Hero Honda net skids 16%

India’s largest two-wheeler maker, Hero Honda Motors Ltd (HHML), on Wednesday reported a 16.2 per cent drop in quarterly net profit on account of higher input costs. Net profit for the three months to March stood at Rs 501.6 crore, compared to Rs 598.8 crore in the year-ago period.

Net operating income rose 30.8 per cent to Rs 5,390.9 crore from Rs 4,122.3 crore, while expenses on raw materials jumped 42.2 per cent to Rs 3,925.1 crore from Rs 2,779.4 crore a year earlier. During January-March, HHML sold 14,54,431 units, a gain of 22.6 per cent over the same period last year.

Net profit for 2010-11 fell 13.6 per cent to Rs 1,927.9 crore, from Rs 2,231.8 crore in 2009-10, due to higher raw material costs and payment of licence fee to erstwhile partner, Honda Motor Corporation (HMC). Total income rose 22.3 per cent to Rs 19,401.2 crore from Rs 15,860.5 crore. Hero Honda sold 54,02,444 units motorcycles and scooters in 2010-11, against 46,00,130 units in the previous financial year.

“There was tremendous pressure on margins during the year due to higher input costs and also due to upgradation of technology to comply with BS-III emission norms, which we could not fully pass on to customers,” said Ravi Sud, chief financial officer of HHML.

The company decided to amortise a licence fee of Rs 2,479.3 crore payable to HMC. The outgo will be reflected on its balance sheet over the next 14 quarters. “For every quarter till June 30, 2014, there will be a reflection of this licence fee payment, but there will not be any royalty payment to Honda anymore,” Sud said.

During 2010-11, HHML spent 31.7 per cent more on purchasing raw materials. It spent Rs 14,135.2 crore compared to Rs 10,730.4 crore in 2009-10. Provisioning for depreciation also went up by over two-fold to Rs 402.4 crore, while other expenditures rose 14.3 per cent to Rs 2,054.1 crore from Rs 1,796.9 crore.

HHML Managing Director Pawan Munjal said, “The mood at Hero Honda on Wednesday is extremely upbeat, and things are moving at a very fast pace. As we begin this new journey, immense opportunities have opened up for our people and business to grow and scale new heights.”

The company has set a target to sell 6.15 million units of both motorcycles and scooters in 2011-12.

“We are fast enhancing our own R&D capabilities in terms of both manpower and logistics. New product development will be one focus area as we move ahead in order to expand our customer base. We are also exploring market opportunities in several parts of the world through a dedicated cross-functional team that has been set up for this purpose,” Munjal said in a statement.

The company’s board recommended a dividend of 1,750 per cent, Rs 35 per share of the face value of Rs 2 each for 2010-11. Shares of Hero Honda closed 3.63 per cent down at Rs 1,600.1 on the Bombay Stock Exchange.