Hero Honda Q4 PAT seen down 13% at Rs 519 cr

India's largest two-wheeler manufacturer Hero Honda is set to report disappointing earnings in fourth quarter FY11 on the back of decline in margins. According to CNBC-TV18 estimates, the company is likely to report profit after tax of Rs 519 crore, degrowth of 13.2% as compared to Rs 598.8 crore in fourth quarter FY10.

Revenues are seen going up by 28.3% to Rs 5,290 crore in January-March quarter as against Rs 4,122.3 in same quarter the previous year. Operating profit margin is seen declining at 11.5% versus 17.2% on year-on-year basis. On quarter-on-quarter basis, profit after tax is expected to grow by 21% and revenues by 2.5%. Even there may be slight improvement in operating profit margin. There was an exceptional item of Rs 80 crore in quarter ended December 2010 as a provision made for probable claims to be paid out of dispute arising over excise duty with Uttaranchal government. What to watch out for:
-Volumes are expected to grow 27%, which will drive revenue growth in the quarter
-Margins to be hit by higher raw mat cost and higher spending on advertising and sales promotion
-Profits will decline 14% due to sharp decline in margins
-Realizations will improve due to price increases if Rs 500 to 1000 taken in December and March 2011
-After the split with Honda, Hero Honda needs to address challenges related to new product development, brand transition, developing export markets and maintaining its market share.
-Besides, it needs to build a fourth plant to meet demand and maintain market share.
-Has not explicitly stated the royalty amount but Honda Motors has stated that post the JV termination, will pay royalty of Rs 2500 crore over next 3 years, amounting to about 3% of sales. Operation metrics Q4FY11 Total volume jumped 22.6% to 14.54 lakh units in March quarter as against 11.86 lakh units in same period last year. Net realization per vehicle went up by 4.3% on year-on-year basis to Rs 36,231 and raw material cost per vehicle increased 15.4% to Rs 26,919 during same period. In the financial year 2010-11, Hero Honda is expected to report 21.5% growth in revenues of Rs 19,151 crore while profit after tax is seen declining 10.4% to Rs 1,999 crore. Operating profit margin too is seen falling at 11.6% as against 16.9%. Total volume went up by 17.4% to 54.02 lakh units in FY11 as against 46 lakh units.