Dear All,
Forwarding you the Result Flash on Hero Honda for 4QFY2011 with a Neutral recommendation.
| Y/E March (Rs cr) | 4QFY11 | 4QFY10 | % chg (yoy) | Angel est | % diff |
| Net Sales | 5,391 | 4,122 | 30.8 | 5,305 | 1.6 |
| Operating Profit | 830 | 712 | 16.6 | 590 | 40.6 |
| Reported OPM (%) | 15.4 | 17.3 | (187)bp | 11.1 | 427bp |
| Adjusted OPM (%) | 12.1 | 17.3 | (520)bp | 11.1 | 100bp |
| Reported PAT | 502 | 599 | (16.2) | 484 | 3.7 |
Source: Company, Angel Research
Review
v HH registered an in-line net sales growth for 4QFY2011, up by a strong 30.8% yoy and 4.4% qoq to Rs5,391cr. The growth was primarily driven by 22.6% yoy increase in volumes and 6.7% yoy increase in average net realisation following better product mix and price increases. On a sequential basis, volumes and realization grew by 1.8% and 2.6%, respectively.
v As per the new licensing agreement with Honda Motor Co, Honda has given Hero Honda the rights and license to manufacture, assemble, sell and distribute certain products/parts and export license for certain products under the intellectual property rights which now forms a part of the intangible asset of Hero Honda and will be amortized over a period of forty two months starting from January 2011. As a result of this change, company reported an amount of ~Rs177cr under depreciation and amortization, which earlier used to be reported as a part of other expenditure.
Adjusting for this change in accounting policy, operating margins came in 100bp ahead of our estimates at 12.1%. However, it declined 520bp on a yoy basis and 130bp on a qoq basis. Contraction in margin can be attributed to the increase in input costs which led to 574bp increase in raw-material costs for the company.
v Net Profit for the quarter declined by 16.2% yoy to Rs502cr mainly due to the decline in operating margins. Further, increase in tax rate during the quarter also affected the bottom-line performance negatively.
Outlook
v At Rs1600, HH is trading at 15x and 13.9x FY2012E and FY2013E earnings, respectively. We maintain our Neutral rating on the stock and shall come up with a detailed result update soon.
Quarterly Performance
| Y/E March (Rs cr) | 4QFY11 | 4QFY10 | % chg | FY2011 | FY2010 | % chg |
| Net Sales | 5,391 | 4,122 | 30.8 | 19,401 | 15,861 | 22.3 |
| Consumption of RM | 3,927 | 2,768 | 41.8 | 14,111 | 10,736 | 31.4 |
| (% of Sales) | 72.8 | 67.2 | 568.5 | 72.7 | 67.7 | |
| Staff Costs | 168.0 | 146.0 | 15.1 | 619.0 | 560.3 | 10.5 |
| (% of Sales) | 3.1 | 3.5 | 3.2 | 3.5 | ||
| Other Expenses | 466.1 | 496.2 | (6.1) | 2,054 | 1,797 | 14.3 |
| (% of Sales) | 8.6 | 12.0 | 10.6 | 11.3 | ||
| Total Expenditure | 4,561 | 3,411 | 33.7 | 16,784 | 13,094 | 28.2 |
| Operating Profit | 830 | 712 | 16.6 | 2,617 | 2,767 | (5.4) |
| OPM | 15.4 | 17.3 | 13.5 | 17.4 | ||
| Interest 
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