Hero MotoCorp Q3 preview: Profit seen rising over 11% YoY; margins may dip

Hero MotoCorp is set to announce results for the December quarter of FY21 (Q3FY21) on Thursday, with analysts expecting the two-wheeler major to report an over 35 per cent year-on-year (YoY) growth in revenues while net profit is seen rising around 11 per cent, led by increase in volumes and average selling prices. On the other hand, gross margins may decline on input cost pressure, they said.

According to the monthly sales data, the company sold 18.45 lakh units in the quarter under review, up 19.8 per cent from the 15.40 lakh units sold in the year-ago quarter. It had recorded 18.14 lakh sales in Q2FY21.

Nomura expects a healthy 38 per cent YoY growth in Hero MotoCorp's revenues to Rs 9,657.7 crore, led by around 20 per cent growth in overall volumes and price increase due to BS-6 models. In comparison, the company had reported revenue of Rs 6,996.7 crore in the year-ago quarter. Net profit is seen increasing 9 per cent YoY to Rs 962.3 crore from Rs 880.4 crore in Q3FY20..

Analysts at Kotak Institutional Equities peg Hero's revenue growth at 38 per cent YoY to Rs 9,656.5 crore for the quarter under review, led by increase in volumes and 14 per cent YoY increase in average selling prices due to BS-VI transition and richer mix (higher mix of premium motorcycle and scooter segments). The bottom-line, meanwhile, is seen growing 11.1 per cent YoY to Rs 978.1 crore.

Nirmal Bang is also building an 11.8 per cent increase in the company's earnings to Rs 983.9 crore, while revenue is expected to grow 38 per cent YoY to Rs 9,677.7 crore.

Operating performance

The brokerage sees 80bps YoY contraction in Hero MotoCorp's margin for the quarter to 14 per cent, largely due to limited BS-VI pass-through and higher tax rate, which will be partially offset by price hike, tight cost control measures, and higher operating leverage. Earnings before interest, tax, depreciation, and ammortisation (Ebitda) may grow 30.4 per cent to Rs 1,354.9 crore.

Meanwhile, Nomura is building a 23 per cent YoY rise in the company's Ebitda to Rs 1,275 crore from Rs 1,038.9 crore in Q3FY20. "Margins, meanwhile, are likely to decline 53 bps QoQ to 13.2 per cent on rising commodity costs," the brokerage said.

Key things to watch

Market share trends in the premium segment – response to Xtreme 160cc, and inventory levels (as festive season is now behind) remain the key monitorables for investors, HDFC Institutional Equities said in a result preview note..

Stock performance

At the bourses, Hero MotoCorp's share underperformed the benchmark index, slipping 1.31 per cent in Q3FY21 as compared to Nifty's 24 per cent rally in the same period, ACE Equity data show.