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| Edited By: Pallavi Pengonda |Source: DNA |Updated: Mar 30, 2018, 02:23 AM IST
The December-quarter results of two-wheeler maker Hero Honda were broadly on expected lines.
Total operating revenues increased 32.8% year on year to Rs 3,827.03 crore, helped mainly by a 29.5% growth in sales volume to 11,11,372 units.
The auto industry was one of the worst hit when the financial crisis was at its peak due to higher interest rates and tight liquidity.
However, with improvement in the economic environment and liquidity, and the government stimulus, the volumes of two-wheeler companies have recovered.
Higher price realisations also boosted revenues.
Operating profit margins improved 280 basis points (100 basis points make 1 percentage point) year on year to 17.2%, helped by a 280 basis points drop in the percentage of total expenditure to operating revenues.
Compared with the September quarter, however, margins fell 106 basis points.
According to Jatin Chawla of IIFL, the sequential decline in margins was on account of a drop of Rs 340 per vehicle in earnings before interest, tax, depreciation and amortisation (ebitda). “Going forward, we expect it to drop by a further Rs 400 per bike, on account of increases in commodity prices,” Chawla wrote in a note to clients on Wednesday.
Sequential net profit too fell, by 10.2% to Rs 535.77 crore.
On a year-on-year basis, however, net profit increased 78.3%, helped by the strong operating performance and a decline in the tax rate to 20.5% as against 28.8% in December last year. Tax rates fell due to higher production from the company’s Haridwar plant, which enjoys tax benefits.
Competition in the space is likely to get more intense in the days to come, with new products being launched. This could be a concern for Hero Honda’s market share, which fell 300 basis points during the December quarter to 57.3%, due mainly to competition from Bajaj Auto’s Discover 100 and a strike at one of Hero Honda’s key suppliers.
At Rs 1,549.35, the stock trades at 12.8 times its estimated earnings for 2011. Investors could consider the stock at lower levels.
