In line with market expectations, the country’s largest two-wheeler company, Hero Honda, earned a net profit of Rs 402.2 crore for the quarter ending March 31, nearly 35 per cent more than the Rs 298.7 crore for the same quarter last year.
Total sales for the quarter were Rs 3,411.8 crore, a 22.34 per cent rise from the Rs 2,788.65 crore earned for the same period last year.
Pawan Munjal, managing director and CEO, gave four reasons for the healthy growth despite the overall slowdown in domestic sales of two-wheelers. First, the high number of customers in rural and semi-urban areas, where no organised financing exist and so is largely unaffected by the credit crunch. Two, major cost cutting. Third, tax benefits due to location of its third factory in Haridwar, which brought down the effective rate of duty from 31.5 per cent to 28 per cent. Fourth, softening commodity prices like that of steel and aluminium.
Hero Honda saw 19.2 per cent growth in turnover for 2008-09, earning Rs 12,319.12 crore. Its net profit for the financial year was Rs 1,281.8 crore, a 32.4 per cent growth over the Rs 967.9 crore a year ago.
For the year ending March 2009, the company sold 3.7 million units in both domestic and export markets, a 12 per cent growth over last year. The entire two-wheeler industry during the period grew only 3 per cent. The company was also able to improve its EBIDTA (earnings before interest, depreciation and amortisation) margins for 2008-09 to 14.2 per cent from 13.3 per cent the previous year.
The earnings, say analysts, are in line with their expectations. “During the difficult growth phase of 2008, when the entire two-wheeler industry grew 2.6 per cent, Hero Honda had a growth of 12.14 per cent in domestic sales. Both turnover and net profit are in line with our forecasts,” said Vaishali Jajoo, analyst, Angel Broking.
To maximize tax benefits at Hardwar, the company plans to produce around 1.2 million two-wheelers there in the current fiscal. This means the overall production capacity will go up to 4 million for 2009-10. Hero Honda will also invest an additional Rs 350 crore this year to upgrade plants and to develop two-wheeler engines conforming to the emission norms of 2010.
Says Anil Dua, senior vice-president (marketing & sales): “The fact that we didn’t offer discounts during the crucial Diwali/Dussehra period and surpassed sales of over 500,000 helped profitability. Plus, advance planning helped us utilise cost-effective media options.”
“We are hopeful of performing well in the first two quarters of the current fiscal. The recent move by the RBI to lower key interest rates is welcome. But we find banks are refusing to lend and this is impacting sales of two-wheelers. There is no clarity on repossession norms,” said Munjal.
