Hero Honda Expects Slowdown on India Interest Rates

Hero Honda Motors Ltd., maker of about half the motorcycles sold in India, said demand will grow more slowly this year as the central bank raises interest rates to pare inflation.

“In the second half, demand should start tapering off,” Chief Financial Officer Ravi Sud said yesterday in an interview at his office in New Delhi. The company plans to boost production about 8.7 percent in the year ending March to more than 5 million motorcycles and scooters compared with a 23 percent increase last fiscal year.

India may take further steps to damp rising prices, Sud said, after four interest-rate increases since March failed to bring inflation down from near 10 percent. Rising prices have stoked public protests and sap demand for motorcycles in India, the world’s second-biggest two-wheeler market.

“Growth will definitely come down,” said Umesh Karne, an analyst at Mumbai-based Brics Securities. “Hero Honda may also lose some market share as rivals add new products.”

Mahindra & Mahindra Ltd., India’s biggest sport-utility vehicle marker, has said it plans to begin selling its first motorcycles before the end of the year. Bajaj Auto Ltd. and TVS Motor Co., the country’s No. 2 and No. 3 motorcycle-makers, are also adding new models.

Hero Honda, part-owned by Tokyo-based Honda Motor Co., fell 1.8 percent to 1,889.95 rupees in Mumbai trading today. The stock has risen 10 percent this year.

Industrywide Sales

The motorcycle-maker expects industrywide two-wheeler sales to grow on average as much as 12 percent annually for the next three years, Sud said. That compares with a 26 percent jump in the year to March, according to figures from the Society of Indian Automobile Manufacturers.

State Bank of India, the country’s biggest bank, raised its benchmark lending rate to 12.25 percent from 11.75 percent last week. ICICI Bank Ltd., the second largest, increased its prime lending rate to 16.25 percent from 15.75 percent.

To meet rising demand, Hero Honda plans to spend 1.15 billion rupees ($25 million) to add 300,000 units a year capacity to its plant in Haridwar in northern India by January, Sud said.

The motorcycle-maker boosted unit sales 10 percent in the three months ended June. Quarterly profit fell for the first time in almost three years because of higher raw material costs and money spent on meeting new emissions rules.

India, Asia’s third-biggest economy, is spending more to build roads connecting villages and to improve electricity, phone and health-care services. The infrastructure investments and rising prices for farm produce are boosting rural incomes.

“A lot of purchasing power has come there,” Sud said. “With higher disposable incomes and prosperity, who doesn’t want personal transportation.”

(Updates with closing share price in sixth paragraph.)
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