Investors that had stuck with Hero Honda in the wake of the massive slide last week ditched it on Tuesday.

And the scrip of world's largest motorcycle maker thus figured as the biggest loser in the 30-share BSE Sensex in late afternoon trades, down 5.29% to Rs 195. However, it managed to come off its intra-day high of Rs 207.50. Over 292,000 Hero Honda shares were exchanged on BSE by 14:45 IST. In the two previous sessions, Hero Honda had risen 13.7% to Rs 205.90 from Rs 181.10.

Last week investors were impressed by the company's benevolence as it declared a huge dividend of 900% (Rs 18 per share of Rs 2) along with its results. But the overwhelming growth concerns have flared up on the counter again, prompting selling on Tuesday.

Analysts say a weak product strategy and the price war (ie is expected to bring down the company's margins) will be a major hurdle in the company's growth path. Recently, Hero Honda offered a Rs 1,001 celebration discount on all its motorcycle models with retrospective effect from 1 April onwards. The discount will be applicable till 30 June 2003. In June 2002, HHML had offered a similar Rs 1,001-celebration discount on the Passion to create a price point for the Ambition. This made it the first time that Hero Honda offered a price discount on the Ambition, since the model's launch in September 2002 and was a clear sign of the competitive pressures in the market. In response, competitor TVS Motors has also extended its celebrity discount of Rs 2,003 on the Victor till June end.

With the start of the marriage season in North India and the rabi harvest season coming up, the move by Hero Honda is seen as one that will take advantage of the temporary buoyancy in the Northern markets. Furthermore, with May 2003 sales expected to be sedate in the run up to the VAT regime, April might be the only chance for manufacturers to perk up Q1 sales.

There have also been reports that Honda Motor (the foreign parent) has targeted an annual sales of 17.5 lakh two-wheelers in 2003 through its joint venture in India, Hero Honda Motors, and the wholly-owned subsidiary, HMSIL. This will constitute 25% of the parent's worldwide annual sales of 7 million two-wheelers, projected by 2003. Of the total 1.75 million vehicles to be sold, HHML is expected to contribute 1.5 million and the remaining 250,000 units by HMSIL.

This indicates that HHML's bike sales may slip by 10.75% in 2003, compared to last year's sales of 16,80,724 units.

There have also been concerns that Honda Motorcycles and Scooters India, will be allowed to sell motorcycles in India after April 2004. This casts doubts on Honda Motor's commitment to HHML.

HMSIL, in fact, has already put in place a wide network of dealers and channel agents. Analysts say that if HMSIL launches motorcycles, it will put further pressure on HHML's market share. The entry of a newer player will further increase competition.

On the flip side, Honda Motor announced that it will be renewing its technical pact with HHML. The promoters - the Munjals of the Hero Group and Honda Motor - hold a 26% stake each in HHML. Foreign institutional investors have a substantial holding of 23.23% in HHML, while domestic funds have 5.68%. The public owns 17.32% and private corporate bodies and NRIs/OCBs 1.76%.

The Hero Group had inked the technical agreement with Honda Motor in 1984, which was renewed in 1994 and now comes up for renewal in June 2004. According to market sources, the agreement has already been renewed till 2008.

For the quarter ended 31 March 2003, Hero Honda posted a net profit of Rs 148.96 crore (Rs 1.48 crore) on total income of Rs 1,248.20 crore (Rs 12.48 billion). For the year ended 31 March 2003, the company's net profit stood at Rs 580.76 crore (Rs 5.8 billion) on total income of Rs 5,194.55 crore (Rs 51.9 billion).

BSE code: 500182