Mumbai: India’s largest motorcycle maker Hero Honda posted a 16.5% drop in quarterly profit, its fourth consecutive quarterly fall, as rise in input costs outweighed robust sales.
The company, which has been facing growing competition locally, said earnings before interest, taxes, depreciation, and amortization (EBITDA) margin stood at 15.39% and that it spent Rs3,930 crore on raw materials in the quarter.
Indian automakers are expected to see pressure on operating margins as commodity prices, including those of steel, rubber and other materials, continue to rise.
“New product development will be one focus area as we move ahead in order to expand our customer base,” managing director Pawan Munjal said in a statement.
Auto sales in India grew a record 30% in 2010/11 to 1.98 million units, driven by a burgeoning middle class in Asia’s third-largest economy, easier access to loans and a wider choice of models.
But, auto sales are seen moderating in 2011, with growth pegged at 12 to 15% by the Society of Indian Automobile Manufacturers (Siam), a New Delhi-based industry body.
Earlier this year, Hero Investments agreed to buy Honda Motors’ 26% stake in Hero Honda for around $851 million, with the Japanese automaker exiting its joint venture in India after more than 26 years.
The deal allows Hero Group to explore new products and export opportunities in markets where Honda has a presence, a move it had been barred from while in the joint venture.
Hero Honda’s chief financial officer Ravi Sud said the company would pay Honda Motor a royalty of Rs2,479 crore due through June 2014.
On Monday, Hero Honda said sales of two-wheelers grew 39% in April to 517,099 units.
The New Delhi-based firm reported net profit of Rs500 crore ($112.4 million), for its fiscal fourth quarter ended March, down from Rs599 crore a year earlier. Net sales climbed 30.7% to Rs5,350 crore during the quarter.
Analysts, on average, were expecting net profit of Rs510 crore, Thomson Reuters I/B/E/S showed.
Hero Honda, which makes the CD range of bikes, Splendour, Glamour and Pleasure scooters, sold 1.45 million units during the quarter, up 22.6% from a year earlier.
“Even as plans are being finalized for our fourth plant, we are fast ramping up capacities at our existing plants,” Munjal said, adding the company had short-listed a few locations for the plant.
Shares in Hero Honda closed down 3.5% at Rs1,598.70. The stock has fallen nearly 16.7% so far in 2011, lagging a 9.6% decline in the main stock index.