Hero Honda Motors and Bajaj Auto Company Performance : PINC RESEARCH

Hero Honda Motors and Bajaj Auto Company Performance : PINC RESEARCHHero Honda reported dispatches of 501K units for the month of December '10. This was significantly higher than our estimates of 425k units. YTDFY11, the company has clocked a growth of 15.7% to 3.95mn units.

We believe that post separation from JV partner Honda, Hero Honda due to its understanding of the consumer taste and wide distribution network will be able to retain its leadership position in the Indian two-wheeler market.

Post breakup the stock has appreciated leaving limited upside. Hence we downgrade the stock to `HOLD' while maintaining target of Rs2,097 discounting FY12E earnings 18x.

Bajaj Auto (BJAUT) dispatches for December'10 were tad below expectation as volumes were up 9.8% to 277k units as against our expectation of 284k units. Motorcycle dispatches were higher by 10.8% to 244k units with high margin products `Pulsar' and `Discover' accounting for more than two thirds of total volumes. Three wheeler dispatches increased by 4.9% to 33k units. After a de-growth in November'10, exports were back in positive territory, increasing 4.5% YoY to 95k units.

We continue to maintain a `BUY' on the stock with a target of Rs1,855 discounting FY12E earnings 18x.