Hero Honda sees biggest Q2 profit slump in three years

Hero Honda, India's and the world's largest two wheeler maker by volume, posted a 15-per cent drop in net profit in the second quarter ended September, its biggest drop in quarterly profit in three years, due to spiralling input costs.

The promoters, who are said to be close to going their separate ways, said the company expects rising raw material costs to continue impacting future profits.

The firm, in which Japan's Honda Motor Co and India's Hero Group hold 26 per cent each while the rest is held by other investors, posted quarterly sales of 12.85 lakh motorbikes and scooters, the highest in its history.

But raw material costs rose 22 per cent to Rs3,385 crore against Rs2,768 crore in the previous year, eroding virtually all the gains from the higher sales. As a result, net profit dropped to Rs506 crore in Q2, from Rs597 in the same period last year, even as net sales rose 12 per cent to Rs4,511 crore from Rs4,040 crore in the last period.

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 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.