Backed by strong growth in volumes and margins, the company reported a stellar performance in 2009-10.
Hero Honda notched up sales volumes of 1.18 units, up 19 per cent over the previous year’s quarter. Volumes for 2009-10 stood at 4.6 million, a growth of 24 per cent, in line with the overall market growth for two-wheelers. For 2010-11, the management estimates a more sedate 12-15 per cent growth to about 5.1 million considering the high base of 2009-10.
Volume growth helped bring down raw material costs (as a percentage of sales) to 67.4 per cent from 68 per cent in the December quarter. Sales realisations, which improved by Rs 1,000 to Rs 34,000 per vehicle, also helped, as Hero Honda continued its efforts to skew volumes in favour of higher priced premium bikes. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins, thus, improved by 126 basis points to 17.27 per cent year-on-year. Going ahead, the management believes that it will be able to maintain margins on the back of volume discounts from its supply chain.
At the net level, lower tax rates played a key role in helping the company register higher numbers. Thanks to the tax breaks at Haridwar, where it is currently manufacturing 1.4 million units, it had to pay only 21 per cent tax for FY10 compared with 28 per cent in the previous financial year. The company expects to avail these gains in the current financial year as it ramps up production at this plant.
At Rs 1,896, the stock is trading at 13.7 times FY11 earnings estimate of Rs 138.