Normal monsoon, new products should help Hero MotoCorp's volume growth

Hero MotoCorp (HMCL) was among the most affected by the slowdown in the two-wheeler segment, given that a larger share of the company’s sales comes from rural markets. 

While its FY19 volumes were up only 3 per cent year-on-year (YoY), the first two months of FY20 have seen a fall of 12 per cent. This has weighed on the Street’s sentiment and the stock is down 25 per cent from its year-ago level. 

However, with the monsoon setting in, market share gains for the company are likely in the north. Volumes, too, are expected to grow over the next couple of months, on the back of new product launches.

The company indicated that retail sales were better than wholesale ones over the last couple of months, and that a full-scale recovery is expected in the September quarter.

While the motorcycle segment reported a fall in volume growth on an overall basis in the March quarter, the northern region was the only one to report growth. Analysts at Nomura say the trend helped HMCL, which had about 60 per cent market share in the region. 

The company gained over 150 basis points market share on a sequential basis across regions, led by the sharp uptick in the north.

The Street will keep an eye on the monsoon. With over half of its volumes coming from rural markets, a normal monsoon will be a critical volume driver, according to an analyst at a domestic brokerage. 

In addition to volume gains, the company will also look at new product launches to improve its share in the scooter and premium motorcycle space. 

HMCL has launched four premium motorcycles and two scooters to address the portfolio gaps and to increase its market share in these segments. The company plans to achieve 10-12 per cent market share in the premium motorcycle segment in the near term, from its current negligible share. 

The company has also launched two new scooters to expand its share, especially in the fast growth 125cc segment. Even as overall scooter sales were flat in FY19, the 125cc segment posted growth of 56 per cent. 

Among Indian players, HMCL has the weakest export volumes, with overseas sales accounting for just 3 per cent. It is looking to increase the same to 10 per cent over the medium term by expanding its geographical presence.