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Hero Honda: Net rises 30% YoY

Apr 14, 2001

As per a newspaper article, Hero Honda Motors, India's largest motorcycle manufacturer has reported a net profit of Rs 2,500 m for FY01, a growth of 30.2% YoY. The company's gross sales during this period grew by 63.3% to Rs 39.2 bn in FY01 as compared to Rs 24 bn reported in FY00.

(Rs m)* FY00 FY01 Change
Sales 23,989 39,170 63.3%
Profit after Tax/(Loss) 1,921 2,500 30.2%
Net profit margin (%) 8.0% 6.4%  
No. of Shares (eoy) (m) 39.9 199.7  
Diluted number of shares 199.7 199.7  
Diluted Earnings per share 9.6 12.5  
* These figures are taken from a leading business daily as
quoted to them by a company official.
However, the company's actual numbers will be declared at the
end of April 2001, after their board meeting.

During FY01, Hero Honda has sold over 1 million motorcycles, a growth of 35% YoY as compared to 7,61,000 motorcycles in FY00. As a result of its strong presence in the 100 cc four stroke motorcycle segment the company's market share grew to 48% in FY01 as compared to 42% in FY00.

As competition in the four stroke segment has increased during the year with the aggressive entry of Bajaj Auto, Hero Honda's margins have been under pressure. The company's margins declined in the 1HFY01 as compared to 1HFY00, but showed some improvement in 3QFY01 YoY due to cost cutting measures taken by the company.

The company's net profit growth would have been higher had it not been for pressure on operating margins and higher depreciation costs due to expansion of the company's capacity.

We are forecasting a net profit of Rs 2,703 m for FY01, which works out to an EPS of Rs 13.5. The above results as reported are lower than our expectations by 7% YoY. We continue to maintain our net profit forecast for FY02E at Rs 3,417 m and EPS at Rs 17.1, till the official numbers are released by the company.

Due to poor agricultural growth in FY01, rural incomes are likely to be affected in FY02. As 60% of motorcycle demand is from rural areas, this segment of the automobile sector is likely to face a slowdown. In terms of competition also, the scenario is expected to get tougher in the coming year as new models are being introduced by competitors. Besides cheaper imports from China too are expected to pick up in FY02. This is likely to put pressure on the company's margins in FY02.

On the current price of Rs 130.5 it is trading at 10.4x FY01 EPS of Rs 12.5.


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