Hero Honda set to reward investors

2-WHEELER CO PLANS PAYOUT SHAREHOLDERS of Hero Honda Motors, who have received at least Rs 177 per share as dividends in the last decade, could look forward for another windfall payout soon, as India's top two-wheeler maker ponders appropriate uses for its cash pile amid a dearth of suitable deployment options.      The maker of Karizma and Splendour motorcycles, a habitual growth monster that is set to exceed sales targets this year, is sitting on a cash mountain of Rs. 3,500 crore and senior company executives say it does not require even a portion of this hoard to expand capacity.      "We can create capacity of 1.5 million units with an investment of $200 million," Hero Honda's CFO Ravi Sud told ET NOW in an interview. "With the high level of profitability and high EBTDA margin, the cash will continue to accumulate unless part of it is paid back to shareholders. I am sure the board of directors of the company will take a decision at the appropriate time."      Hero Honda, which has traditionally been a high-dividend paying company, could make the payout in the form of a special dividend. The company's payout ratio is around 31%.      The two-wheeler industry is not capital intensive and there is little need for the company to carry such a large cash surplus on its books, said Mr Sud. The dividend option may also be because of the constraints of a joint venture agreement between the Hero group and partner Japan's Honda Motor Co.      The agreement prohibits the company from diversifying beyond the manufacture of twoand three-wheelers. However, the company has chosen not to get into the production of three-wheelers as Honda is not bullish about the prospects of making substantial profits selling three-wheelers.      The Hero Group and Honda Motors hold 26% each in Hero Honda. Using the funds for share buybacks is also not an option because of the restrictive agreement. Analysts say Hero Honda is not keen on a buyback because that will increase the shareholding of the promoters beyond what is prescribed in the joint venture agreement, which comes up for renewal in 2014. Hero Honda set to beat sales target  ITS business prospects remain bright with the revival of demand because of stimulus packages and affordable financing, said Mr Sud. The Delhibased company, which had set a sales target of 4 million units for the current fiscal year, is set to beat the guidance as it plans to launch six new models over the next four months. The company has already sold over 2.3 million units in the first half.      "We would surely beat our target for this year," Mr Sud said.      For the last quarter, Hero Honda reported a 95% rise in net profit at Rs 597 crore, while EBITDA margins at 18.3% were ahead of estimates. While the company gained handsomely from soft commodity prices, the uptick in input costs in the current quarter could have some impact on profit margins. CLSA, in a recent report, has said that margins are also likely to come under pressure from the third quarter due to rising steel and aluminium prices as well as due to indirect impact from the current labour problems at its suppliers.