We have extremely harmonious relations and Munjals have managed the company in an excellent manner. Our objective is to have maximum market share in India through both the companies (Hero Honda and EMSI)," said Mr. Munekuni.

Hero Honda's chief executive officer (CEO) Pawan Kant Munjal said the company will introduce a new motorcycle in the 100-cc-plus category in 2002 and another model having even high CC-capacity in 2003.

Mr. Munjal said the company is in the process of conducting a feasibility study for setting up a greenfield motor cycle manufacturing capacity to take the total installed capacity beyond two million.

The company, at present, has two manufacturing units in Haryana. Though Mr. Munjal did not specify the size of the plant and investment and its location, sources said the company is looking at western and southern region.

Mr. Munekuni said Honda is HMSI's president and CEO Haruo Takiguchi said HMSI will invest Rs.100 crore during 2002 to expand scooter manufacturing capacity. HMSI also plans to target new export markets like South Africa and Mexico besides the current Nepal and Latin American countries In the fiscal 2002-03, it has set a target to export 15,000 scooters from the overall sales of 1.2 lakh scooters.

COMPANY ANALYSIS - Fuel-efficient models yielding good results

Hero Honda Motors Ltd., a joint venture of Honda Motor Co. of Japan and the Punjab based Hero Group, has attained a clear leadership position in the booming motorcycle segment of the domestic two wheeler industry with a market share of 49 per cent.

The Company has left the competition in the motorcycle segment far behind in volumes as its nearest rival, Bajaj Auto, is a distant second with a market share of around 28 per cent only.

The company's success till date relates to the timely decisions regarding introduction of new technology products. Its future, however, is linked to the final decision of Honda's management of manufacturing and selling its motorcycle in India through the latter's wholly owned subsidiary, Honda Motorcycle & Scooter India Pvt. Ltd. after the expiry of its technology transfer agreement with the Hero Group in June 2004.

Hero Honda was the first company in India to set standards for fuel efficiency with the launch of a four-stroke motorcycle in the mid-Nineties. This decision is yielding good results even today as can be seen from an uninterrupted growth witnessed by the company in its sales turnover and profitability margins over the past several years. The trend has continued in the first nine months of the current fiscal as well with a growth of 39 per cent in the company's sales turnover, 63 per cent in its net profit and 14 per cent in operating profit margin.

The company has also reported a 36 per cent growth in its sales volume as against 32 per cent growth recorded by the entire motorcycle industry and 13 per cent by the total two wheelers market during the nine-month period.

However, future growth in these financial parameters, to a large extent, would also depend upon the way competition gears up in the domestic motorcycle market from the local, as well as foreign players.

The zero-debt company recently declared a dividend of 250 per cent (Rs 5 per share)

in order to distribute surplus cash amongst its shareholders. The higher dividend has, however, affected its working capital position in the current fiscal as it has stripped off Rs 100 crore cash from its balance sheet so far.

Hero Honda Share Price*

World numero uno bike maker and also the leading motorcycle manufacturer in India, Honda Motor Co., reaffirmed its commitment to India and its partners in the most emphatic manner possible when its chairman Yoshihide Munekuni came down to India during Auto Expo time. Speaking to OVERDRIVE he informed that his company would support both its joint venture company Hero Honda and also its own subsidiary HMSI to ensure that both are successful. It is thought that a road map for Hero Honda's future models has already been worked out and that HMSI will be getting into motorcycles after 2004. While the actual results will emerge only a few years down the line for the immediate future Honda informed that both its companies in India are gearing up to further boost sales to 1.75 million units in fiscal 2002, a target which was earlier set for 2003.

On the same occasion, Honda informed that its Indian joint venture Hero Honda has emerged as the world's largest motorcycle company and is targeting sales of one billion dollars in 2002-03. HMSI on its part is ready with its second scooter offering which will be patterned very much on the SCV-F seen at Auto Expo.

The promoters of as many as 125 companies have rushed to declared interim dividend for 2001-02 to avoid being taxed on dividends

The Budget for 2002-03 has proposed to abolish the dividend distribution tax of 10 per cent for corporate, and in turn made the payout taxable in the hands of the investor at the rates applicable to them.

The promoters of top 50 dividend paying companies (during 2000-01) stand to gain Rs 312 crore if they paid interim dividend for 2001-02 now (and thereby avoid being taxed at the rate of 30 per cent plus five per cent surcharge on tax payments). This is because the promoters of top 50 dividend paying private sector companies received Rs 959 crore as dividend during 2000-01. If they received this dividend after March 31,2002, they would be paying the tax at Rs 302 crore on account of dividend being taxed in the hands of recipients.

