Hero Honda

HERO HONDA MOTORS LTD. In reverse gear... Q2 FY 2007 update SUMMARY COMPANY DETAILS Auditors CMD Reg. dour A. F. Ferguson & Co. B.L. Munjal 34, Comm social unity Centre, Basant Lok, Vasant Vihar, New Delhi - 110057 www.herohonda.com Hero Honda Motors Ltd. (HHML) posted a gentle 3.7% YoY growth in gain sales to Rs 22 bn in Q2FY07 on prat of a weak 1. 3% YoY set up in volumes to 0.75 mn units. Volume growth was driven by Super Splendor & Passion along with its ungeared sea scooter Pleasure. Overall bicycle volumes declined by 1.6% to 730k units collectible to increased argument as well as an ageing portfolio. Pleasure, the 100 CC gearless scooter launched in Jan06 saw dead(prenominal) volumes QoQ with volumes of 22k units in Q1FY07. in spite of discounts on various models, unit realizations improved by Rs 477 to Rs 29,655/unit due to improved product mix in opt of executive & premium segments, which constituted 80% of HHMLs motorcycle volumes in Q2FY07. Export volumes rose by 21% to 28.3k units. operate margins declined by 270 bps YoY and 40 bps QoQ to 12.7% primarily due to increased raw material costs on back of increase in cost of tyres. Staff costs were stagnant YoY at 3.8% of sales. separate expenditure also surged by great hundred bps to 12.3% of sales. Resultantly, operating profits declined by 15% YoY to Rs 2.8 bn.

Other income rose significantly by 38% to Rs 595 mn as the company realized treasury gains. Depreciation rose by 29% to Rs 344 mn on back of investments in capacities. Consequently, net profits declined by 9% to Rs 2.2 bn. The company plans to launch 4 models/variants in Q3/Q4FY07. The company has also drawn up a capex plan of Rs 4.2 bn for additional 0.5 mn units raising the total subject to 4.4mn units in FY08. The neckcloth, at the CMP of Rs 708, is trading at a P/E of 14.4x and 12.9x discounting its FY07E and FY08E earnings. On an EV/Sales and EV/EBIDTA basis, the stock is quoting at 1.5x and 9.4x FY07E. We downgrade our recommendation to SELL. CMP : Rs 708 Recomm : SELL... If you want to get off a full essay, order it on our website: Orderessay

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