X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Hero Honda: Hits a roadblock - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jul 14, 2003

    Hero Honda: Hits a roadblock

    The first quarter ended June 2003 results of Hero Honda, the market leader in the motorcycle segment, clearly indicate that it is not going to be a joy ride for the company any more. While volume growth is good, there has been significant pricing pressure and consequently a squeeze on margins in 1QFY04. As a result, operating profit has grown only by 1% in the same period.

    (Rs m) 1QFY03 1QFY04 Change
    No. of motorcycles sold (Nos) 421,679 458,779 8.8%
    Net sales 12,744 13,237 3.9%
    Other Income 160 361 125.2%
    Expenditure 10,630 11,103 4.4%
    Operating Profit (EBDIT) 2,114 2,134 1.0%
    Operating Profit Margin (%) 16.6% 16.1%  
    Interest (net) (7) (0) -98.5%
    Depreciation 135 152 12.6%
    Profit before Tax 2,146 2,344 9.2%
    Tax 754 766 1.6%
    Profit after Tax/(Loss) 1,392 1,578 13.4%
    Net profit margin (%) 10.9% 11.9%  
    No. of Shares (m) 199.7 199.7  
    Diluted Earnings per share* 27.9 31.6  
    P/E Ratio (x)   8.3  
    (* annualised)      

    Total volumes in 1QFY04 is higher by 8.8% at 458,779 units. Volume growth has shown a decelerating trend over the last three quarters, which could be attributed not only to competitive pressures but also to slowdown in demand. Since Hero Honda is highly reliant on 'Passion' and 'Splendor' for volume growth, the launch of 'CD-100 Dawn' and 'Karizma' augurs well for the rest of the fiscal. In fact, in May 2003, Hero Honda has posted a 14% rise in motorcycle volumes primarily led by new products. We expect the company to post a 10% rise in volumes for FY04 and a further decline in market share.

    Operating margins are lower by 50 basis points due to two broader factors. Firstly, the launch of new products could have resulted in higher marketing and adspend (other expenses as a percentage of sales has increased from 11.1% in 1QFY03 to 11.7% in 1QFY04). Secondly, there has been significant pricing pressure in 1QFY04 as reflected in a 4% rise in net sales as against a 9% growth in volumes. We have factored in a 40 basis points fall in operating margins for FY04 in our estimates.

    Net profit has risen by 13.4% primarily on account of higher other income. The stock currently trades at Rs 261 implying a P/E multiple of 8.3x 1QFY04 annualised earnings. Though valuations seem to be attractive, we expect margin pressure to increase in the remaining quarters. Also, in order to sustain market share and keep volume momentum going, Hero Honda may have to resort to higher credit sales in the future. But with the Indian economy expected to grow at 6.5% in FY04 (Source: CMIE), there could be a revival in volumes. This could bring in some respite to the motorcycle major.

     

     

    Equitymaster requests your view! Post a comment on "Hero Honda: Hits a roadblock". Click here!

      
     

    More Views on News

    Hero Motocorp Ltd: Riding on the Scooters Growth, Maintains Margins! (Quarterly Results Update - Detailed)

    Aug 1, 2017

    Good Recovery in the Scooters market, expects pick up in exports too.

    Hero Motocorp Ltd: Finishes the year with multiple Headwinds. What next? (Quarterly Results Update - Detailed)

    May 22, 2017

    Hero Motocorp ltd has announced its financial results for the fourth quarter of the financial year 2016-17 (4QFY17). During the quarter, revenues were

    Hero Motocorp Ltd: Volumes Disappoint (Quarterly Results Update - Detailed)

    Feb 20, 2017

    Hero Motocorp ltd has announced its financial results for the third quarter of the financial year 2016-17 (3QFY17).

    Tata Motors Ltd: Another Disappointing Quarter, Management fails to Perform! (Quarterly Results Update - Detailed)

    Aug 14, 2017

    Tata Motors Ltd disappoints again for both India and JLR business. Management commentary indicates a slow year ahead.

    Maruti Suzuki Ltd: Bumpy First Quarter. GST dents Margins! (Quarterly Results Update - Detailed)

    Aug 2, 2017

    GST realted cost impacts Margins, Management expects good year ahead.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    HERO MOTOCORP SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK HERO MOTOCORP

    • Track your investment in HERO MOTOCORP with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    HERO MOTOCORP - SAIC MOTOR COMPARISON

    Compare Company With Charts

    COMPARE HERO MOTOCORP WITH

    MARKET STATS