India’s largest two-wheeler maker, Hero Honda Motors Ltd, said net profit for the quarter to March rose a better-than-expected 53% from a year ago as it cut costs and sold more profitable motorcycles.
Net profit in the quarter rose to Rs299 crore from Rs195 crore a year ago. The increase was better than the Rs242 crore estimated by five analysts polled before the results.
Sales rose about 6% to Rs2,789 crore in the quarter as it sold more of its expensive motorcycles such as the CBZ Extreme and the newly introduced Hunk.
In the same period of the previous year, revenue was Rs2,640 crore. Full-year net profit rose 13% to Rs968 crore from Rs858crore a year ago. Total revenue was up 4.2% to Rs10,517 crore.
“During the year, we have focused on all-round efficiency improvement,” said Hero Honda managing director Pawan Munjal in an emailed statement.
“Several cost rationalization initiatives were also taken which have yielded excellent results in the improved bottom line.”
Still, the rise of input costs such as steel is a worry. “The price of steel is at an all-time high, and the prices of other commodities are also on the rise,” said Munjal.
“For more than a year, the industry has also been reeling under very high interest rates and lack of consumer finance.”
Analysts expect sales growth to stay at 7-8%, boosted by an excise duty cut and rise in disposable income that should offset higher lending rates and unavailability of retail finance that has hit the two-wheeler sector the hardest and dented sales of rivals such as Bajaj Auto Ltd and TVS Motor Co. Ltd.
About half the bike sales in India are made on credit.
Analysts also said Hero Honda will likely continue to maintain its operating margins— which measure how much profit is left after deducting the basic expenses of running a business—of around 13% because of a price hike that it made last week.
“The price hike and the new facility (at Haridwar, Uttarakhand) will help them maintain these levels of margins at least till the second quarter,” said Amit Kasat, analyst at Motilal Oswal Securities Ltd.
Under Union government rules, Hero Honda’s new factory in Hardwar will enjoy an excise tax holiday for 10 years, income-tax exemption for five years, and other incentives.
Hero Honda shares closed 2.7% up at Rs769.85 each on the Bombay Stock Exchange on Thursday.
The results were declared after trading hours.
Ammar Master contributed to this story.