Hero Honda, the world's largest motorcycle manufacturer, has managed to modestly improve operating margins for the fourth quarter as cost of inputs expanded at a moderate rate. The company may face strong margin pressures in future as metal prices have gone up and competition has increased in the motorcycle segment.

For the fourth quarter ended 31 March 2006, Hero Honda's net profits have increased 29 per cent to Rs267.19 crore from Rs207.11 crore for the previous year quarter. Total revenues for the quarter increased 16.34 per cent to Rs2,298.91 crore from Rs1,976.09 crore.

Operating profits for the quarter increased 23.86 per cent while operating margins improved to 13.91 per cent of net sales from 13.09 per cent. Other income went up by 20.33 per cent during the quarter.

Input and manufacturing costs for the quarter increased at a lower than expected 12.9 per cent while staff costs went up by 12.63 per cent. Other expenses were higher by 28.7 per cent. Depreciation costs for the quarter increased by 15.64 per cent.

For the full year 2005-06, net profits increased 19.85 per cent to Rs971.34 crore, or Rs48.64 per share, from Rs810.47, or Rs40.59 per share, crore for the previous year. Full year revenues increased 17.24 per cent to Rs8,866.71 crore from Rs7,562.68 crore.

Other income increased modestly by 8.3 per cent during the year to Rs152.73 crore from Rs141.03 crore.

Operating profits for the year increased 17.47 per cent while operating margins remained steady at 15.7 per cent as compared to 15.69 per cent for the previous year.

Input and manufacturing costs increased 16.4 per cent during the year while staff costs went up by 19.64 per cent. Other expenses increased by 23.25 per cent. Depreciation charges were higher by 28.24 per cent.

During the year 2005-06, Hero Honda invested a total of over Rs150 crore in capacity expansion. Gurgaon plant capacity has already been increased by 4.5 lakh units per annum. Expansion of capacity at Dharuhera plant would increase by 4.5 lakh units by August this year.

Hero Honda would set up its third assembly unit near Jaipur at a cost of Rs320 crore. The plant would have an initial capacity of 5 lakh units per annum, which could be increased to 10 lakh in future. The plant is expected to go on stream within a year.

The company has lined up 8 new launches during the current financial year, including a new motorcycle with fuel injection technology expected to be launched this month.