Hero Honda Current Price : Rs 492.50

52 Week High/ Low : Rs 530/216

Reco : Hold

For 1996-97, the country's market leader in the 100 cc motorbike segment, Hero Honda Motor Limited (HHML), has posted a 91.20 per cent growth in its net profits while net sales increased by only 21.5 per cent. Hero Honda commands a 28 per cent share of the two-wheeler market and is the market leader with a 43 per cent share in the Japenese technology based motorcycle segment.

While its net profit increased from Rs 26.34 crore in 1995-96 to Rs 50.36 crore in fiscal 1997, net sales rose from Rs 631.96 to Rs 767.91 crore during the period. An annual dividend of 35 per cent was recommended for the year 1996-97. The EPS has increased from Rs 13.19 per share to Rs 25.22 per share.

The main reason for improved performance was a favourable exchange rate variation through out the year. The average Yen/$ rate has depreciated from 100 in 1995-96 to 115 in 1997. Hero Honda's import content is 6,000 yen per vehicle for its CD series. In the current fiscal also the exchange is expected to remain favourable.

HHML is targeting a near 30 per cent growth in production for 1997-98. It plans to produce nearly 3.5 lakh vehicles in the current year as against 2.69 lakh vehicles produced last year. With a target of 3.5 lakh vehicles to be produced, the turnover is likely to touch the Rs 950 crore level.

Also, with the monsoons expected to be normal in the current fiscal, there will be stable demand for motor cycles as 50 per cent of it come from rural segment of the economy.

The company's Rs 180 crore plant in Dharuhera is also operational now and is likely to give a substantial boost to Hero Honda's total production this financial year. This plant has the capacity to produce one lakh vehicles per annum with the facility to expand production to three lakh vehicles on balancing equipment.

In February 1997, HHML has launched `Street' - Honda's largest selling motorcycle model in India. HHML is expected to sell around 30,000 vehicles of this model in the current fiscal. It is a step-through motorcycle, with a four stroke 100cc engine.

It is priced around Rs 40,000 and will be available with an optional electronic start. From this there will be an additional turnover of Rs 120 crore. The new unit will be concentrating primarily on the production of `Street' while, the other unit will be producing other existing models. This Gurgaon plant will later on also produce the 160cc four stroke motorcycle expected to be launched in August 1998.

Hero Honda will pay 4 per cent royalty to Honda for every unit of Street and Rs 200 for every unit of the series CD sold.

With the capacity constraints no more in existence, the company can now expand its production. With this HHML's market share is likely to go up to 30 per cent in 1997-98. It is expected that the total capacity for manufacture of motorcycles of various models by Hero Honda will be over five lakh by the year 2001.

The scrip has gained substantially in the past. The scrip has moved from Rs 333.50 on May 5 to Rs 495 on May 20, a gain of 50 per cent over the period. The scrip had touched its 52 week high of Rs 530 before settling at current levels.

However it is advisable not to sell the stock at current level as there is still scope for appreciation in the medium to long term. The scrip is likely to touch Rs 625-50 level in the 12 month period. Holding on to the stock is recommended at current levels. However entry should be made only on corrections.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.