Hero MotoCorp enters bear market; unseasonal rains one of the reasons

Two-wheeler companies, in general, have been struggling, but Hero’s problems have been aggravated because it has the largest presence in the rural market, reports CNBC-TV18’s Sonia Shenoy. Unseasonal rains have hurt farm income, and thereby demand for Hero’s products. Peers Bajaj Auto and TVS are slightly better placed since they have exports to boost overall sales numbers. But the domestic picture is pretty bleak for all two-wheeler players for now.

Shenoy cited the semi-conductor shortage as another factor that poses serious issues for the automobile industry.

Hero Motocorp stated that the delay in harvesting due to the late withdrawal of monsoon in many parts of the country impacted the demand post-festive season.

It, however, expects a swift revival in sales in the fourth quarter with the economy gradually opening up coupled with several other positive indicators, such as encouraging farm activity, confident consumer index and marriage season, the company said.

"Additionally, commodity prices showing some signs of softening aided with the reduction of excise duty on fuel, and increased spending on Capex programs by the government is likely to bring back the momentum in the two-wheeler industry," Hero MotoCorp noted.

However, some analysts suggest that the current restrictions due to the new COVID-19 strain and rising input costs may have an unfavourable impact on the demand scenario.

"The auto sector remains a mixed bag as of now, as lower-than-expected volume may result in weaker-than-expected margins," said Axis Securities while downgrading the sector to 'equal-weight' from 'over-weight'.

Auto sector gauge, Nifty Auto traded with gains, 0.20 percent to 10,779.85. Among its constituents, four out of 14 traded positive/higher with Bajaj Auto, Bosch and M&M leading the gainers. Ashok Leyland was the top laggard. YTD, the gauge has given 16.26 percent returns.

Meanwhile, Hero MotoCorp also looks to enter the electric vehicles segment in 2022. It had earlier said it has a three-pronged strategy and an in-house EV programme which will kick off in March next year. The firm also has a tie-up with Gogoro and investments in Ather. It may not need funding from outside or to set up a new EV subsidiary as it has enough cash reserves at the moment.