New Delhi: A smaller tax bill and strong demand helped Hero Honda Motors Ltd buck the trend of the previous quarters, and grow net profit by 13% in the three months to June over the same period last year.
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Revenue increased 32% to Rs5,683.33 crore.
The profit figure, at Rs558 crore, was slightly better than the estimates of a Bloomberg poll of 27 analysts, which had put it at Rs550 crore.
“Pressure on input cost was extreme for the last four to five quarters. However, we have started seeing softening of commodity prices. We expect our Ebitda (earnings before interest, taxes, depreciation and amortization) to improve in the coming quarters,” said Ravi Sud, chief financial officer, Hero Honda.
“However, the effect of softening commodity prices will be seen in coming quarters,” he added.
The company’s Ebitda, a measure of profitability, for the quarter stood at Rs818 crore, down from Rs830 crore a quarter ago.
Still, Hero Honda’s Ebitda in the coming quarters could be hurt by increased expenses, some of which stem from its break-up with long-time partner, Japan’s Honda Motor Co. Ltd.
Hero Honda is working on a new brand identity and strategy. The company has earmarked Rs100 crore for its rebranding exercise. In addition, it will spend 2.1-2.4 % of its total revenue on advertising. It plans to roll out a new brand identity by the end of this month or early next month.
Hero Honda will also increase investments in research and development and spend up to 1% of its revenue on the same.
“These expenditures are going to put pressure on margins in the coming quarters as well,” said Nikhil Deshpande, sector analyst at Mumbai-based brokerage firm Pinc Research.
“Our Q1 (quarter ended June) performance has set the outlook for coming quarters, and we are confident of achieving our initial guidance for FY12 to sell over six million units,” said Pawan Munjal, managing director, Hero Honda, in a release.
“However, on an immediate basis, the thrust is on operational excellence in light of the volatile costs of commodities such as steel, aluminum and rubber.”
The company, which manufactures almost half the motorcycles sold in India, can increase its production target for this fiscal year to 6.5 million vehicles, 1.1 million more than what it produced last year.
“This will be done through minor investments in de-bottlenecking or increasing efficiency of the existing plants and a small expansion as well,” said Sud. The company is yet to take a decision on setting up a fourth plant.
The company sold 15,29,577 units in the last quarter, registering a growth of 24% over a year ago.
Shares of Hero Honda rose 1.57% to Rs1,788.85 on BSE on Thursday, a day when the exchange’s benchmark index fell 0.36%.