The calculations are based on the assumptions that they would pay same amount of dividend during the fiscal 2002-03.

Further, they are under 30 per cent income tax bracket in which they have to provide for a additional 5 per cent surcharge during the fiscal 2002-03. The promoters of Reliance Industries, the Ambani family, stand to gain Rs 68.3 crore on account of interim dividend of 47.50 per cent declared on March 3, 2002. The Ambanis hold 43.29 per cent stake in Reliance Industries.

On the basis of this, they would have got Rs 216.73 crore as dividend for the year 2001-02.

If the dividend was paid after March 31, 2002, the Ambanis will have to pay an income tax of Rs 68.3 crore on account of 30 per cent tax on individual plus five per cent surcharge on tax.

The book closure date for receiving such dividend has been set as March 23, 2002.

In the case of Tatas, the savings on account of interim dividend if paid before March 31, 2002, would be Rs 50 crore. The assumption for the Tatas has been based on the dividend paid by three companies, which are among the top 50 dividend paying companies. As such, Tatas could save Rs 16 crore through Tata Steel and another Rs 23.5 crore through other companies.

Kumar Mangalam Birla through its five top dividend paying companies would see a additional income of Rs 81.7 crore. This would bring along an additional tax burden of Rs 26 crore. The largest income from dividend would be from Hindalco that would add Rs 20.2 crore to the group's pocket.

Hero Honda has intensified the battle for market share by entering the economy segment of motorcycles.

With the launch of the 100cc 'Dawn' a knocked- down version of the "Splendor', Hero Honda has launched a massive attack on the entry- level motorcycle market.

Hero Honda is quite convinced of the benefits these assaults will yield. Little surprise then, the company forecasts volumes to grow over 27 per cent in the current fiscal - a much higher rate than the estimated 16 -18 per cent for the industry. "Considering that there are opportunities to be capitalized on, the last thing we want to get into is a conservative mode," says Atul Sobti, Senior Vice - President, Marketing and Sales. He adds, "We are looking at improving market share by a couple of a 100 basis points this year."

The action couldn't have been better for the stock markets, either. Certainly, even as the overall industry remained sulky, -- a mood brought on by the all - too - familiar economic slump - stocks of local motorcycle manufacturers have soared.

While the BSE Sensex has dipped over the past one year, Hero Honda's shares have zipped ahead, handing out returns of almost 185 per cent over the past twelve months. Ditto for other two- wheeler stocks.

"Dawn" of new beginning?

The entry-level segment, dominated by Bajaj Auto (Boxer) and TVS Motor (the Max series) constitute roughly one-third of total motorcycle sales volumes. It has been one of the more fastest- growing segments in recent times.

With the absence of a model that could take on the Boxer and Max series in this segment, Hero Honda has been losing out on potential volume. Thus, with a view to making its presence felt in this category, the company launched, last week, the knocked-down version of the Splendor. Christened "Dawn," the 100cc bike is being sold at a premium of around Rs.2, 000 (in most places). The Dawn is expected to replace the company's existing 100cc bike, "Joy" and is expected to touch an average volume of around 10.000 units a month. In fact, company officials are so upbeat about the product that they are confident that sales will outstrip the targeted 60,000units in the first six months of its launch.

While it's all right to set targets, the larger issue is whether the same can be achieved. Especially in the entry-level segment, where pricing plays a pivotal role. So will the premium pricing strategy adopted in the entry-level segment help Hero Honda achieve targeted numbers? (The company's models in other categories like the executive and premium segment also maintain a premium segment also maintain a premium against competing models.) Notes a confident Sobti: "Hero Honda certainly does enjoy an equity when it comes to bikes." Ostensibly, the two-year comprehensive warranty (up from the one - year engine warranty) made available on all the models, including the Dawn, should prove to be a major pull factor, at least initially.

An eye on the customer

In an effort to enhance value for customers, the company has initiated the "Rs 1001 customer price" benefit program across all its models. In addition, the passport program -- which entitles a customer to a Rs 1 lakh accident insurance, lucky draws, gifts against redeemable points, cash discount on consumer durables, free tickets to company sponsored events, etc.- has met with an encouraging response (it has attracted around five lakh members to date) and is expected to continue its success into the future as well.

Filling the gaps

Hero Honda, in its effort to augment its product portfolio, has firmed up plans to launch a 125 cc motorcycle midway through the current fiscal. While the pricing strategy is still being worked out, the model is expected to be positioned as a "genuine upgrade" for 100cc bikers. Analysts figure that the model is likely to fill the gap between the "Passion" and "CBZ" and priced at a premium to the "Passion".

