Monday, January 5, 2009

Stock Idea: Hero Honda

The country's biggest two-wheeler maker, Hero Honda slumped on the bourses on Friday on news of a 10% fall in its December sales for motorcycles. to 2,15,931 units in December 2008 over December 2007. The company however reported a growth of 9.04% in sales to 36,08,220 units in the calendar year 2008 over the calendar year 2007. Finally the high interest rates and the lower demand seemed to have caught up with the company.
When it presented the second quarter performance for period ended 30th September 2008, it bucked the industry trend and posted a stunning performance, taking all by surprise. The company reported a PAT of Rs 204.33 crore , as against Rs. 215.97 crore in the corresponding period last year. Total Turnover (sales turnover plus other income, net of excise) grew to Rs. 2391.36 crore, a growth of 4.5% over Rs. 2289.44 crore recorded in the corresponding period last year. The company recorded an EBIDTA margin of 12.39% in the quarter as against 10.76% in Q2FY08.

Despite the slowdown in the two wheeler industry, Hero Honda's share in the domestic motorcycles market has grown upward of 50%. The company’s strategy has been to concentrate on rural India, which is much less affected by the global slowdown than urban. Interest rates have come down and with inflation also coming down, demand is expected to pick up by Q4. Demand is expected to go up in January as the festivals of harvest in South India and Punjab typically see a spurt in two-wheeler buying.
Hero Honda is the least affected in the current slowdown in the auto sector and hence stay invested.

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