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Despite robust demand, rising competition and higher costs could put pressure on market share and profitability.
The Street has welcomed the sustained demand and higher sales for two-wheeler makers in September by pushing up stock prices of the three key companies by three to seven per cent over the past week. Record operating profit margins in the region of 16-22 per cent and a more than 25 per cent growth in volumes for the April to September period for the sector has also attracted new competition. While Mahindra & Mahindra launched two motorcycles, the 110cc Stallio and 300cc Mojo last week, other new launches and variants are expected from existing players over the next three to four quarters.
M&M entry
Growth on trackMargins
Analysts feel raw material costs and competitive pressures will mean that companies may witness a drop in margins if they are to maintain or increase their market share. The leading players are cash-rich and a price war later during the year cannot be ruled out. With 100 per cent capacity utilisation currently (Hero Honda, Bajaj Auto), saya analysts, it will not make sense to cut prices, as higher demand cannot be met. But once expansions are completed over the next one year, expect a round of price cuts as companies try to protect market share.
Valuations
With its two-wheeler business expected to break even in 2011-12 and continuing dominance in tractor and utility vehicle space, analysts are bullish on the Mahindra & Mahindra stock. However, the recent run-up in prices (17 per cent over one month) has meant there is marginal upside from these levels. Buy on dips.
For the other major two-wheeler makers, analysts expect a fall in margins due to higher commodity costs for the September quarter but believe that on an annual basis, Bajaj Auto, Hero Honda and TVS Motors would be able to sustain operating profit margins in the region of 20 per cent, 17 per cent and eight per cent, respectively.
While the recent surge in prices of Bajaj Auto and TVS Motors means there is little room for upside and you can look at these stocks on dips, analysts advise investors to avoid Hero Honda for the moment.
Source:Test ahead for 2-wheeler makers
The Street has welcomed the sustained demand and higher sales for two-wheeler makers in September by pushing up stock prices of the three key companies by three to seven per cent over the past week. Record operating profit margins in the region of 16-22 per cent and a more than 25 per cent growth in volumes for the April to September period for the sector has also attracted new competition. While Mahindra & Mahindra launched two motorcycles, the 110cc Stallio and 300cc Mojo last week, other new launches and variants are expected from existing players over the next three to four quarters.
M&M entry
Growth on trackMargins
Analysts feel raw material costs and competitive pressures will mean that companies may witness a drop in margins if they are to maintain or increase their market share. The leading players are cash-rich and a price war later during the year cannot be ruled out. With 100 per cent capacity utilisation currently (Hero Honda, Bajaj Auto), saya analysts, it will not make sense to cut prices, as higher demand cannot be met. But once expansions are completed over the next one year, expect a round of price cuts as companies try to protect market share.
Valuations
With its two-wheeler business expected to break even in 2011-12 and continuing dominance in tractor and utility vehicle space, analysts are bullish on the Mahindra & Mahindra stock. However, the recent run-up in prices (17 per cent over one month) has meant there is marginal upside from these levels. Buy on dips.
For the other major two-wheeler makers, analysts expect a fall in margins due to higher commodity costs for the September quarter but believe that on an annual basis, Bajaj Auto, Hero Honda and TVS Motors would be able to sustain operating profit margins in the region of 20 per cent, 17 per cent and eight per cent, respectively.
While the recent surge in prices of Bajaj Auto and TVS Motors means there is little room for upside and you can look at these stocks on dips, analysts advise investors to avoid Hero Honda for the moment.
Source:Test ahead for 2-wheeler makers
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