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Hero Honda results beat expectations

Hero Honda results beat expectations
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First Published: Mon, Apr 19 2010. 11 05 PM IST

Updated: Mon, Apr 19 2010. 11 05 PM IST
The country’s largest motorcycle maker Hero Honda Motors Ltd’s fourth quarter results surpassed expectations on the street. Driven by a 19% growth in sales volumes, net sales at Rs4,092.6 crore registered a 20% rise over the year-ago period.
The company sold 1.2 million vehicles in the quarter, which was the highest in fiscal 2010. Net profit at Rs598.8 crore was 48.9% higher over the year-ago period and 11.8% higher on a sequential basis.
The biggest surprise came from a higher-than-expected operating profit margin (OPM). Compared with analysts’ consensus of around 16.5%, the company posted an OPM of 17.3%, well above the 16.1% registered in the year-ago period. The Hero Honda management stated that margin expansion was a result of effective price negotiations with component makers, which brought down the raw material costs during the quarter despite raw material price increases.
A section of analysts state that the company might have got relief in costs from production at its new Haridwar plant in Uttarakhand, which at present enjoys excise and tax benefits. During the quarter, raw material cost was 67.2% of sales, which was lower than the previous corresponding period by around 170 basis points. One basis point is one-hundredth of a percentage point.
Meanwhile, the company is constantly adding capacity and introducing new products. By August, its installed capacity is expected to touch 5.7 million units from the present 5.4 milion. With plants operating at around 90% of their capacities, the company has maintained its leadership position with a market share of around 59%.
Crossing its target of four million two-wheelers in the year ended 31 March, Hero Honda has guided that it would cross five million units in fiscal 2011 and launch about eight new models and variants. Meanwhile, it is reportedly looking to set up a fourth plant, which will be needed by fiscal 2012 if it has to sustain growth.
Nevertheless, given the higher base that has now been established, the company has tempered its guidance for both the industry and the company at about 12-15% revenue growth for fiscal 2011, compared with 24% in fiscal 2010.
Write to us at marktomarket@livemint.com
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First Published: Mon, Apr 19 2010. 11 05 PM IST