Hero Honda PAT declines 20% on rising input costs

Hero Honda, the country’s largest two-wheeler maker, on Wednesday reported a 19.9 per cent fall in third-quarter profit after tax (PAT), as rising input costs dented margins. PAT slipped to Rs 429 crore in the three months to December from Rs 535.7 crore a year earlier, the company said in a filing to the Bombay Stock Exchange (BSE).

Hero Honda Managing Director and Chief Executive Officer Pawan Munjal said, “For the past few quarters, the industry has faced a multitude of issues, with constraints in supply of components and rising input costs. Our margins have been under pressure on account of that.” The company’s expenses on raw materials increased by 43.54 per cent to Rs 3,739.49 crore from Rs 2,605.14 crore in the year-ago quarter.

A senior executive at Hero Honda said the company was considering a price increase in this quarter (January-March) to offset the rise in commodity prices. The company has already raised prices thrice in this financial year, but has not been able to recover from the impact of heightened input costs fully. The company also spent Rs 126 crore in payments for National Calamity Contingency Duty.

Hero Honda registered its highest-ever quarterly sales in October-December, by selling 1428,030 units. For the first time, the company crossed the five-million mark in sales in the last calendar year. During the quarter, net sales rose 34 per cent to Rs 5,118.19 crore from Rs 3,814.4 crore.

Though the company expects demand to remain strong in the coming months and is confident of carrying on its growth trajectory, Munjal indicated margins may remain under pressure in the short-term.

Hero Honda is scouting for locations to set up its fourth manufacturing facility and the announcement of this is likely to be made soon. The company said it would continue to expand capacity at its existing facilities in the meantime to meet demand.

Last week, Maruti Suzuki India, too, reported a 17.8 per cent drop in December quarter net profit at Rs 565.17 crore, hit by rising input costs, higher royalty payouts and adverse foreign exchange movements. Hero Honda shares fell 5.27 per cent on Wednesday to close at Rs 1,523.05 on the BSE.