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Hero Honda: Robust 3Q net - Views on News from Equitymaster
 
 
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  • Jan 17, 2001

    Hero Honda: Robust 3Q net

    Hero Honda, India's largest manufacturer of motorcycles has reported a net profit of Rs 702 m for the 3QFY01 a growth of 45% YoY, as compared to Rs 485 m for the 3QFY00. This is on the back of higher volumes and better realisations during the 3QFY01. Its total income for the 3QFY01 was Rs 8.5 bn as compared to Rs 5.9 bn in the 3QFY00, a growth of 44% YoY.

    This robust performance is a pointer to the surging volumes reported by the company in the current financial year. As a result it has managed to increase its market share to 48% currently as compared to 42% in FY2000.

    (Rs m) 3QFY00 3QFY01 Change
    Sales 5,890 8,492 44.2%
    Other income 24 16.7 -30.4%
    Expenditure 5,124 7,321 42.9%
    Operating profit (EBDIT) 767 1,172 52.8%
    Operating profit margin (%) 13.0% 13.8%  
    Interest 8 8 -7.2%
    Depreciation 73 112 54.8%
    Profit before Tax 710 1068 50.5%
    Other adjustments - -  
    Tax 224 367 63.7%
    Profit after Tax/(Loss) 485 702 44.6%
    Net profit margin (%) 8.2% 8.3%  
    No. of Shares (eoy) (m) 39.9 39.9  
    Diluted number of shares 39.9 39.9  
    Diluted Earnings per share* 43.6 60.4  
    *(annualised)      

    For the 3QFY01, the company has sold 275,164 motorcycles a growth of 38% YoY as compared to 198,541 motorcycles in 3QFY00. Considering that competition that has come into the motorcycle market in the current year, it is amazing that the company's realizations have improved in the 3QFY01.

    Also considering the company has been giving incentives so as to maintain its leadership this improvement is commendable.

      3QFY00 3QFY01 Change
    Volumes 198,541 275,164 38.6%
    Average realisation (Rs) 29,667 30,862 4.0%

    From April to December 2000, the company sold 754,794 units as compared to 537,113 units for the same period of the previous year, a growth of 41% YoY. The company's realizations too were up for the 9 month period by around 5% YoY.

    In terms of operating margins too, the company has reported an improvement in the 3QFY01 to 13.8%. Considering the competition, we would have thought that margins at best would have remained flat. However the company through its costs cutting measures has decided to buck the trend. Infact its margins have also improved over its 2QFY01 margins of 12.8% by over 100 basis points.

    The company has announced a stock split of 5 equity shares of Rs 2 each as compared to the present 1 equity share of face value Rs 10 each.

    In the next year we would be worried about the prospects for the company. For one, agricultural growth is expected to be lacklustre at less than 1% in the current financial year. The lag effect of this on rural incomes is likely to be felt in FY02. As 60% of motorcycle demand is from rural areas, this segment of the automobile sector is sure to face the impact.

    In terms of competition also, the scenario is expected to get tougher in the coming year. Its two nearest competitors, Bajaj Auto and TVS Suzuki are getting set to come out with new models in the current year. Besides cheaper imports from China too is expected to pick up in the current year. This is likely to put pressure on the company's margins in FY02.

    On the current price of Rs 938 it is trading at 11.0x FY02E EPS of Rs 85.2.

     

     

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