Low volumes take sheen off Hero Honda

CORPORATE SCORECARD

Hit by low volumes and suppressed margins, Hero Honda Motors has reported a 20.14 per cent dip in net profit to Rs 189.8 crore in the June 2007 quarter compared with the same period last year.

However, the company recorded a marginal growth of 3 per cent to Rs 2,486.9 crore in terms of total turnover (sales turnover plus other income, net of excise) over the corresponding period last year.

Vaishali Jajoo, analyst with Angel Broking, said, " Margins, which were under severe pressure because of increased input costs, fell by around 250 basis points over the corresponding period last year. Prices of raw materials rose by 100 basis points and other expenses rose by around 150 basis points."

Domestic sales fell by 2.69 per cent during the quarter. In the 100 cc motorcycle segment, which is considered to be its core area, sales were down by as much as 6.66 per cent. 
 

Rs crore	Quarter ended June
	2006	2007
Net sales	2364.4	2448.0
Other income	52.3	38.9
Expenditure	2045.4	2184.5
OP	371.2	302.4
Net profit	237.7	189.8
EPS (Rs)	11.9	9.5

However, sales grew by 236 per cent in the premium and deluxe segments (motorcycle segments with engine capacity more than 125cc), mainly on account of Glamour and the CBZ Xtreme. Earlier this month, Hero Honda delayed production at its greenfield Uttaranchal plant till the next fiscal because of the slowdown in the two-wheeler industry.

The industry is witnessing a slump, with domestic sales going down by as much as 9 per cent in April-June 2007 over the same period last year, owing to hardened interest rates.

Motorcycles have been the worst hit as their sales declined by 14.50 per cent in the same period. Recently, the other major, Bajaj Auto, declared a net profit slump of 15 per cent in the April-June quarter, attributing it to "customer fatigue" with 100 cc motorcycles.

Brijmohan Lall, chairman, Hero Honda said, "The first quarter of this financial year has not been encouraging for the industry in general, with the uncertainty over interest rates making customers postpone their purchases. We don't foresee much of a change in the scenario for at least the next two months."

Analysts are also sceptical about the performance of the company in the current quarter, "The company might save on margins because of better realisation from bigger models but volumes still look dicey. We can hope for a revival only after September as the festive season arrives," said Jajoo.

Shares of Hero Honda ended lower by 1.39 per cent today at Rs 695.