It's been a good first half for the bike-maker, but numbers for the rest of the year could be less exciting.
Although there is a low base effect because volumes in the June 2007 quarter had grown just 1.7 per cent, the results have been nevertheless good in a challenging environment. Moreover, they have beaten the Street’s expectations.
However, the management is cautious about the future believing that post the festive season business could be dull, among the main worries being high interest rates. Volumes which grew by a strong 28 per cent in the September quarter, may see slower momentum.
Despite money being expensive however, the Rs 10,332 crore company has managed to grow sales by a strong 36 per cent in the September quarter to Rs 3,202 crore; Hero Honda is obviously able to sell more bikes without finance schemes unlike some of its peers. Also, the company manages to sell more or less an equal number of vehicles in both the rural and urban markets thereby not being over-dependent on either. That’s probably why it has gained market share — its share is now just over 51 per cent.
In August this year, Hero Honda upped prices for most of its models in a bid to pass on higher input costs and the move has clearly paid off. The price increases ranged between Rs 600 and Rs 1,500. The firm is expected to end FY09 with revenues of around Rs 11,500 crore, a net profit of around Rs 1,160 crore and a rise in the earnings per share (eps) of around 20 per cent.
The stock has outperformed the Sensex since the start of 2008 and at the current price of Rs 826, trades at over 13 times estimated FY09 earnings. Should interest rates ease somewhat, sales of motorcycles will pick up and Hero Honda should do better than its peers. That’s why the valuation doesn’t seem expensive.