The Hindu Business Line : Hero Honda Q3 net down 20%

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New Delhi Jan. 31 Two-wheeler maker Hero Honda Motors Ltd posted a 20 per cent drop in third-quarter profit due to increase in raw material costs and discounts.

The company's net profit declined to Rs 209.1 crore in the quarter against Rs 261.7 crore in the corresponding quarter last fiscal. This is even as sales moved up by 15 per cent.

Net sales for Hero Honda rose by 15 per cent at Rs 2,666 crore in October-December 2006 period against Rs 2,314.7 crore in the corresponding quarter.

"Significant investment in marketing coupled with current levels of raw material prices have impacted operating margins, as predicted at the time of second quarter results announcement and subsequently," Hero Honda Managing Director, Mr Pawan Munjal, said.

Hero Honda's raw material spending increased 18 per cent in the third quarter to Rs 1,876 crore.

Volume sales for Hero Honda, which is engaged in stiff competition with Bajaj Auto, grew 12 per cent in the quarter at 8,96,113 units.

However, rising costs of inputs, increased advertising spend and lucrative discounts have seen erosion in operating margins. Hero Honda had last raised prices of some models in January this year.

Analysts expect the pressure on margins to continue with cutthroat competition in the two-wheeler category affecting the ability of two-wheeler makers to increase prices.