Slow August drags Hero Honda

Thu, 2 Sep 01:30 pm

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Indian indices pared some of their opening gains on selling witnessed in heavy weights over the previous two hours of trade. Stocks from the consumer durables and auto space are the top gainers while stocks from the IT space are among the top losers.

The BSE-Sensex is trading up by 58 points, while the NSE-Nifty is trading 16 points above the dotted line. BSE-Midcap index is up by 0.8% while BSE-Smallcap index is trading 1.1% above yesterday's closing. The rupee is trading at 46.81 to the US dollar.

Auto stocks are currently trading mixed with Eicher Motors and Escorts leading the gainers while Hero Honda and Force Motors are leading the losers. At the time of writing, the stock of two-wheeler major Hero Honda was the top loser amongst stocks forming part of the BSE-Sensex. The stock is under pressure on the back of announcing a slow 2% YoY increase in sales during the month of August 2010. This seems to be particularly low when compared to the sales volumes of other two-wheeler majors in the country. For instance, TVS Motor reported a 34% YoY rise in volumes, while Suzuki Motorcycle reported a 51% YoY increase in volumes during the month. India Yamaha Motor on the other hand reported a 30% YoY rise in volume sales during the month. Bajaj Auto saw its sales volumes improve by 55% YoY during the month.

However, it may be noted that Hero Honda has been selling over 400,000 units in the past three months, which is a strong sales number. Plus, we believe the numbers are not really comparable to the other companies as they seem to be reporting higher numbers on the back of a lower base. For instance, Hero Honda's sales during the month of August stand at about 14 times and 22 times when compared to Yamaha and Suzuki's sales numbers respectively. However, the gap between it and its closet player Bajaj Auto has been narrowing on the back of the good demand for the latter's entry level bikes in recent times. As compared to TVS, Hero Honda sales volumes stood at about 2.5 times during the month.

Software stocks are currently trading mixed with HCL Tech and Tech Mahindra trading firm while TCS and Patni Computers are trading weak. A leading business daily has reported that IT major Infosys is looking at various developments to cope with the recent tightened immigration norms. These developments include increasing local hiring as well as acquisition opportunities. In addition, the company's senior management also voiced its concerns on a worsening economic climate in the US. Plus it believes that if the scenario continues to worsen from here on, its clients' IT budgets could be impacted. The management however, further added that despite the volatile economy, its US clients are offshoring more projects, which is a good sign for the company. The company believes that it will be able to achieve its revenue guidance of 19% this year. However, the challenge for the short term is to manage the short term growth with long term risks. Earlier, the company's management had forecasted a decline in operating margins to the tune of 1.5% YoY. However, it believes that if the revenue growth continues then the company could perform better.