INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

HERO HONDA NET UP 20%, TO PAY 1000% DIVIDEND

  BIKE market leader Hero Honda ended fiscal 2005-06 with a 20% growth in net profits to Rs 971.34 crore, up from Rs 810.47 crore last fiscal. The company's turnover grew 17% at Rs 8,866.71 crore compared to Rs 7,558.55 crore last year. The company has also announced a 1,000% dividend of Rs 20 per share, which will lead to a total outflow of Rs 455.39 crore including withholding tax.

Speaking at the announcement, Hero Honda managing director Pawan Kant Munjal said: “We will put up our third plant at Jaipur with an investment of Rs 320 crore for 500,000 units. We have completed our ramp up at the Gurgaon plant and Dharuhera should come on stream in August. Together, we have spent Rs 143 crore on the ramp up.” The expansion has taken Hero Honda's total capacity to 3.9 million units. Hero Honda is also considering expanding its third plant capacity to a million units, taking its investments to Rs 550 crore. All the capex will be funded from internal accruals. The company currently boasts of Rs 2,200 crore in surplus reserves. Company officials also said the company will launch eight new products this fiscal including new models and variants. All of these will be motorcycles and the products will span the three segments — entry level, executive and premium.

Despite the strong performance, Hero Honda's operating m a r g i n s came down this fiscal, at 1 4 . 4 5 % compared to 14.56% last year. Company officials admitted that it would have been worse had it not been for a Rs 19.3 crore cash discount benefit offered to vendors, which was funded by other income. That helped reduce material costs and kept operating margins healthy, say sources.

Mr Munjal said the pressure on operating margins was due to input costs and that will continue this year as well.

Hero Honda's fourth quarter net profit showed better performance than the fiscal tally growing 29% at Rs 267.19 crore, up from Rs 207.11 crore. Operating margins too moved up to 14.92% compared to 13.78% last Q4.

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