Country's largest motorcycle maker Hero Honda Motors today reported a 20.14 per cent decline in net profit in the first quarter.
NEW DELHI: Hero Honda Motors Ltd, the country’s biggest motorcycle maker, said profit declined for the fourth quarter in a row as rising interest rates hurt sales in a market where over 60% of purchases are made on credit.
Net income in the three months ended June 30 declined 20% to Rs 190 crore from Rs 238 crore a year earlier, the New Delhi-based company said. That was more than the Rs 184 crore median profit estimate in a Bloomberg survey of 16 analysts.
Hero Honda’s sales last year grew the slowest among India’s top three motorcycle makers and it joins smaller rival Bajaj Auto Ltd in reporting a drop in first-quarter profit.
Hero Honda cut output in June and postponed starting production in a new factory as eight-year-high loan rates curbed demand in the world’s second-largest motorcycle market.
“It will take some more time for two-wheeler makers to reach some improvement on profitability,” said Mahesh Patil, who helps manage the equivalent of $3.7 billion of assets at Birla Sun Life Asset Management Co in Mumbai. “We are not so positive about the two-wheeler sector.”
The central bank has raised benchmark interest rates to control inflation in the world’s second-fastest growing major economy. State Bank of India, the biggest commercial lender, said on April 7 it will charge its best customers 12.75%, the highest rate since April 1999.
Shares of Hero Honda, the Indian affiliate of Japan’s Honda Motor Co, have declined 9.1% this year, lagging behind the 14.5 percent gain in the benchmark Sensex Index.
Hero Honda, maker of Splendor motorcycles and Pleasure scooters, cut production starting in June and delayed opening its third factory by six months as demand slowed. Sales in the quarter fell 3.6% to 802,853 motorcycles and scooters, the New Delhi-based company said.
Income from business other than manufacturing, such as returns on investments in stocks, mutual funds and bonds, was Rs 38.91 crore, lower than the Rs 52.28 crore in the same quarter a year earlier, Hero Honda said.
Profit at Hero Honda, Bajaj and TVS Motor Co, the top three motorcycle manufacturers, have declined as competition increases in India and Honda and Yamaha Motor Co expand in the country with new products.
Bajaj Auto said on July 12 its first-quarter net profit fell 15% to Rs 226 crore. It was the second straight drop in quarterly earnings for the Pune-based company.
Motorcycle makers in India are forced to offer discounts to win buyers even as they pay more to buy steel, aluminum and other raw material.
Higher metal prices and increased competition, which limits the company’s ability to pass on cost increases, also hurt Hero Honda. Spending on raw material, Hero Honda’s biggest cost, grew 4.3% to Rs 1,797 crore, the company said.
Aluminum prices were 5% higher on an average in the quarter compared with a year earlier, according to prices on the London Metal Exchange that Indian companies follow.
Steel prices in India were 10% higher on average, according to Motilal Oswal Securities Ltd. —Bloomberg
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