BackHero Honda net soars on premium bike sales
Hero Honda net soars on premium bike sales
PremiumRiding high: A Hero Honda showroom in New Delhi. The company’s margin widened to a record 18.3% in Q2. Rajkumar / Mint
New Delhi: India’s largest two-wheeler maker, Hero Honda Motors Ltd, posted a 95% rise in profits in the three months ended 30 September as it benefited from greater economies of scale and lower raw material costs.
This was the second consecutive quarter that the company sold more than a million units.
Net profit in the September quarter rose to Rs597.1 crore from Rs306.3 crore a year earlier. This was better than analyst expectations of Rs539.7 crore in a Mint poll of five experts on 13 October.
A late revival in the monsoon rains in time for the festive season resulted in rural sales holding up, the company said. As much as 40% of the auto maker’s motorcycle sales comes from rural customers.
The results were announced after markets closed.
The increase in earnings reflects a surge in automobile sales in India, holding out a possibility of a sustained revival in the economy that had slowed after being gripped by a credit squeeze in September last year.
Significantly, sales of premium bikes have risen 40% this calendar year against an overall of 22% rise in sales, according to Anil Dua, senior vice- president, sales, marketing and customer care.
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Although premium bikes make up for only about 6% of Hero Honda’s sales, the increase comes as a shot in the arm for a firm that has so far been known mainly for its dominance in the 100cc segment.
The increase in sales came in spite of a lack of improvement in loans for bikes, Dua said. Currently, 20-22% of bikes are financed, compared with a record 55% in 2006 calendar year, he said. Hero Honda has tied up with cooperative and regional rural banks for financing, Dua said.
Mahantesh Sabarad, an analyst at Centrum Broking Pvt. Ltd, said the numbers don’t take into account informal loans that are made to bike buyers across the country.
“For the company this is registered as a cash sale," he said. About half the motorcycles that the company sells are paid for by loans from the so-called unorganized sector, according to Sabarad.
The company’s margin widened to a record 18.3% from 13.6% compared with a year ago. Lower administrative and plant expenses contributed 0.5 percentage point to the margins, Ravi Sud, senior vice-president and chief financial officer, said in a phone interview after the earnings announcement.
Sustaining these margins will be a challenge, Sud said, as steel prices were moving upwards.
Hero Honda shares fell 2.86% to Rs1,610.45 in Mumbai trading on Wednesday, having doubled this year. The benchmark Sensex index on the Bombay Stock Exchange (BSE) fell 1.24% to 17,009.17 points. The BSE Auto Index fell 2.36%, having risen 166% this year.
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