Two-wheelers slide on inventory concerns

Stocks in two-wheeler companies slipped as investors are concerned over declined sales.

A survey conducted by IIFL Institutional Equities has revealed that demand for two-wheelers has worsened this year, and major manufacturers like Hero and Bajaj dealerships have inventories at a high of up to 40 days.

Brokerage firm UBS earlier this month removed Hero Moto from its model portfolio. It revised its target price on Hero Moto Corp to Rs 2,350 as it expects sales to decline further.

The brokerage said in a statement, "We cut our FY13 volume growth for Hero Moto from 8 per cent to 4 per cent and hence cut our FY13/FY14 EPS estimates by 5 per cent.”

Credit Suisse also 'downgraded' two-wheeler giant Hero from ‘outperform’ to 'neutral,' and revised its target price downwards from Rs 2,401 to Rs 2,056.

Shares in Hero Moto slipped 3 per cent in the morning trading today. However, Bajaj Auto, which also reported a fall in sales in July, saw an increase of slightly more than 1 per cent.

Market observers expect two-wheeler manufacturers to undergo major production cuts due to because of decline in demand.

One of the many factors responsible for the decline in demand for two-wheelers in India is poor monsoon. As Indian economy is basically an agriculture economy, rural sector accounts for a major portion two-wheeler market. Poor monsoon hit rural people’s pocket very hard, which in turn affected their demand for almost everything, including two-wheelers.