Hero Honda surged for the second day in a row today on the back of improved vehicle sales for May 2003.

The scrip of the motoprcycles major edged up 1.4% to Rs 226.40 by the end of one half of trading. The scrip gained as much as 2.2% to Rs 228.25, earlier. Around 1.5 lakh shares were traded on BSE. The stock surged 4.4% to Rs 223.25 on Monday.

The stock has witnessed high volatility, trading  between Rs 190-230 over the last few months. The stock has substantial institutional holding. Among institutions, FIIs have the biggest stake. As of 31 March 2003, the total institutional holding was 31%, of which FIIs held 22.5%.

The stock is currently at the higher end of the trading range, having risen from sub-Rs200 level over the last one month. One reason why the stock has held firm is due to hefty dividend of Rs 18 per share (900%) that the company declared for FY 2002-03. The stock is trading cum-dividend now.

The latest recovery on the counter also comes on the back of improved vehicle sales that the company reported for May 2003 . For May 2003, the company recorded a 12.3% rise in vehicle sales to 1,63,579 units. Month-on-month, sales jumped 22% from 1,34,318 units in April 2003.

The sharp surge in month on month sales was also due to increased demand, what with the end to the recent truckers' strike, which had hurt sales in April 2003.

The improved May 2003 figures comes as a relief to the company as it has been witnessing a slowdown and a loss of market share to rivals due to increasing competition. A high base effect with a sharp surge in sales over the last 2-3 years has also been weighing largely on the company's performance.

The company derives nearly 80% of its sales volumes from the Splendor and Passion models. The executive segment being over crowded, pricing pressure will continue to increase in the coming months, according to analysts. Hero Honda plans to reduce this risk by launching two new upgraded versions and one new model each in the entry level and premium segments respectively.

Hero Honda recently launched its cheapest 100cc motorbike. The new model, CD-Dawn, carries a showroom price of Rs 31,899 in Delhi. The company expects to sell 7,000-8,000 units of the bike in the initial months and hopes that sales will soar to 20,000 a month in six months.

In other crucial developments, Honda Motor Company of Japan and Hero Honda have agreed to carry on their co-existence after 2004. Honda Motorcycles and Scooters India, which is a 100% subsidiary of Honda Motor Company of Japan, will launch motorbikes in India from its parent company and Hero Honda will venture into scooters and scooterettes.

For the quarter ended 31 March 2003, the motorcycle major posted a net profit of Rs 148.96 crore (Rs 152.56 crore) on total income of Rs 1,248.20 crore (Rs 1,285.69 crore). For the year ended 31 March 2003, the company's net profit stood at Rs 580.76 crore (Rs 462.39 crore) on total income of Rs 5,194.55 crore (Rs 4,539.49 crore).