[SmartCat]

Originally Posted by Turbanator

Please let me know how Honda brings a profit of 1430 Cr on sales of 1,1 lac units of cars they produced, each sold at less than what- 12 or 15 L- Ex factory? There has to be something besides the cars that brings the actual profit numbers on the balance sheet

It seems fine actually.

Honda Revenues (mentioned in Autocar article) -> Rs. 14,439 cr (incl of Rs. 1,500 cr spare parts sales)
Honda Net Profits -> Rs. 1,430 cr
Honda Net Profit Margins -> 10%

Maruti TTM (trailing 12 months) Revenues -> Rs. 120,000 cr
Maruti TTM Net Profits -> Rs. 9,200 cr
Maruti Net Profit Margins -> 7.6%

But we cannot assume that Honda will continue to have the same NPM% in the future too. As I mentioned before, we need to look at longer term trend (say 5+ years) to come to a conclusion about a car company's profitability.

[Turbanator]

Originally Posted by SmartCat

It seems fine actually.

Honda Net Profit Margins -> 10%

Maruti Net Profit Margins -> 7.6%

Ok, so as with any other business, profits here are also dependent on the turnover. You can either sell expensive cars with fewer numbers or, conversely, more volumes and cheaper ones and make similar Profits (In %)

No idea about the capital involved, as Maruti is pretty old, but I am assuming it should be cheaper to build smaller capacities, beyond a certain threshold.

Will be interesting to see the numbers of Toyota. They are surely going to beat Honda here.

[discoverwild]

Originally Posted by Turbanator

Ok, so as with any other business, profits here are also dependent on the turnover. You can either sell expensive cars with fewer numbers or, conversely, more volumes and cheaper ones and make similar Profits (In %)

Will be interesting to see the numbers of Toyota. They are surely going to beat Honda here.

Any manufacturer would be aiming for a 10% net margin. I guess Maruti can manage to do less, by virtue of volumes. In fact, Toyota sells less than a 10th of Maruti overall (13% if you include the Maruti clones) yet makes more profit than them, simply by being in the higher budget range.

[Turbanator]

Originally Posted by discoverwild

Any manufacturer would be aiming for a 10% net margin. I guess Maruti can manage to do less, by virtue of volumes.

Yeah, no wonder why Suzuki is leaving

Fewer margins and higher turnovers have their own challenges and one needs a deeper understanding and some robust systems in place.

[SoumenD]

Question : Doesn't Honda get profit share from dealers for service & spare parts sale as well? I have a 2019 Jazz CVT and we have mandatory 6 months service. Each service bill is around 5-6k easily. Post BS6 they changed it to once a year but we BS4 folks have no choice and have to keep visiting A.S.C every 6 months if we want to keep our warranty intact(Am on 5th year extended warranty currently).

Never the less its great news for folks who are happy with their Honda cars and wish to upgrade within the same brand. Wish Elevate sees decent success(3-4k/month should be enough looking at their current capacity) and Honda continues in India.

[inwester]

Originally Posted by volkman10

Honda Cars India profits for FY23 jumps over 521% to a record Rs 1,430 crore.

Originally Posted by SedateGuy

This should settle one debate; Honda is not packing its bags any time soon.

Originally Posted by Turbanator

Honda cars are not listed in India, so the data is not public.

Originally Posted by SmartCat

It seems fine actually.

Honda Revenues (mentioned in Autocar article) -> Rs. 14,439 cr (incl of Rs. 1,500 cr spare parts sales)
Honda Net Profits -> Rs. 1,430 cr
Honda Net Profit Margins -> 10%

Some global numbers from Honda to put things in perspective.

Total Honda worldwide revenue (FY 2023):
16.9 Trillion Yen = 116 Billion USD = 9.67 Lakh Crores INR

This is split into 4 core divisions -

Total Honda cars revenue (FY 2023):
10.78 Trillion Yen = 74.1 Billion USD = 6.16 Lakh Crores INR

Total Honda finance/power revenue (FY 2023):
3.4 Trillion Yen = 23.6 Billion USD = 1.96 Lakh Crores INR

Total Honda motorcycle revenue (FY 2023):
2.9 Trillion Yen = 19.9 Billion USD = 1.66 Lakh Crores INR

So Honda Cars India Limited (HCIL), is only 2.3% of their worldwide cars revenue. Almost a rounding error.

