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Parvatha Vardhini C.

For the half-year ended September 2008, Hero Honda has recorded a commendable 26 per cent year-on-year growth in net sales and a 47 per cent growth in net profits.

This performance holds significance in the backdrop of a challenging macro-economic environment characterised by high interest rates and a slowdown in the two-wheeler industry.

Even as the industry began showing signs of slowdown more than a year ago, Hero Honda had consistently outperformed its peers.

The company has put up a good show in the first half of the current year as well, recording a volume growth of 20 per cent in the April-September 2008 period.

Even after discounting the effect of a lower base, the volume growth has been significant, considering that Bajaj’s domestic volumes remained flat and that of TVS grew only by 5 per cent during the same period.

This strong show by Hero Honda on the volume front is attributable to two reasons — product launches and a quick shift in its sales mix in line with the shift in customer preferences for motorcycles — from “economy” and “value for money” to “style” and “sophistication”.

Going forward, the launch of four models — the Passion Pro, the new CBZ Xtreme, a self-start version of the NXG and the refreshed Pleasure — hold potential to sustain volume growth. Besides, a possible peaking out of interest rates has gained further credence, thanks to the repo rate cuts.

Hero Honda’s profits will also receive a leg up (on account of lower tax outgo) from the commencement of operations at the Uttarakhand plant, which enjoys a 10-year tax holiday.

Compared with the first quarter of 2008, the second quarter has already witnessed improved operating profit margins (from 12.2 to 13.6 per cent), as a result of softening commodity prices.

The declining trends in prices of commodities such as steel, aluminium and rubber and a shift in product mix towards executive and premium segment bikes can aid further margin expansion over the next few quarters.

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

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