New Delhi: Despite a record quarter that saw it sell 1.4 million two-wheelers, profit at Hero Honda Motors Ltd declined 20% to Rs429 crore in the three months ended 31 December.
Revenue grew 34.44% to Rs5,161.66 crore.
India’s largest maker of motorcycles blamed the lower profits on higher input costs and lower component supplies, and said margins would remain under pressure in the short term. Its profit included a one-time expense of Rs78.9 crore for provision regarding probable claims for?disputes pending with statutory authorities.
A Reuters poll of 11 brokerages had forecast a net profit of Rs574 crore.
“While we did know that rising raw material prices to hit margins but we did not expect it to be so low,” a sector analyst said on condition of anonymity. Hero Honda’s shares fell 5.27% on Wednesday to close at Rs1,523.05 on the Bombay Stock Exchange, while the benchmark Sensex index gained 0.38% to close at 18,090. 62 points.
“At least three extraordinary expenditure happened in this quarter, which hit our margins, apart from the rising raw material prices,” chief financial officer Ravi Sud said. “Our spend on exceptional items rose to Rs80 crore, deposits made in NCCD (National Calamity Contingency Deposit) was around Rs18 crore this quarter. Also, as we were the CWG (Commonwealth Games) sponsors; that expenditure has gone up to Rs38 crore over the last two quarters.”
The firm did not clarify on its expenditure on exceptional items. Operating margin for the quarter stood at 11.17%, which analysts said was a sharp drop from the company’s average of around 14%. “Raw material and other expenses seem to have gone up significantly. That there are cost pressures was known, but the quantum is surprising,” said Nikhil Deshpande, sector analyst at PINC Research.
He said the company’s margins would be under pressure in the ongoing quarter as well due to an expected rise in advertising expenditure for the upcoming cricket World Cup that begins later this month.
Hero Honda expects demand for two-wheelers to remain robust, and will go ahead with plans to add capacity. “We are close to finalizing the location for our fourth plant. We will shortly be making an announcement in this regard even as we keep adding further capacities at our existing three plants,” managing director Pawan Munjal said in a statement.
In the October-December quarter, Hero Honda registered its highest-ever quarterly sales of 1.43 million two-wheelers. India’s auto industry grew at 32% in 2010, driven by a strong economy, but rising interest rates and higher fuel prices can slow demand this year. According to industry lobby Society of Indian Automobile Manufacturers, the sector is slated to grow at 16-18% in 2011. In December, Hero Group’s founders agreed to buy out partner Honda Motor Co. Ltd’s 26% stake in the Indian joint venture, ending a nearly 25-year-old partnership.
Profit: Rs429 crore, 20%
Revenue: Rs5,161.66 crore, 34.44%
Reuters contributed to the story.