Operating margins globally on their cars business is around 3-4% and motorcycles around 15%.

Nonetheless, overall a good story for Honda Car India if they can sustain the sales numbers and margins. I hope they stick around.

Source: https://global.honda/investors/libra...ialresult.html

[Durango Dude]

Sales are dipping, profits are soaring, did I miss something? Most probably they got a new audit team with a innovative accounting and some income from the side (??) They need to "Elevate" the company's sagging image in India on the eve of the launch of their new SUV!

[ellip5i5]

Few thoughts here, i think the profit margins on cars exported could be greater than cars sold domestically. And this would also qualify Honda for some tax breaks i suppose which would also help improve net margins

[WorkingGuru]

Do car makers artificially keep profits at 7-8% by adding royalties(/other expenses) paid to parent company, as expenses ?

Have observed this over a long time. The actual Bill Of Materials + Labour would likely be a small humble fraction of the cars OTR price.

I'm sure Govt has always had some internal info on this, so they take their share by collecting 50% (GST + Cess) & 10-20% Road Tax.

Why else would anyone want to run an automotive business churning just 7-8% returns !?

[volkman10]

Originally Posted by Turbanator

---
Will be interesting to see the numbers of Toyota. They are surely going to beat Honda here.

Here are Toyota numbers, lesser than Honda's figures

Toyota Kirloskar FY23 profits jump 2.7X to a record Rs 1404 crore

The company has posted its highest ever volumes, revenues, and profit margin since its inception 25 years ago and it is on track to produce over 3 lakh units in FY24.

Link

[Turbanator]

Originally Posted by WorkingGuru

Do car makers artificially keep profits at 7-8% by adding royalties(/other expenses) paid to the parent company, as expenses

Yes, absolutely. There were some talks about fixing such numbers (percentages). Or there may be some already but I won't know. It's also valid as someone has to pay for the engineering and effort into design and pre-production.

Originally Posted by volkman10

Here are Toyota numbers, lesser than Honda's figures
Toyota Kirloskar FY23 profits jump 2.7X to a record Rs 1404 crore

Yeah, I read this, just didn't think to compare it with Honda

It can be two things, meagre margins on the Maruti products that get added to the turnover but don't bring much profit or, as mentioned above, Toyota transfers a lot to Japan.

Or, as I mentioned, some one-time extra income for Honda India's operation.

[SmartCat]

Originally Posted by WorkingGuru

Do car makers artificially keep profits at 7-8% by adding royalties(/other expenses) paid to parent company, as expenses ?
Why else would anyone want to run an automotive business churning just 7-8% returns !?

It is not 7% to 8% returns -> it is 7% to 8% profit margins. Returns is measured using a metric called Return on Equity. Roughly speaking, if Kia has invested Rs. 5,000 cr in its India business and it is making a profit of Rs. 1,000 cr per year, then its returns is 1000/5000 = 20% pa.

Car business has a relatively low 5 to 10% profit margin because:

1) Heavy competition: If customer has a budget of Rs. 10L, he has a wide variety of models from different manufacturers to choose from. Sure Nissan Magnite does not sell much, but just the fact that it is available of sale ensures that all manufacturers price their products competitively.

2) High selling expenses: To sell (not make but sell) a car, both the manufacturer (logistics, marketing costs, inventory costs) & the dealer (expensive real estate, inventory costs, salary expenses) have to invest huge sums of money. To maintain high capacity utilization, manufacturers sacrifice margins by keeping price reasonable or even offering discounts. To cover the dealer's investment, they have to offer a 5% to 10% commission on sale of each car to the dealer, and that obviously eats into the margins.

3) Price sensitiveness: If Colgate increases the price of 100g toothpaste from Rs. 30 to Rs. 36, you will barely notice because toothpaste, soap, shampoo etc are not very price sensitive. But one cannot raise the price of Rs. 10L car to Rs. 12L just because steel or other input prices went up. Car manufacturers have to increase prices slowly, and that too, after checking what the competition is upto.

