Hero Honda profit rises 49% on rural demand1 min read . Updated: 19 Apr 2010, 11:40 PM IST
Hero Honda profit rises 49% on rural demand
New Delhi: Hero Honda Motors Ltd, the country’s largest maker of two-wheelers, declared better-than-expected results as the company benefited from lower raw material costs and rising sales.
Sales rose 20% to Rs4,122 crore as the firm sold 1.1 million units last quarter, a growth of 19%. The sales expectation was Rs4,064.70 crore.
Profit was also up as a result of lower taxes that the company paid due to higher production at its Haridwar factory in Uttarakhand—1.4 million units against a target of 1.2 million. The company’s effective tax rate fell 1.7% to 18.8% in the fourth quarter because of the tax holiday at Haridwar.
Analysts said Hero Honda would find it difficult to maintain margins, which stood at 17.2%, primarily due to the rise in raw material costs, which declined by 1.1% to 67.2% of sales in the fourth quarter.
The rise in prices of steel, aluminium, copper and nickel will reflect in first quarter earnings, the company said.
“We expect some increase in raw material costs and so margins will come down, but not too significantly," said Kaushal Maroo, a research analyst at Religare Capital Markets Ltd.
Hero Honda, which aims to sell five million two-wheelers this fiscal, will announce the location of its fourth plant in the next two months.
“A feasibility study is being conducted," said Ravi Sud, chief financial officer of the company.
Sales of two-wheelers rose 25% last fiscal and Hero Honda expects growth rates to slow to 11-15% in the current fiscal, according to Anil Dua, senior vice-president (sales and marketing).
Rural demand has held up better than urban demand, which bodes well for the company as 42% of sales come from rural areas, an increase of 2% in the last fiscal.
Hero Honda also gained as a result of poor penetration of financing in rural areas. At present, only 25% of two-wheelers sold in India are financed, compared with 70% for cars.
Shares of Hero Honda closed at Rs1,896.90 each, down 1.2%, on the Bombay Stock Exchange (BSE); the benchmark Sensex index shed 190 points, or 1.1%, to 17,400.68. The company’s shares have risen 15% so far this year while the BSE Auto Index has stayed almost flat at 7,507.07 points.
Annual sales rose 28% to Rs15,860 crore compared with an expectation of Rs15,757 crore. Profit rose 74% to Rs2,231 crore against an expectation of Rs2,182 crore.