Scooty, Passion Pro and Access zoom ahead in Activa's absence
The strike and production cut at Honda Motorcycle & Scooter India Pvt Ltd (HMSI) has created an opportunity for other two-wheeler makers to sell more units during the festival season. In the absence of Honda’s flagship Activa, there has been an increased demand for other scooters like Scooty Pep, Passion Pro and Access.
The labour strike at HMSI's Manesar facility has forced the company to cut down production by more than 50% and it had even threatened to move to an alternate location. "HMSI dealers are under-stocked for the festive season. Demand for our products has gone up during to festive season but at the same time our production also fell due to the strike and it will have a direct impact on our sales," said a company official.
In normal days, HMSI's flagship Activa has a waiting period of 30 days, but owing to the labour problem, the waiting period could be double that duration, the official added.
According to some reports, HMSI's production has come down to half of its daily capacity of 4,200 units. HMSI has so far invested Rs10 billion in India and has an annual capacity of 1 million units, which it had planned to increase to 1.5 million units in the next three years.This shortage has created a demand for two-wheelers from other manufacturers like Hero Honda Motors Ltd, Bajaj Auto Ltd and TVS Motors Ltd.
“There is surely a demand currently, but this is due to the industry buoyancy and not because a competitor manufacturer is facing difficulties at their plant. I am sure they will find out a way soon. We are not looking at the deficit that would be created due to the problem,” said Millind Bade, general manager, marketing, Bajaj Auto. While availability of Honda models like Activa and Honda Shine have been adversely affected, business for TVS, Hero Honda and Suzuki is looking up. Two-wheelers like Scooty Pep, Passion Pro and Access are much in demand in the festive season.
“Activa will not be available for the next three to four months and at present the demand for scooters like TVS's Scooty Pep and Suzuki's Access is high,” said a Mumbai-based dealer. “Acitva and other Honda models will be available only after Diwali. There is a great demand for Hero Honda Passion Pro,” added another dealer.
Motilal Oswal Securities Ltd, in a report said, "While the below average monsoon coupled with hardening of interest rates might have an impact on demand in the second half of FY10, there has been no visible impact of poor monsoon on demand yet."
"Apart from conducive macro scenario in terms of better credit availability, lower interest rates and improved consumer sentiments, the second quarter of FY10 witnessed pre-festive inventory build-up leading to robust volumes for auto companies. Newly launched products in recent months also gave a boost to the growth on a year-on-year basis,” said Sharekhan Ltd in a report. 
During September, total two-wheeler volumes rose 7% year-on-year with Bajaj Auto clocking 15% growth on the success of its new launches. Hero Honda, however, reported a muted 4% growth due to some issues with its suppliers.
Last year, HMSI sold about 1.1 million units and was planning to increase production to 1.5 million units with the help of a third assembly line, but owing to the labour problems the company could not operationalise this facility. "We have approached the government, the court, the labour department. The talks are on. They have issued a notice to the workers’ union because this is against the Industrial Disputes Act. Workers have to answer why they have gone for the slowdown in production," the official said.
Labour problems at HSMI are not new. After the violent strike at HMSI that rocked Gurgaon in 2005, HMSI and the workers union had signed a long-term agreement in 2006 that expired in July. Since then, the workers and the management have been re-negotiating the terms and conditions.
Officials from Hero Honda and TVS Motors were not immediately available for comments.


Exchanges bear the brunt

The market downturn last year had not just left the investors sweating. The stock exchanges too had to suffer through a decline in turnover and volumes. The fall in the volume of trading activity was reflected in the decline in income from transaction charges. For the National Stock Exchange (NSE), this contributes 56% of total income, and it fell 23% in FY2008-09. The Bombay Stock Exchange’s (BSE) income from transaction charges fell 30%.

