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S. Muralidhar

Chennai, Oct. 21 There is an old automotive industry adage that says big cars bring big profits. Apparently, it doesn’t apply to two-wheeler manufacturers. Bigger bikes do not necessarily bring in bigger profits.

For proof check out Hero Honda’s financial results for the quarter ended September 2008. The biggest chunk of the company’s boost in performance has come from its bread and butter segment — the 100 cc bikes category.

Cumulatively, for the April to September 2008 period, Hero Honda registered a 20.2 per cent growth in unit sales in the motorcycles with engine capacity between 75cc and 125cc category, according to statistics provided by the Society of Indian Automobile Manufacturers (SIAM).

Hero Honda had also recorded a 27.4 per cent growth in sales of its scooter Pleasure and a 14.5 per cent increase in sales of its bikes above the 125cc engine-size class such as the CBZ X-treme, Hunk and the Karizma. But, at 146,969 units, the total domestic sales during the half year ended September 2008 from both these segments was less than a tenth of the total domestic sales of its 100cc segment bikes.

In fact, Hero Honda was the only company that defied the industry trend of falling sales in the 100cc segment. No wonder the other players have given up hope of taking on Hero Honda’s strength in this bike segment and are instead focusing on the 125cc category.

The disproportionately higher net profit margin of Hero Honda compared to the growth in topline and the increase in unit sales during the period under review is a result of considerable cost savings. And not much of it would have come from the leverage that the company has in the form of depreciated assets, which have been producing at least three of its current 100cc bike models.

Of course, the increasing trend in fuel prices has also contributed to the company’s higher sales performance in the 100cc segment. And with buyers willing to shell out more upfront to reap the benefits of low running and maintenance costs later on, Hero Honda’s 100cc bikes look set to rule the roads for quite a while longer.

More Stories on : Performance | Hero Honda Motors Ltd | Two/Three Wheelers

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