Today if one talks about Indian two-wheeler industry, reference to Hero Honda Motors Limited is by default. It is not only the market leader in the two wheeler segment in India but also is the number one two wheeler company in the world by volumes. The company's name is synonymous with fuel-efficient bikes and longevity. The company has a presence in all bike segments viz. economy (CD 100SS, CD Dawn) executive (Super Splendor, Splendor+) and premium (Karizma, CBZ). Splendor is the most successful product of the company and accounts for almost 50% of the company's turnover.
(Rs m) | FY00 | FY01 | FY02 | FY03 | FY04 |
Motor Cycles sold (m) | 0.76 | 1.03 | 1.43 | 1.68 | 2.07 |
Net sales | 22,464 | 31,687 | 44,654 | 51,017 | 58,324 |
Other income | 204 | 221 | 767 | 956 | 1,681 |
Total revenues | 22,668 | 31,907 | 45,422 | 51,973 | 60,005 |
Operating profit | 3,070 | 4,285 | 6,807 | 8,636 | 9,801 |
Depreciation | 347 | 443 | 510 | 580 | 733 |
PBIT | 2,724 | 3,843 | 6,297 | 8,056 | 9,068 |
Interest | 47 | 25 | 15 | 17 | 17 |
PBT | 2,880 | 4,038 | 7,049 | 8,995 | 10,732 |
Extraordinary Items | -34 | -268 | -105 | (149) | (7) |
Tax | 925 | 1,301 | 2,315 | 3,038 | 3,441 |
Net Profit | 1,921 | 2,469 | 4,629 | 5,808 | 7,283 |
Operating profit margin | 13.7% | 13.5% | 15.2% | 16.9% | 16.8% |
Net profit margin | 8.6% | 7.8% | 10.4% | 11.4% | 12.5% |
Number of shares (m) | 39.9 | 199.7 | 199.7 | 199.7 | 199.7 |
Face Value (Rs) | 10.0 | 2.0 | 2.0 | 2.0 | 2.0 |
DPS (Rs) | 10.0 | 3.0 | 17.0 | 18.0 | 20.0 |
EPS (Rs) | 48.1 | 12.4 | 23.2 | 29.1 | 36.5 |
Fully Diluted EPS (Rs) | 9.6 | 12.4 | 23.2 | 29.1 | 36.5 |
Ratios | FY00 | FY01 | FY02 | FY03 | FY04 |
RONW | 20.0% | 100.0% | 100.0% | 100.0% | 100.0% |
ROCE | 37.8% | 36.5% | 58.5% | 59.0% | 55.5% |
Debt Equity (x) | 0.1 | 0.1 | 0.2 | 0.2 | 0.2 |
Interest coverage (x) | 57.8 | 151.9 | 417.0 | 465.7 | 527.2 |
Dividend payout | 0.9% | 0.6% | 0.4% | 0.4% | 0.3% |
BVPS | 111.1 | 30.5 | 33.8 | 42.5 | 57.0 |
The company has clarified about its intention of setting a third plant in addition to its existing two plants. The company has embarked upon a green field expansion plan and has earmarked Rs 2 bn for the same. It should be noted that the company has a strong cash flow position, it generated Rs 9 bn from operation in FY04 and is virtually a debt free company.
From Hero Honda's perspective, the effect of competition and the pricing pressure is evident from the fact that though the growth in sales volume in FY04 was 24% YoY, the same was only 14% in value terms. Further the operating profit is showing a decreasing trend, from 66% growth YoY in FY00 to 13.5% YoY in FY04, and is expected to continue. The rise in the cost of inputs like steel, rubber, plastics pose a significant problem due inability to aggressively price the product thereby adversely affecting the operating margins. Further publicity and advertisement expenses are expected to rise for aggressive marketing of new launches and existing products.
Among other concerns, the new agreement between Honda Japan and Hero Honda does not have 'no compete clause'. Secondly, The company is planning to foray into the scooter segment with a launch scheduled in mid-2006. The rational behind this seems to be obscure, as the share of the scooters in the two-wheeler industry has reduced to 16% from a high of more than 50%. Even the market leader, Bajaj Auto, is facing the industry pressure.
As per the NCAER report the demand for motorcycles in India is expected to be 10 times that of the scooters and moped by 2011-12. At the same time one has to bear in mind that Hero Motors (a Munjal group company) has entered into an agreement with 'Aprilla' to strengthen its presence in the ungeared scooter market. Thus in effect this would result in two companies of the same promoter group competing against each other. Further, Honda Motors, Japan through its 100% subsidiary has a significant presence in the scooter segment.
At Rs. 535, the company trades at a price to earnings multiple of 12 times and Price to free cash flow ratio of 27.5 times our FY07E estimates. Though Hero Honda has done well in the past, we are skeptical of its prospects in view of the competitive environment within the segment. We foresee margins coming under pressure. We prefer Bajaj Auto within this segment.
For the quarter ended December 2020, HERO MOTOCORP has posted a net profit of Rs 11 bn (up 23.2% YoY). Sales on the other hand came in at Rs 98 bn (up 39.7% YoY). Read on for a complete analysis of HERO MOTOCORP's quarterly results.
For the quarter ended June 2020, HERO MOTOCORP has posted a net profit of Rs 613 m (down 95.1% YoY). Sales on the other hand came in at Rs 30 bn (down 63.0% YoY). Read on for a complete analysis of HERO MOTOCORP's quarterly results.
Here's an analysis of the annual report of HERO MOTOCORP for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of HERO MOTOCORP. Also includes updates on the valuation of HERO MOTOCORP.
Here's an analysis of the annual report of HERO MOTOCORP for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of HERO MOTOCORP. Also includes updates on the valuation of HERO MOTOCORP.
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