Hero Honda Posts Biggest Drop in Quarterly Profit in 3 Years as Costs Rise

Hero Honda Motors Ltd., India’s biggest motorcycle maker, posted its biggest drop in quarterly profit in three years as higher raw-material costs eroded gains from increased sales.

Net income fell 15 percent to 5.06 billion rupees ($114 million), or 25.32 rupees a share, in the three months ended Sept.30 from 5.97 billion rupees, or 29.9 rupees, a year earlier, the company said in a statement today. That was lower than the 5.6 billion-rupee average profit estimate in a Bloomberg survey of 29 analysts. Sales grew 12 percent to 45.1 billion rupees.

Hero Honda’s spending on steel, rubber and other raw materials rose 22 percent in the quarter. The price of the benchmark hot-rolled steel, used in making cars and motorcycles, rose 18 percent in the second quarter to $668 a metric ton compared to $565 per ton a year ago, according to Steel Business Briefing.

Hero Honda, part-owned by Honda Motor Co., fell 2.2 percent to 1,865.25 rupees at the 3:30 p.m. close of trading in Mumbai. The stock has risen 13 percent this year. The earnings were announced after trading hours.

Hero Honda’s sales of Splendor and other models rose 8.5 percent in the last quarter as economic growth and stock-market gains boosted consumer spending in the world’s second-most populous country. The New Delhi-based company plans to expand annual capacity about 9 percent this year to more than 5 million motorcycles and scooters to meet the rising demand.

Honda, Japan’s second-biggest carmaker, is in talks to sell part of its 26 percent stake in Hero Honda, according to five people with direct knowledge of the situation. KKR & Co., TPG Capital, Carlyle Group and Bain Capital LLC are competing to acquire a part of the stake, while the Hero Group’s Munjal family may also buy some, the people said last month.

Honda’s stake in Hero Honda is worth about $2.2 billion, according to Bloomberg data.

To contact the reporter on this story: Siddharth Philip in Mumbai at Sphilip3@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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