Hero Honda, India's largest manufacturer of motorcycles, will be reporting its FY01 results today. We are expecting a net profit of Rs 2.7 bn for FY01E, a growth of 41% YoY. The company has reported a volume growth of 35% YoY at 1,029,591 motorcycles for FY01.
As this was higher than what the industry grew at, the company's market share went upto 48% in FY01 as compared to 42% in FY00. The company's strong presence in the 4 stroke 100 cc segment, which accounts for 80% of the total motorcycle market has enabled this. Its largest selling bike, the Splendor commands the highest market share in this category.
For the first nine months of FY01E, Hero Honda's volumes grew by 41% to 754,794 and its average realisation per vehicle grew by 5% YoY. As the motorcycle segment has slowed down in 4QFY01E, we have assumed a slower growth in volumes for this quarter at 28% YoY as well as only a 3% growth in realisations due to higher competition in the four stroke segment.
As a result for FY01 we have assumed a total volume figure of 1,043,424 a growth of 37%. As the actual volumes reported by Hero Honda are lower than these figures, it is likely that its net for FY01E will be lower than ours by 5%-7%.
On the margins front, Hero Honda's operating margin for 9mth FY01E was 13.2% as compared to 13.3% in 9mths FY00. We have assumed margins in FY01 to remain more or less flat due to higher competition in the segment as well as higher costs related to marketing.
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 current financial year due to new entrants in the 4 stroke segment. This is likely to put pressure on the company's margins in FY02.
Though the threat of cheap Chinese imports cannot be ruled out totally, the government's recent decision to hike the import duty from 35% to 60% for new CBUs in two wheeler segment, will protect the domestic players to some extent.
On the current price of Rs 152 it is trading at 11.3x FY01E EPS of Rs 13.5.
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