Wait and watch for Hero Honda: Vivek Mavani

Vivek Mavani, VP-Institutional Equities Brics Securities, in a chat with ET Now, talks about Hero Honda.

Hero Honda, which came out with the numbers, after three or four quarters we have seen profit expansion, EBITDA expansion, what's the call here?

Hero Honda, what I see is of course the volumes are very strong last few months and better product mix and slight price increases has contributed a huge more than 30% top line growth. It was not for quite sometime that we saw more than 30% top line growth, that's No. 1.

That's history now, the changed equation with their former partner Honda, its only from last one quarter that the company is now on its own as far as both technology as well as product development is concerned and also needs to create its own brand, something which for 26-27 years, the Honda name helped for whatever one may say, it was a very huge positive.

Going forward I would still not be enthusiastic by these numbers for 2-3 reasons that I would wait and watch as to how without Honda, the Hero Group is going to pull it off both on the technology as well as brand side. What could be some drag on margins going forward could be a huge amount of brand building expenses that they are going to be incurring from the current quarter, that's July quarter onwards and they will have to ramp up significantly the R&D spending for new product development including the new technology, so these two things are going to be playing where one needs to see how Hero Group is going to play the catch up in that sense.

Notwithstanding that Honda, now independently, is also ramping up their own production and marketing and distribution and competition is only going to get severe, so I would wait and watch as to how this is going to unfold in the next few quarters or maybe a couple of years. I would not be in any hurry to go and jump and buy Hero Honda. Bajaj Auto seems a much safer bet in the two wheeler space where of course the secular growth in volumes and