Moreover, the company is also foraying into the lifestyle bike segment - a segment that hasn't yet caught the fancy of the fuel- conscious, economical Indian yet. The company is expected to launch a 200cc bike early next year. Developed jointly with Honda Motor, Japan , the bike will be positioned as a sports bike, and is expected to be the costliest Indian motorcycle, with a price tag of a little under Rs 1 lakh. Furthermore, Hero Honda is in the process of assessing the feasibility of introducing high- powered models from the parent's stable as fully built imported bikes.

The company is confident that it will achieve the targeted volumes for the current fiscal. In fact, according to a company source, Hero Honda is expected to notch volumes of over 1.35 lakh units in the first month of the current fiscal itself. That number, coupled with the 10,000 units of Dawn per month, and volumes from the 125cc bike, are all expected to add up to the company's targeted volumes for FY03.

Cannibal instinct

Based on the same chassis as the Splendor, the launch of Dawn has evoked fears of the latter cannibalising on the former's volumes. This has given rise to some concern that margins could get squeezed. While the company does not rule out the possibility of a marginal cannibalisation of the Splendor volumes, it does not foresee margins to be impacted. "The pricing of the Dawn and the Rs 1001 customer price benefit scheme has been worked out keeping in mind the entire value chain" notes Sobti. He adds, "On volumes of 75,000-80,000 Splendors a month, we won't be worried if volumes of up to 5.000 units, shift to Dawn".

The cost reduction at the ancillary and vendors end, coupled with the spreading of cost as on an increasing base, are expected to hold margins steady at the current level, if not improve further. Points out Kalpesh Parekh, analyst at Sushil Finance Consultants: "We expect Hero Honda to reduce raw material costs to the tune of Rs 500 per vehicle. This will offset incremental royalty and ad spent costs, and discounts."

Financials

On the back of a 45.31 per cent rise in volumes, the company has registered a 47 per cent topline growth for the quarter ended March 31, 2002. Earnings before tax have surged 145.19 per cent, while operating margins have expanded 317 basis points to 16.02 per cent. Annual performance (FY02) is a reflection of the good performance of previous quarters. While topline has risen 40.82 percent, earnings before tax have jumped 84.21 percent. Operating margins, too, have continued their upward march with a 190 basis points jump. Moreover, the company's RoNW has risen from 39.24 percent in FY01 to 67.51 per cent in FY02.

Financials

Hero Honda Motors Ltd. has set its eyes on capturing the 200cc-plus segment of the motorcycle market in the country.

While it has drawn up plans for manufacturing motorcycles with cylinder sizes 200cc to 400cc at its existing facility by the end of the current fiscal, it plans to import above-400cc range of vehicles from various units of Honda Motors world-wide.

The company has also sent a team to Vietnam for exploring export potential of the country.

"We will initially manufacture around 30,000 motorcycle in 200cc-400cc range and increase our capacity as and when required," explained its joint managing director A Kazusa after the launch of its new 100cc bike - Dawn, in the city today.

The company is also in the process of finalizing a feasibility report on setting up a third Greenfield manufacturing unit to expand its installed capacity to two million units per annum.

While the details of the unit are yet to be decided upon, senior vice-president (sales), Atul Sobti, said, "There is a possibility of setting up a unit close to its existing unit either at Gurgaon or Dharuhera. We are also considering the possibility of setting up the unit in southern part of the country."

Investment in the unit will range from Rs 75 crore to Rs 250 crore and will probably be funded from internal resources. The company is also planning to invest around Rs 100 crore in its existing plants this year.

"There exists a void in the 200 cc - plus segment in the motorcycle industry and we are trying to cater to this segment. Most of these bikes, either the ones manufactured in India or the ones imported, will be a niche product and we will try and cater to pleasure biking," explained company sources.

Indian entrepreneurship is set to arrive globally with Ernst & Young nominating Brijmohan Lall Munjal, along with 22 last year's winners, from other nations for the world Entrepreneur of The Year selections at Monte Carlo this June. Of these as many as three will be Indians. Last year two brothers of Indian origin, Vijay and Bhikhu Patel, were selected joint winners for the UK 's Entrepreneur of the Year award. So at Monte Carlo this year (the second such global selection) there will be 23 entrepreneurs representing 22 countries. One more for good measure!

Announcing this here today, KN Memani, chairman of Ernst and young in India , also threw open the nominations for this year's Entrepreneur of The Year selections, which will be held here in October.

