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Hero Honda: The growth story continues - Views on News from Equitymaster
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  • Jul 16, 2001

    Hero Honda: The growth story continues

    Hero Honda, the largest manufacturer of motorcycles in India, has posted a 30.7% rise in net profit to Rs 788 m for 1QFY02. The new launches in the first quarter of the current year (namely Passion and Joy) has performed extremely well and continues to record significant rise in volumes on a quaterly basis.

    (Rs m) 1QFY01 1QFY02 % change FY01
    Sales 7,283 9,520 30.7% 31709
    Other Income 77 30 -61.7% 220.5
    Expenditure 6,339 8,187 29.1% 27548
    Operating Profit (EBDIT) 944 1,333 41.2% 4,161
    Operating Profit Margin (%) 13.0% 14.0% 13.1%
    Interest 8 4 -50.0% 25
    Depreciation 95 141 48.6% 443
    Profit before Tax 918 1,218 32.6% 3,914
    Extraordinary Items - -   144
    Tax 315 430 36.3% 1301
    Profit after Tax/(Loss) 603 788 30.7% 2,468
    Net profit margin (%) 8.3% 8.3% 7.8%
    No. of Shares (eoy) (m) 39.9 199.7   199.7
    Diluted Earnings per share* 12.1 15.8   12.4
    P/E (at current price) 9.8   12.5

    Aggregate sales of motorcycles stood at 306,930 units in 1QFY02 as compared to 239,542 units in 1QFY01, a significant rise of 28.1%. A slower growth in operating expenses has resulted in a 100 basis points expansion in operating margins to 14.0% in 1QFY02. Besides, a 50% fall in interest costs in the first quarter also enabled the company in posting a sharp rise in net profits during the aforesaid quarter. But this was nuetralised by a 48.6% rise in depreciation to Rs 141 m, which could be due to the capacity expansion plans of its motorcycle division.

    The growth in profits would have been higher but for a 61.7% fall in other income. Excluding other income from respective quarters, net profit for 1QFY02 has actually gone up by 44.2%. The company's foray into manufacturing of four-stroke motorcycle, much ahead of other peer companies like Bajaj Auto and TVS Suzuki, has successfully transformed Hero Honda in becoming the largest seller of motorcycles in India. Given the fact that the auto industry is reeling under pressure due to slow down in the economy, this is indeed a creditable performance.

    The scrip is currently trading at Rs 155 at a P/E multiple of 9.8x the annualised 1QFY02 earnings. On the annualised sales of Rs 38,079 m, market cap to sales works out to 0.8 times (market capitalisation is Rs 30,953 m).



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