In full throttle

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: For many years now, Hero Honda has proved sceptics wrong time and again by achieving robust growth in volume sales, revenues and most importantly, profits. The company has maintained its leadership in the motorcycle industry despite the presence of Bajaj Auto, TVS and Yamaha Motor.

Sales showed a cumulative growth of 44 per cent over the past five years against the industry growth of a little over 22 per cent. This helped the company to raise its market share from around 28 per cent in 1996-97 to 49 per cent in the nine-month period ended December 2001.

During the third quarter of 2001-02, volume sales grew 42.7 per cent while value growth was 43.6 per cent. It sold 10,26,102 motorcycles during April-December 2001, a growth of 36 per cent over the corresponding period last year. The company’s share in the motorcycle market today stands at 49 per cent.

Revenue during the third quarter ended December 2001 rose from Rs 849.22 crore to Rs 1,219.47 crore. The 89.7 per cent growth in net profit to Rs 133.22 crore was partially driven by other income of Rs 25.71 crore (Rs 1.67 crore) during the quarter.

Says Atul Sobti, senior vice-president, marketing and sales, "Since we are the biggest player in the two-wheeler industry today, we will be the obvious target. But it also has an advantage. If we are strong, then the number two, three or four get more affected with entry of new competition."

There has been a steady rise in profit margins for Hero Honda. Its operating profit over the past five years has grown from around 6.67 per cent in 1996-97 to 11.8 per cent in 1999-2000. However, the operating margins slipped marginally to 11.7 per cent in 2000-01 but the company has managed to maintain the absolute profit figures riding on the back of higher volumes.

But will Hero Honda’s dream run continue? Though growth in sales may not be a problem as the Indian market is estimated to easily absorb upto 70 million two-wheelers compared to today’s two-wheeler population of 40 million. However, profit margins could come under pressure in the future due to stiff competition resulting in higher costs on account of marketing, promotional activities and customer loyalty programmes.