That perhaps had to happen. In the last three years a majority of entrepreneurs in the reckoning have been from the south!

Brijimohan Lall, the patriarch of the Munjal clan and chairman of Hero Honda, the largest two wheeler company in the world, was crowned Entrepreneur of the Year, last year at the third annual selections organised in Mumbai.

This year's selections for the awards, fourth since they commenced in 1999, will be done by a group of jurors led by the doughty old corporate warrior Rahul Bajaj who will be assisted by Janki Ballabh (SBI), Sunil Mittal (Bharti), Rakesh Mohan (Union finance ministry), Omkar Goswami (CII) and N Sankar (Sanmar group).

A galaxy of winners from Indian business have been honoured with this award over the last three years.

They range from a veritable youngster like Ekta Kapoor to the venerable Brijmohan Lall, from a new economy icon like Azim Premji to a brick and mortar stalwart like J J Irani, and from Suresh Krishna in the south to Yogi Deveshwar in the east.

The awards celebrate the guts, grit and capacity to take risks that mark out an entrepreneur, explained Memani, adding that managing risk is as important as taking risk. Which is why the awards are also a salute to those who create wealth.

Explaining the role of Ernst & Young, V V Ranganathan, national director for the awards programme in India , said "we don't select, we organize".

He then went on to trace the hoary history of the term entrepreneur which in the nineteenth century described artistes who thrived on their imagination.

The awards carry no cash prize but seek to do more, make national idols and role models of the winners and give them a great chance to network and spread their message.

Many continue to be surprised at the ability of India 's 2-wheeler segment to buck the present recessionary trend in the economy. What, they ask themselves, accounts for such resilience: competitive pricing? Quality? Technology? Or, is it ready availability? Mr. Brijmohan Lall Munjal, chairman, Hero Group of Companies, addresses some of these issues in an interview with Soumya Kanti Mitra.

Hero Honda has launched the first of three bikes it planned to introduce this fiscal. The motor cycle, 'Dawn', will replace the 'Joy' and is aimed at the price-conscious semi-urban market.

Speaking to journalists, Hero Honda MD Pawan K. Munjal said, "With the Dawn we complete our range of bikes." The Dawn, a 100cc bike, will be priced at Rs 37,855 ex- showroom Delhi .

Munjal said the company would launch a bike between the 100 and 150cc category by September. On the third bike he said, "It will have an engine greater than 200cc and will not be a cruiser." However he did not give any further details.

Munjal said he expected the Dawn to sell 10,000 unites per month within the next six months.

Hero Honda Motors Ltd., the world's largest motorcycle seller, is planning to launch a 200 odd cc bike in the current financial year, its Managing Director, Mr. Pawankant Munjal, said on Thursday. The vehicle will be priced below Rs 1 lakh and would be the most powerful vehicle in its class, he said during the launch, of the Dawn motor cycle in New Delhi , which has replaced the Joy and may replace the CD 100 range later.

The Dawn will cost Rs 37,855 in New Delhi ex-showroom.

The launch of the higher-end motorcycle will follow the launch of another motorcycle in September, which would sport a bigger than the current 100-cc engine that powers almost all its vehicles.

"We are aware of the fact that competition is offering higher displacement engines. But we feel that the trade off with fuel efficiency is a better option," Mr. Atul Sobti, Senior Vice-President (Marketing and Sales), said.

Mr. Munjal said the company hopped to sell about 10,000 units of the Dawn per month in six months' time and may replace the CD 100 range, which is currently selling about 15,000 units a month.

He denied possibilities of erosion in margin either because of launching the lower-priced Dawn or because of the Rs.1, 001 waiver given on its vehicles.

The battle in the entry level or the economy segment of motorcycles seems to be hotting up with Hero Honda planning to launch a new motorcycle. Sources said that the company plans to discontinue the Joy motorcycle and repackage or re-launch it with a new brand name called the Dawn. Hero Honda has priced its entry level bikes CD 100/SS and the Joy around Rs 39,000 to Rs 41,000.

Hero Honda Motors Ltd., the newly crowned World No. 1 two-wheeler company, declared outstanding financial results for the year 2001-2002.

Profit after tax (PAT) is Rs 462.93 crore, a growth of 88 per cent. The company's total turnover (sales plus other income, net of excise) grew to Rs 4539.49 crore, a growth of 42 per cent.

In a landmark run, the company achieved a 48 per cent market share in the motorcycle category during the year; and 33 per cent of the total two -wheeler market. The company recorded a cumulative sale of over 14.25 lakh motorcycles for the year 2001-02.