Last year also witnessed little action on the IPO front and this was reflected in the fall in book-building fees. NSE’s book-building fees fell 92% in FY2008-09 while BSE recorded an 86% decline. While NSE recorded a small drop in total income, BSE’s total income remained largely unchanged. This was mainly due to the fact that BSE had a larger cushion from income from investments and deposits. Income interest grew by a whopping 231% for BSE whereas for NSE it grew by 63%. BSE’s total income was also supported by income from other services, which grew 56%.

In line with the reduced trading activity, BSE recorded a significant reduction in expenditure. But the same did not hold true for NSE. While BSE’s total expenses fell 31%, NSE’s expenses grew 15% over the year. NSE’s expenses were higher on account of higher spend on employee and administration expenses.
– Debashis Basu with Sanket Dhanorkar  [email protected]


AMCs under stress

After the Securities and Exchange Board of India abolished the entry load on mutual funds, the asset management companies (AMCs) have found that their business models have gone for a toss. They can no longer dip into investors’ corpus to pay for the huge launch expenses of funds. This would put a severe strain on the survival of several AMCs. These companies were designed to be businesses run on a small capital base. They cannot take on the huge cost of advertising and promotion on themselves. Already some of the AMCs are in talks to sell out. A few weeks ago the Murugappa group sold its stake in DBS Cholamandalam mutual fund to L&T Finance. Which are the others that would be vulnerable? Those that have made losses in 2008-09 have little hope to launch new funds. Their only option is to recapitalise the business. Of the 26 AMCs that have declared results for 2008-09, 11 have registered losses. Surprisingly some AMCs like Quantum, Kotak Mahindra, ICICI Prudential and UTI are yet to declare their results for financial year 2008-2009.

Among the large loss-making AMCs, Principal PNB Asset Management Company, which is a joint venture between Principal Mauritius, Punjab National Bank and Vijaya Bank, tops the list. In the financial year 2008-2009 the AMC has reported a loss after tax of Rs42.74 crore. It manages Rs8,138 crore, most of it under its various debt funds. Mirae Asset Global Investments (India), sponsored by the Korean fund giant Mirae, was the second in the list, declaring a loss of Rs20.06 crore after tax. It was one of the last to enter the business—in 2007—when the market was booming. It has Rs174 crore of assets under management. Canara Bank and Robeco Group joint venture Canara Robeco Asset Management which manages about Rs8,478 crore lost Rs17.17 crore last year. A surprising entry in the list is HSBC Global Asset Management which has both performance as well as strength of distribution on its side. It reported a loss of Rs16.95 crore after tax even though it has Rs7,782 crore of assets under management. Surely HSBC will not sell out its Indian asset management business.
The joint venture of Bank of Baroda and Pioneer Investments, Baroda Pioneer Asset Management Company, posted a loss of Rs6.12 crore after tax. It too is a small AMC, managing Rs3,875 crore of assets. JM Financial Asset Management was one of the earliest to have got permission to set up an AMC. It has been around for 14 years and its funds have been racked by poor performance. The fund has reported a loss after tax of Rs5.69 crore in the financial year 2008-2009. Sahara Asset Management and Shinsei Asset Management (India) are absolutely tiny entities, each reporting loss of Rs2.51 crore. Sahara will almost certainly be sold sooner or later. Shinsei, a large Japanese bank, has just come into India and will wait and watch how the business does. Edelweiss Asset Management, another new entrant, posted a loss of Rs2.42 crore. It has no plans to sell out out now but will certainly lie low. One AMC that may sellout is Escorts which reported a loss of Rs76 lakh. It does not launch new funds and has a very small corpus of around Rs180 crore. Bharti AXA, another new entrant, reported a loss after tax of Rs2.5 crore but is funded by deep-pocketed sponsors. In short, PNB, Principal, Canara Robeco, Baroda Pioneer may seem undergo a realignment of shareholding while Sahara, Escorts and JM Mutual Fund don’t seem to be long-term survivors in their present form.



Arvind Thakur

7 years ago

It is a very useful data and study for me as a financial advisor.
I am heartiest thankful to you.

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