Two-wheeler stocks skid up to 6% as margin pressure weighs.

Share prices of two-wheeler makers were among the biggest losers in trade on Monday, shedding up to six per cent on worries that aggressive pricing at a time of commodity inflation would squeeze margins. Hero MotoCorp fell 6.2 per cent, Bajaj Auto by 5.3 per cent and TVS Motor by 4.2 per cent.

Why is this important

This situation is similar to FY 2004-07, when volume growth was strong but profitability slid. Companies are aiming to improve there overall market share, as a result there has been aggressive discounting and higher share of entry-level motorcycles. Promotional schemes like free insurance and zero down payments among others to counter the deep price cuts. Although it is unlikely that it will continue in the long term.

However, companies expects rural demand will pick up and there will be increase in volume growth.

Stock to be impacted

There is short term pain for the companies like Hero motor corp (CMP 3135, M. Cap 62,634 crores, 17 FY 20 PE), TVS Motor (CMP 530, M. Cap 25,952 crores, 40 FY 20 PE), Bajaj auto (CMP 2700, M. Cap 78,130 crores, 17.6 FY 20 PE).

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