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The Hero Group's Rs 2,479-crore licensing fee to Honda Motor Company till June 30, 2014 is not royalty but a lumpsum payment. “It is an intangible asset which will be amortised over the next 42 months,” Mr Ravi Sud, Chief Financial Officer, Hero Honda, told Business Line .
Any royalty payable to Honda will only be on new products till June 30, 2014 and not exceed five per cent. This will continue for other new bikes after this date but not on existing products.
Mr Sud said the new arrangement had come into effect from January 1 this year. As a result, the royalty till December 31, 2010 (in the old one) was Rs 360 crore and Rs 177 crore is the amortised sum for the January-March quarter, a fourth of what will be payable every year to Honda till the first half of 2014.
Hero Honda is, incidentally, targeting sales of over six million units this fiscal which marks a near 12 per cent jump from 5.4 million units in 2010-11.
Mr Anil Dua, Senior Vice-President (Marketing & Sales), said the three plants at Gurgaon, Dharuhera and Haridwar had the capacity to roll out 6.15 million units.
“The fourth plant is an imperative and we expect to take a decision on this very soon. Once this is commissioned during 2012-13, we will look at even higher numbers thereafter,” he added. Hero Honda will bring in 7-8 new models/variants across segments this fiscal to fuel growth in rural and urban India.
Supply constraints
Mr Sud said even while there was good topline growth, the pressure of commodity costs “has been killing” with the outlook grim for the first half of this fiscal. The RBI's decision to tighten liquidity could have its fallout on Hero Honda's ancillary suppliers.
“We have over 200 vendors and if this move results even in a handful of them not being able to invest in capacity, we could face some serious supply constraints,” he added.
Net dips 16%
The company reported a 16 per cent drop in net profit for the quarter ended March 31, 2011 over the same period last year while net sales were up 31 per cent. For the full year, net profit was down 14 per cent while sales were up 22 per cent.
Raw material costs for the fourth quarter of 2010-11 were up 41 per cent and 32 per cent for the whole year. The Hero Honda scrip was down 3.63 per cent on the BSE to close at Rs 1,600.10. The Board of Directors has recommended a final dividend of Rs 35 for a share of face value Rs 2, taking the total dividend for the year to Rs 105.
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