yet another bad quarter:
Hero Honda joins the rival Bajaj Auto Ltd. in reporting a drop in first- quarter profit. Hero Honda’s profit fell for the fourth straight quarter the company reported a 20.14 per cent decline in net profit in the first quarter ended June 30 as a result of drop in sales. The company said its net profit stood at Rs 189.84 crore for the first quarter as against Rs 237.74 crore for the same period l.ast year. Total income (net of excise), however, increased marginally by 2.90 per cent to Rs 2,486.90 crore for the June quarter, compared to Rs 2,416.65 crore in the corresponding period a year ago. The company’s EBIDTA margin during the quarter stood at to 10.76 per cent. Hero Honda clocked a total sales of 8,02,853 units of two wheelers a fell of 3.6 percent.
Income from business other than manufacturing, such as returns on investments in stocks, mutual funds and bonds, was 389.1 million rupees, lower than the 522.8 million rupees in the same quarter a year earlier, Hero Honda said.
Reasons for the dip:
* As Hero Honda followed its rivals Bajaj Auto Ltd. and TVS Motor Co. in offering discounts to win buyers in June even as the company paid more to buy steel, aluminum and other raw material.
* Aluminum prices were 5 percent higher on an average in the quarter compared with a year earlier also the Steel prices in India were 10 percent higher on average. Because of this spending on raw material, Hero Honda’s biggest expense, grew 4.3 percent to 17.97 billion rupees.
* Higher interest rates eroded most of Hero Honda’s sales as half of sales in india are made through credit. The company acknowledged “The first quarter of this financial year has not been encouraging for the auto industry in general, with uncertainty over interest rates making customers postpone their purchases,” Hero Honda Motor Ltd (HHML) Chairman Brijmohan Lall Munjal said.
Better than the expectations:
Profit beat the 1.84 billion rupee median profit estimate in a Bloomberg survey of 16 analysts. Sales rose 3.6 percent to 24.48 billion rupees. The result was slightly better than a consensus forecast of Rs 1.84 billion in a Reuters poll of 10 analysts.
Shares of Hero Honda, gained 0.5 per cent in the quarter, compared with a 2.7 per cent decline for the auto share index and a 12 per cent gain for the main share index. Shares of Hero Honda, a unit of Japan’s Honda Motor Co., have declined 8.8 percent this year, lagging behind the 15 percent gain in the benchmark Sensex Index. The shares closed 9.8 rupees, or 1.4 percent lower, at 695 rupees in Mumbai.
Guidance for the second and third quarter:
It’s a reserved guidance for the second quarter and an enthusiastic one for the third quarter from the company. Hero Honda said the company did not foresee much of a change in the scenario for at least the next two months. `We don’t expect our sales to improve in the second quarter as it’s traditionally a lean season due to monsoons,” Sud said. However Hero Honda’s Chief Financial Officer Ravi Sud predicted sales should pick up from the third quarter when the festival season starts and as interest rates begins to soften from an eight-year high. Usually indian motorcycle companies reduce production as monsoon rains deter buyers through the July to September quarter. Hero Honda planned to cut production starting in June. “Two-wheeler sales should improve because of the onset of the harvest and festival seasons,” Amitabh Chakraborty, president of Religare Securities Ltd., a Mumbai-based brokerage, said to Bloomberg.
Here’s the indian cycle
Sowing of the monsoon crop begins in June. Harvesting begins in mid-September and ends in November. That enables more people in rural areas to buy motorcycles and other consumer goods. Sales will also rise from October each year because of the start of festivals across the country.
Happenings in the first quarter:
During the quarter the company has launched two new products – Splendor NXG and a refreshed model of its scooter Pleasure. Hero Honda has delayed start of production at a new plant in northern Uttarakhand state to the new fiscal year starting April 2008 because of softer demand. The plant will have an initial annual capacity of 500,000 units, which will eventually be tripled.
Two new variants
Hero Honda on 25th july announced the launch of two new variants – Passion Plus (100 cc) and Super Splendor (125 cc). Passion Plus is priced at Rs 42,750 (ex-showroom Delhi) while Super Splendor comes for Rs 44,150 for drum brake and Rs 44,900 for disc brake (ex-showroom Delhi).