Hero Honda bounces back

Hero Honda bounced back from a reverse swing yesterday, as renewed buying surfaced on the counter on Thursday.

The rejuvenated interest on the counter comes on expectations that the company may declare a huge dividend of 1000% for FY 2002-03

By 10:15 IST, the stock of India's largest motorcycle manufacturer leaped 3.04% to Rs 189.90 on BSE. A total of 71,222 Hero Honda shares were traded on BSE thus far.

The stock touched its new 52-week low of Rs 181.10 yesterday. Over the last one year, the scrip shed 53% from its 52-week high of Rs 386 on 15 April 2002 to its new 52-week low of Rs 181.10 on concerns over the company's growth prospects amid sluggish demand for motorcycles.

Today, Hero Honda is scheduled to unveil its Q4 as well as full year ended 31 March 2003 results. As per market sources, the results are likely to be announced by 14:00 IST.

The company is expected to announce a huge dividend of 1000% (i.e. Rs 20 per share on a face value of Rs 2 per share). For FY 2001-02, the company declared a dividend of 850% (Rs 17 per share)

Analysts say the scrip may slip further as some investors are holding the stock on hopes that the company may declare huge dividend. If the company does not meet expectations, investors may sell the stock heavily.

According to a poll conducted by capitalmarket.com, for the fourth quarter ended 31 March 2003, the motorcycle major is estimated to record a fall of 7% to 16.2% in net profit, in the range of Rs 128 crore (Rs 1.28 billion) and Rs 142 crore (Rs 1.42 billion). Sales for the quarter are estimated between Rs 1,202 crore (Rs 12.02 billion) and Rs 1,280 crore (Rs 12.8 billion).

Meanwhile, concerns still loom large about the company's growth prospects.

There have been reports that Honda Motor (the foreign parent) has targeted an annual sales of 17.5 lakh two-wheelers in 2003 through its joint venture in India, Hero Honda Motors, and the wholly-owned subsidiary, HMSIL. This will constitute 25% of the parent's worldwide annual sales of 7 million two-wheelers, projected to be achieved by 2003. Of the total 1.75 million vehicles to be sold, HHML is expected to contribute 1.5 million and the remaining 2.5 lakh units by HMSIL.

This indicates that HHML's bike sales may slip by 10.75% in 2003, compared to last year's sales of 16,80,724 units.

There were also concerns that Honda Motorcycles and Scooters India, will be allowed to sell motorcycles in India after April 2004. This casts doubts on Honda Motor's commitment to HHML.

HMSIL, in fact, has already put in place a wide network of dealers and channel agents. Analysts said that if HMSIL launches motorcycles, it will put further pressure on HHML's market share. The entry of a newer player will further increase competition.

On the flip side, Honda Motor announced that it will be renewing its technical pact with HHML. The promoters - the Munjals of the Hero Group and Honda Motor – hold a 26% stake each in HHML. Foreign institutional investors have a substantial holding of 23.23% in HHML, while domestic funds have 5.68%. The public owns 17.32% and private corporate bodies and NRIs/OCBs 1.76%.

The Hero Group had inked the technical agreement with Honda Motor in 1984, which was renewed in 1994 and now comes up for renewal in June 2004. According to market sources, the agreement has already been renewed till 2008.

For the third quarter ended 31 December 2002, HHML registered a 14.7% rise in net profit to Rs 152.8 crore (Rs 1.52 million), compared to Rs 133.22 crore (Rs 1.33 million) in the corresponding period of the previous year.

BSE code: 500182

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