[PrideRed]

Originally Posted by Turbanator

Yeah, I read this, just didn't think to compare it with Honda

It can be two things, meagre margins on the Maruti products that get added to the turnover but don't bring much profit or, as mentioned above, Toyota transfers a lot to Japan.

Or, as I mentioned, some one-time extra income for Honda India's operation.

Toyota had investment/expense to be made for Hycross and Hyryder(all new plant). Where as for Honda apart from City Hybrid, , its just the Elevate, launch of which is pending. Either way good to see Honda making profit, from rumors of shutting shop in India to making 1400Cr profit is a good thing for consumer.

[wheelguy]

Originally Posted by PrideRed

Toyota had investment/expense to be made for Hycross and Hyryder(all new plant). Where as for Honda apart from City Hybrid, , its just the Elevate, launch of which is pending. Either way good to see Honda making profit, from rumors of shutting shop in India to making 1400Cr profit is a good thing for consumer.

Keeping the new product related investments and expenses aside for the time being, most of the foreign MNCs operating in India use sophisticated and creative accounting to divert the profits to their parent companies. These reported profits, I think are after the royalties to their parent companies. Recent example being Chinese mobile companies operating in India, they evaded taxes by making illegal remittances to foreign entities, if I remember correctly, they made payments to some foreign business entities without actually using any product/service from those companies.

[Clown Prince]

Originally Posted by SedateGuy

This should settle one debate; Honda is not packing its bags any time soon.

It’s still debatable and many of its senior managers may pack their bags. Though new pay scheme is good for company nut its hard to keep the employees happy.

Originally Posted by discoverwild

1430 Crores for 91,418 cars sold in the financial year, makes an average profit of ₹1,56,424 per car. No idea if it's net or gross profit.

They have made a turnaround in terms of earnings. Hope they make a turnaround in bringing interesting cars as well.

Nope this profit is a one time thing. Occurred due to many abnormalities. Lay off and cost cuttings etc. it is to see in future if the company can actually turn it around. Honda really need to work on its portfolio and increase its sales now that it has the cost under control.

Originally Posted by SmartCat

It seems fine actually.

Honda Revenues (mentioned in Autocar article) -> Rs. 14,439 cr (incl of Rs. 1,500 cr spare parts sales)
Honda Net Profits -> Rs. 1,430 cr
Honda Net Profit Margins -> 10%

Maruti TTM (trailing 12 months) Revenues -> Rs. 120,000 cr
Maruti TTM Net Profits -> Rs. 9,200 cr
Maruti Net Profit Margins -> 7.6%

But we cannot assume that Honda will continue to have the same NPM% in the future too. As I mentioned before, we need to look at longer term trend (say 5+ years) to come to a conclusion about a car company's profitability.

Maruti has volumes to speak for them and Honda is in desperate need to get them. Having decent profit margin but not enough volume is not a good thing.

Originally Posted by discoverwild

Any manufacturer would be aiming for a 10% net margin. I guess Maruti can manage to do less, by virtue of volumes. In fact, Toyota sells less than a 10th of Maruti overall (13% if you include the Maruti clones) yet makes more profit than them, simply by being in the higher budget range.

Completely agree. Toyota got the mighty Fortunes and Innova do their handy work. It’s a shame they are not bringing anything new in India. Toyota is high minded because they know we Indian will buy anything they serve like fools. I’m also one of those fools and a big since I got both Legender and Hycross, so no need for anyone to get offended. Honda situation is a bit tricky ATM if you ask me. Controlling your cost is a step in the right direction but I don’t see any future steps from there onwards. I’m reserving my opinion regarding this matter till the reveal of Elevate price. That’s what will make or break Honda.

P.S. I’m truly sorry for sounding so negative and acting like a party pooper but just wanted voice my opinion. Many of us are celebrating just because there is bumper profit while none of us knows the complete details and components of the profit. Other factors are responsible here. And I’ll be really glad if Honda can actually sustain these profits in future. Competition is always welcomed and necessary for growth.