High interest rates and liquidity crunch seems to have a negligible impact on two-wheeler major Hero Honda. The company has managed to improve its margins for the third quarter by 270 bps or 2.7%, thanks to a significant dip in the costs of raw materials as a percentage of sales. However, other players like Bajaj Auto witnessed a growth of just 38 bps or 0.38% while TVS saw a decline of 145 bps or 1.45% in operating margins for the quarter ended December 31.
According to the institutional equity research firm Religare, the operating margins of Hero Honda went up by 262 bps to 13.9% due to a 2.7% decline in raw material cost as a percentage of sales as compared to 11.3% in the third quarter of 2006-07. Its nearest rival Bajaj Auto witnessed a minuscule 0.38% growth in margins at 14.5% in the third quarter as compared to 14.2% during the same period in 2006. TVS Motors, however, witnessed a steepest fall of 1.45% as compared to the dip of 0.07% in the operating margin of the entire industry including the four-wheeler manufacturers.
“Changing product mix in favour of premium segment, which is a profit making segment unlike the economy segment where there are hardly in margins involved, with the launch of Hunk helped Hero Honda to witness growth in operating margins,” says Arvind Jain, auto analyst, Institutional Religare, adding that this time the company had also reduced to discounts to help maintain margins.
Adds a Mumbai-based analyst, “At the time of slump in the two-wheeler industry, Hero Honda managed to maintain the volumes and this helped the company to absorb the overheads. Even newer models, better pricing and fall in the cost of raw materials helped Hero Honda to bring down the operating cost and hence improve its margins,” he adds.
For TVS Motors, it is the economy segment that contributes to a huge portion of its overall revenues and hence the Chennai-based two-wheeler manufacturer has been the worst hit.
