Hero Honda fails to rev up Q1

Posts lower profit growth on 22% rise in expenses.

Hero Honda Motors - the country's largest two-wheeler maker - today reported 16 per cent growth in net profit during the first quarter of 2006-07.

The PAT figure at Rs 237.74 crore as against Rs 204.45 crore for the same period last year, however, fell short of expectations. Analysts had, earlier in the day, projected 24 per cent growth.

Net sales grew by 20 per cent to Rs 2,364 crore. Total vehicle sales stood at 8.33 lakh units, up by 21 per cent over the same period last year.

All major heads of expenses, including raw material and staff cost, grew by 22 per cent which is higher than the revenue growth. This resulted in a lower-than-expected net profit growth.

Pre-tax write-offs such as depreciation also increased by 29 per cent with total charge under this head at Rs 32.29 crore for the first quarter.

"Hero Honda has not passed on the increased raw material costs to its customers. However, in the past months there has been a substantial increase in the prices of steel, aluminum and rubber, and we will shortly be announcing a price increase in certain models to offset the increase in raw material costs," said Pawan Munjal, managing director, Hero Honda.

Profit before tax reported a lower growth at 15 per cent, with total pre-tax profit for the quarter staying at Rs 342 crore, as against Rs 298 crore in the year-ago period.

"We have announced several initiatives in this quarter to consolidate our market leadership. The steps include eight new launches in 2006, capacity expansion in at Gurgaon and Dharuhera plants by 4.5 lakh units each. The expansion will be completed by August 2006 and increase our product capacity to 3.9 million units for this year," said Munjal.

"We also had announced the setting up of our third plant with a production capacity of 5 lakh units in the quarter. The plant will cater to market demand beyond 2007," Munjal said.