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Merrill ups Hero Honda net estimates

Merrill Lynch said it was raising its net profit forecast of Hero Honda Motors, India's largest motorcycle maker, but maintained the neutral rating on a 12-month perspective.

In a research report dated January 24, the brokerage said, it was raising net profit projection for 2000-01 (April-March) by 7 per cent and that for 2001-02 by 9 per cent, primarily on account of improved margins on the back of aggressive cost cutting.

India's Munjal Group and Japan's Honda Motor Co each holds 26 per cent in the company.

Merrill said the competition in the motorcycle segment was seen intensifying as more companies focus on that product while demand growth is likely to ease to 15-20 per cent in the next 2-3 years from 22 per cent five-year compounded annual growth rate.

The growth is likely to slow mainly due to easing demand from the rural sector which accounts for 50-60 per cent of the demand, mainly on account of the poor agricultural growth, it said. Though the third quarter results were better than expected, those for the last quarter of 2000-01 were likely to disappoint on account of softening demand and due to a hit on its investment portfolio, it said. "Going forward we expect pressure on margins and returns from increasing domestic competition and threat of Chinese imports post-April 2001," the report said.

This increased supply will result in a decline in the industry's capacity utilisation to 72-75 per cent in 2001-02 from 82 per cent in 1999-2000.

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