Hero Honda has beaten market expectations by reporting a 63% jump in second quarter profits. The company's topline too grew impressively by 41%. A slew of new launches including the likes of ‘Passion’ (a substitute for Splendor), ‘Joy’ (the low end segment) and ‘CBZ’ (the premium segment) have performed extremely well, pushing up the volume growth.
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The company's earnings growth in the current quarter was inflated by higher other income (profit on sale of investments). Excluding other income figure from the respective quarters, profits have actually grown by 51%. Similarly, tax provision jumped by 84% on account of provision for deferred tax liability according to AS-22.
Among other developments, the company declared dividend of Rs 5 per share (on a face value of Rs 2 per share). It has also increased the FII investment limit to 40%. These factors coupled with its strong performance are likely to drive up Hero Honda's stock price. At the current market price of Rs 206, Hero Honda is trading at a P/E of 10x 2QFY02 annualised earnings.
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