Hero Honda Q1 Profit Up, Outlook No So Good

BOMBAY , India (July 18) - India's top motorcycle maker, Hero Honda Motors Ltd., posted a weaker-than-expected 7% rise in quarterly profit as high raw material costs weighed on sales. Analysts warned that margins will remain under pressure in the coming quarters due to growing competition in the market of nearly 5 million PTWs a year, second in size only to China's. Hero Honda, known for its sturdy, fuel-efficient bikes, has driven a motorcycle boom in the $4 billion Indian bike market, fuelled by cheap loans, rising incomes, new models and a shift in consumer preference to motorbikes from scooters. But rivals are launching new models at comparable prices to dent Hero Honda's share, which fell to 49 % in the quarter. Firms have been hit by higher prices for steel, rubber and plastics, while more money goes on advertising and discounts in a cutthroat market. Most manufacturers, including Hero Honda, increased prices by 1-3 % from April as steel prices rose. Hero Honda, in which India's Munjal family -- owners of the world's biggest bicycle company -- and Japan's Honda Motor Co. each hold 26%, said net profit rose to 2.04 billion rupees (US$47 million) in the first quarter to the end of June from 1.9 billion a year earlier. "Margins will continue to remain under pressure on raw material costs and increasing competition, which will prevent price increases, so the company will need to focus on growing volumes and cutting costs," said Dipen Sanghvi at Pranav Securities. Hero Honda faces new rivals in Honda Motor's wholly owned Indian unit, which aims to launch more bikes, and Suzuki Motor Corp., which will launch its first motorcycles and scooters later this year.