The country?s largest two-wheeler maker, Hero Honda, on Wednesday reported an over 16% dip in net profit for the quarter ending March 31 at R501.6 crore. During the same period in the previous year, the company had posted a profit of R5,98.8 crore. The disappointing quarterly results were, however, in line with the expectations of analysts. The company?s total net operating income during the quarter increased over 30% to R5,390.93 crore from R4,122.32 crore in Q4 last year. Hero Honda sold a total of 14.5 lakh units in the January-March quarter ? an increase of 22.5% from 11.8 lakh units in Q4 2009-10. Hero Honda declared a final dividend of R35 per share (of R2 each) for the financial year 2010-11.
The sharp fall in profits were primarily on account of a sharp rise in raw material prices that went up by over 40% during the period to R3,925.1 crore compared to R2,779.4 crore in the same period last fiscal. In fact, major inputs such as steel, rubber and copper has shot up 20% during the period, according to analysts. The company’s Ebitda margins stood at 15.39%. During fiscal 2010-11, the company?s net profits dipped 13.6% to R1,927.90 crore from R2,231.83 crore in 2009-10. During the year, Hero Honda’s total income from operations went up 22.32% to R19,401.15 crore against R15,860.51 crore last year. Raw material prices during the year also shot up 30% to R14,135.1 crore. Managing director and CEO of Hero Honda Pawan Munjal said that the company is in the final stages of annoucing the venue for its new plant. ?We remain well-prepared to meet the market demand for our products. Even as plans are being finalised for our fourth plant, we are fast ramping up capacities at our existing plants at Dharuhera, Gurgaon and Haridwar,? he said. Munjal added the company had set up a clear road map as per which it has a new focus to expand into geographies abroad. Interestingly, in the last quarter of 2010-11, the company’s depreciation jumped almost five-times to R237.3 crore compared to only R48.6 crore in the same period last fiscal. Market analysts said it was on account of a changed accounting policy within the company, which is in compliance with IFRS. As per the new arrangement following the break-up with its joint venture partner Honda, the Munjals-promoted company has the licence to manufacture, assemble, sell and distribute products.
Hero Honda?s CFO Ravi Sud told FE that the company would be paying a royalty of R2,380 crore over a period of 44 months to its erstwhile partner Honda. However, he added that as per Indian accounting requirements, the total sum could not be treated as royalty hence the company had to captilise it and charge depreciation on it. ?We cannot treat R2,380 crore as royalty hence after seeking opinion from various quarters we decided to treat it as depreciation,? he said. He said royalty would not exceed 2.8% of sales. Following the break-up of the 26-year old joint venture, the world’s largest two-wheeler maker by volumes is now free to diversify into new geographical markets which it was so far unable to do because of an understanding with its Japanese partner.