"There is pressure on margins due to competition and rising raw material prices. we expect this to continue for some time," Pawan Munjal, managing director, Hero Honda said.
He added, "The positive side is that the margins which we enjoy are above world averages. Price cut is one of the options but it will be our last option," he said when asked if the cash rich blue chip company would match competitors if they resort to undercut prices.
Stepping short of committing whether it would cut prices if rivals including Bajaj Auto step up pressure for garnering larger market share, he said, "We did not raise prices of our products for the last five years, which means a cut in prices in real terms. We hiked prices only marginally this April."
He, however, admitted that reduced margins had affected the company's bottomline during the last quarter of the last financial year even though the market leader recorded a growth of over 11 per cent in profit during 2004-05.
Pressure on margins subdued profitability of country's largest bike maker, which saw a modest 11 per cent rise in net profit to Rs 810 crore (Rs 8.1 billion) for 2004-05 against Rs 728 crore (Rs 7.28 billion) in 2003-04.
In fact, fourth quarter net profit dipped 2 per cent to Rs 207.11 crore (Rs 2.07 billion) against Rs 211.30 crore (Rs 2.11 billion) in previous year.
The company's operating margins in 2004-05 fell more than one per cent to 14.50 per cent from 15.56 per cent in the previous fiscal.
Asserting that his company had rather increased its market share from 48 per cent in 2003-04 to 50 per cent in 2004-05 despite fierce competition, Munjal said rise of rival Bajaj, which has garnered a market share of 27 per cent was not at its cost.
"We are way above our nearest competitior and we would work hard to maintain leadership position and market share," he said.
However, he admitted that maintaining a 50 per cent share on a fast growth motorcycle market would be a difficult task particularly when domestic and global majors are entering the arena with aggressive marketing strategy.
Munjal said some balance would have to be maintained between the profitability and margin and the company would always have to assess at what cost it could cut margins.
Munjals's willingness to match the competitors emanates from the company's strong financial position, which is further augmented by the fact that its major production facility is totally depreciated while the second facility is also a few years old which means that cost of investment is very less.