By fe Bureaus

The country’s largest two-wheeler maker Hero Honda on Friday registered a 15% decline in net profit in September quarter, its biggest drop in quarterly profit in three years, on higher raw material costs, capacity constraints and increased competition. Net profit stood at Rs 505.60 crore against Rs 597.14 crore in the same period last fiscal. Net sales increased 11.8% to Rs 4,551.95 crore against Rs 4,069.60 crore in the same period last fiscal. Ebidta margin for the period stood at 13.36%.

The company informed the BSE (^BSESN : 20032.34 +91.3) that it had not accounted for the notice it had received from the Office of the Commissioner, Customs & Central Excise in Meerut amounting to Rs 54.94 crore against national calamity contingency duty (NCCD) and education cess, on sales of two wheelers from Haridwar plant between April 2008 and December 2009. The company has filed an appeal against the order.

Hero Honda’s total two-wheeler sales increased 9% to 1.2 million against 1.1 million last financial year. “We are delighted to report a quarter with highest-ever numbers in an enhanced market place activities and continued constraints in supply of certain components,” managing director & CEO of Hero Honda Motors Pawan Munjal stated.

Angel Broking auto analyst Vaishali Jajoo said Hero Honda’s Q2 result was a “disappointment” but largely on expected lines. “The net profit has been impacted largely because of rising raw material costs and increased competition. The performance of Bajaj Auto (BAJAJAUTO.NS : 2101.05 0) would be better.” Jajoo said the company would face pressures owing to capacity constraints which would force Hero Honda to let go a part of its market share.

Hero Honda’s spending on steel, rubber and other raw materials rose 22% in the quarter. The price of the benchmark hot-rolled steel, used in making cars and motorcycles, rose 18% in the second quarter.

Hero Honda’s sales of Splendor and other models rose 8.5% as economic growth and stock-market gains boosted consumer spending.

To address the capacity constraints the company is currently in the midst of finalising its fourth plant. Currently, Hero Honda has two facilities in Gurgaon and one in Haridwar with total installed capacity exceeding 5 million units. “For the company to maintain its dominant 50% plus market share it has to keep up with the supply,” an analyst said.

Though the results were announced after the market closing hours the company’s shares closed down 1.86% at Rs 1,865.80 on the BSE.

source: Yahoo finance

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