Hero MotoCorp Q3 net drops 20% to Rs 488 cr

Net sales rose 2.8 per cent to Rs 6,151 crore

Hero MotoCorp Ltd, India's largest motorcycle maker, missed estimates for the fourth straight quarter on Thursday as net profit fell 20.4% on rising costs and falling sales that battered margins.

Hero, which is investing heavily in new technology and export operations, is battling to protect its dominant market share from former partner Honda Motor Co as the overall market stalls.

"The last two quarters have been challenging for the Indian auto industry on account of the delayed monsoons, rising fuel prices and subdued sentiments," managing director Pawan Munjal said in a statement.

Hero's sold 1.57 million vehicles in the October-December quarter, down 1% on the same period last year. Total expenses rose 5.6% during the quarter.

Hero's operating margin during the quarter fell to 12.59% from 15.63% in the same period a year previously, and 13.86% in the previous quarter. Local rival Bajaj Auto Ltd reported an EBITDA margin of 20.1% during the third quarter of the current financial year.

As high domestic interest rates of 8% curtail demand, India's automotive industry association this month cut its motorcycle sales growth forecast for the financial year that ends in March to 3-5%, from 5-7% earlier.

Since parting from Honda in 2011, Hero has been forced to pump cash into its export operations, which were restricted under the 26-year joint venture, plus new technology tie-ups.

Hero's domestic two-wheeler sales fell 2% in the first nine months of the fiscal year that began in April, against a 4.1% rise in overall industry sales, according to data from the Society of Indian Automobile Manufacturers.

Honda, which has aggressively ramped up its presence in segments traditionally dominated by Hero since the partnership ended, saw its sales rise 37.4% in the same period.

Hero said profit for the October-December period was Rs 488 crore, below the average market expectation of Rs 569 crore, according to Thomson Reuters I/B/E/S. Net sales rose 2.8% to Rs 6,151 crore.

Munjal informed the company had recorded strong growth during the festive season with sales of over 1.1 million two-wheelers during October and November. “Our despatches were consistently over five-lakh every month of this quarter. This trend may be an early sign of recovery and we hope the domestic two-wheeler industry will revert to higher growth rates in near future. Whenever that happens, we will be geared-up to meet the upsurge in demand," added Munjal.

Shares of Hero MotoCorp were trading at Rs 1818.50 a piece, down by 0.92% from the previous close on the Bombay Stock Exchange.