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Our Bureau

New Delhi , April 12

PRESSURE on margins due to rising input costs and discounts on product prices resulted in a slowdown in profitability last fiscal for the country's largest bike maker, Hero Honda Motors Ltd.

The company's net profit grew by 11 per cent, the slowest in the recent years to Rs 810 crore last fiscal as against Rs 728 crore in the previous year.

However, on the back of a 27 per cent jump in sales of its bikes, the company's turnover grew by 26 per cent to Rs 7,563 crore in 2004-05 (Rs 5,997 crore). Meanwhile, the company's operating margins in 2004-05 fell by more than one per cent to 14.5 per cent (15.56 per cent).

"We believe the pressure on margins will continue due to increases in input costs," the Hero Honda Managing Director, Mr Pawan Kant Munjal, said.

In fact, the impact could be seen in the company's fourth quarter results. Hero Honda's net profit dipped by almost two per cent to Rs 207.11 crore in the quarter, against Rs 211.30 crore in the last quarter of financial year ending March 31, 2004.

This was primarily due to increased expenditure on raw materials, as well as discounts on product prices offered by the company.

Further, the company's operating margin in the fourth quarter was estimated at 13.76 per cent. Hero Honda had announced a Rs 1,001 price discount on its models from mid-January to end-March this year.

"Our margins and profitability were under pressure in Q4 but we will bounce back", Mr Munjal said.

Hero Honda today also announced a dividend of 1,000 per cent for 2004-05, for the second consecutive year. According to Mr Ravi Sud, Vice President - Finance, Hero Honda, the dividend outgo would be around Rs 455 crore (inclusive of tax), around 57 per cent of its net profit.

Meanwhile, when asked about the company's plan to set up a new plant, Mr Munjal said that no decision has been taken yet, adding that the company's current plants had a combined capacity of 3 million units which was sufficient to meet demand in the current fiscal. He said the company had plans to launch scooters (using Honda's design and technology) in 2006, and there were several new product rollouts in the pipeline for this year.

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