Rising input costs dent Hero Honda profit

CORPORATE SCORECARD

Hero Honda Motors, the country's biggest motorcycle maker, posted 27 per cent drop in net profit for the quarter ended March 31, 2007, on rising input costs and high sales expenditure. The company had spent heavily on sales promotions of its eight new launches and in the recently concluded ICC World Cup.

Profit for the quarter was Rs 195 crore against Rs 267.19 crore in corresponding period of the previous financial year.

Total sales (net of excise), however, grew by 16.75 per cent to Rs 2,684.09 crore during the quarter against Rs 2,298.91 crore in the same quarter a year ago. For the year ended March 31, 2007, net profit dipped 11.67 per cent to Rs 857.89 crore compared with Rs 971.34 crore in the previous fiscal. The total turnover during the year increased by 13.7 per cent to Rs 10,089.81 crore against Rs 8,870.26 crore in FY06.

The company said profits were down owing to 12 per cent rise in aluminium prices, 21 per cent rise in steel and a steep rise in nickel prices.

Pawan Munjal, managing director, told Business Standard: "The commodity prices have been going up and we have been maintaining that margins have been under pressure. We are taking internal steps, including value engineering to tackle the rising cost of commodities and maintain the high growth path."

The company is planning to roll out new variants this year to maintain the current 50 per cent share in the motorcycles segment, despite some slowdown in two-wheeler sales in the January-March quarter. With the third plant at Haridwar in Uttrakhand expected to go on stream by the middle of this year, the company is expected to avail tax benefits such as free excise and income tax deduction to be positive on its profits.

"The plant is expected to go on-stream in the middle of this year and would help us to maintain our focus in the 100 cc segment. It would ease margins and improve our profitability in the current fiscal," Munjal added.

Analysts said the results were as per expectations. "They have maintained positive sales in the past few months and increased their market share, which has impacted profits. The company is expected to post good sales in the current quarter too," said Huzaifa Suratwala, analyst with Emkay Share and Stock Brokers.

Hero Honda had reported a growth of 11.19 per cent in its vehicle sales in 2006-07 at 33,36,756 units against 30,00,751 units in 2005-06.