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| Hero Honda: An outstanding performance |
| Shobhana Subramanian / Mumbai Jul 30, 2009, 01:41 IST |
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The two-wheeler maker has proved that a good product can sell even in tough times
 In what’s supposed to be a challenging environment, Hero Honda has turned in a superb set of numbers for the June 2009 quarter. It’s not just that volumes were up 25 per cent; realisations have been strong because revenues have risen 34 per cent year-on-year to Rs 3,811 crore. In the just preceding March 2009 quarter, revenues had increased by 22 per cent.
The combination of a strong top line and easing commodity prices have helped push up operating profit margins by nearly 500 basis points year-on-year, driving up the operating profit by a remarkable 87 per cent and the profit after tax by 83 per cent. Sequentially, margins have risen by 220 basis point. The company had ended 2008-09 with the market share in motorcycles of 57 per cent which has gone up further to 59 per cent. Hero Honda appears to have cashed in on the wedding season — it has traditionally done well during that season especially in rural markets where it has a very strong presence. With such a firm grip on the market, especially in the 100cc entry segment, Bajaj Auto will find it hard to make a mark with its new 100cc launch.
Of course, the entry of Honda Motorcycles and Scooters India (HMSI), into this space, couldpose some problems for Hero Honda but that’s still some time away. In the meantime, going by the momentum in the June quarter, volumes in the current year could go up by at least 12-13 per cent; last year on a smaller base, they grew by 12 per cent. Hero Honda depends less on financing schemes to sell its bikes than some of its competitors and going by the June quarter numbers, it has pricing power too. Which means revenues could increase by at least 20 per cent over the Rs 12,319 crore posted last year.
With operating profit margins expected to sustain at levels of 16.5 per cent and tax benefits net profits could rise by about 50 per cent, say analysts. Among the top performers in 2008, the stock has risen 102 per cent since the start of the year, compared with a gain for the Sensex of about 50 per cent. At Rs 1,640, the stock trades at around 16.5 times estimated 2009-10 earnings and is attractively valued.
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