The company's Spare Parts business also showed a remarkable increase of 39 per cent, taking the annual sales to Rs 203 crore. Encouraged by the response the company has set a target of Rs 250 crore for the current financial year.

Hero Honda's growth over the last five years has been truly outstanding, with both revenue and PAT showing significant jumps of over 5 times. While the revenue increased from Rs 783 crore in 1996-97 to Rs 4539 crore in 2001-02. PAT has increased from Rs 50 crore in 1996-97 to Rs 463 crore in 2001-02. The total sales has also increased from 2,68,931 motorcycles in 1996-97 to 14,25,302 motorcycles in 2001-02, with volume market share jumping from 27 per cent to 48 per cent in motorcycles; and 9% to 33% in two-wheelers.

Mr. Brijmohan Lall, Chairman and Managing Director, Hero Honda Motors Ltd., commending the company's achievement said, "I thank all our stakeholders - our Hero Honda family of employees, ancillaries, vendors, dealers, other business associates, and most importantly, our customers. They have been instrumental in our achieving the World No.1 status. I would also like to make special mention of the excellent support provided all through by our joint venture partners Honda Motor Company, and Hero Cycles Ltd. Our relationship with them has been wonderful and mutually satisfying. As we move forward, our collaborative approach will help us continue our lead."

On the momentous occasion, Mr. Pawan Munjal, Director and CEO, Hero Honda Motors Ltd. said, "The key reason for our success has been our continuous pursuit of pro-actively delivering value and delight to our customers. This is evident from the pioneering initiatives we undertook during 2001 - like the full two-year warranty on all Hero Honda models, and the launch of the most comprehensive Customer Relationship Programme, 'The Hero Honda Passport Programme'. Further, despite strong competition and pressures on the economy as a whole, the company has improved operating profits significantly, mainly because of cost rationalization, strong working capital management and manufacturing efficiencies."

He added, "We are committed to continue our lead, by delivering even better value to the customers, in the year ahead. Accordingly, several new and exciting product launches are lined up for 2002-03, and in the future. The manufacturing facilities to support the customer demand would also be pro-actively set up, as has been done till now."

Specially present on the occasion was Mr. K Suzuki, Senior Managing Director, Honda Motor Company, Japan , who had flown in only that morning to attend the Press Conference and the World No. 1 celebrations. Clearly ecstatic he said, "I congratulate Hero Honda for their wonderful and consistent achievements. Last year they achieved the distinction of being No. 1 Joint Venture of Honda Motor Company worldwide; and this year achieved the unique status of World No. 1 two-wheeler company. Our relationship has always been strong and solid. We are proud of this achievement for the Hero Group, Honda Motor Company, and the Indo-Japanese co-operation. We would continue to provide all the necessary support to Hero Honda, for it to remain on the top".  

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Hero Honda has closed FY2002 in style, clocking a volume growth of over 38 per cent. Volumes in the quarter ended March 2002 grew 44 per cent, considerably higher than the growth rates in the previous three-quarters.

Yet, given that the company has built up such a high base (clocking over 1.35 lakh units per month), it's unlikely that one would continue to see increased growth rates this fiscal. Besides, sales in FY2002 were helped to large extent by a reduction in excise duties, and a resultant drop in prices in the Rs 3,500-5,000 range by Hero Honda.

With excise duties for the company's products remaining unchanged and increased competition in the 4-stroke motorcycle segment, Hero Honda's growth rate is bound to fall. In fact, consensus has it that Hero Honda would post a growth rate of around 16-17 per cent in volumes this fiscal.

This essentially means that the markets would soon stop seeing the high growth rates when the company announces its monthly sales reports in the future.

These reports, which have been acting as triggers for the stock, would now have less effect. Which brings us to the question whether the Hero Honda stock, having risen 165 per cent in the last one year, is overvalued.

Despite the huge jump in the share price, Hero Honda's current share price of Rs 370 discounts its FY2002 earning per share (estimated at Rs 22) around 17 times.

With earnings in the next two years expected to average over 20 per cent, the price earnings-growth ratio (PG) for Hero Honda is comfortably lower than 1. Yet, the scrip's valuations are high compared to historical levels.

But what could work in favour of the company and the auto sector, as a whole is a de- rating of the technology sector. In case software companies come out with lower-than-expected 'guidances' this month, investors are expected to shift to safer havens such as the auto sector. In fact, this shift in preference has been among the prime reasons for the rally in auto stocks last year.

Hero Honda, with its market leadership position, would obviously stand to gain. Besides, the company is expected to launch a new motorcycle (the market is expecting a 125 cc bike) this fiscal, the success of which could propel growth further.