Hero MotoCorp reports 14% drop in Q4 profit, annual net up 13 %

4% Amount by which the revenue from sales rose, to Rs 6,695 crore year-on-year

Hit by an impairment charge of Rs 155 crore, Hero MotoCorp, the country’s largest two-wheeler manufacturer by volume, reported a 14 per cent slump in net profit for the quarter ended March, 2015. Stand-alone net profit for the quarter was Rs 476.5 crore, against Rs 554 crore in the corresponding period of the previous year. After adjusting for the impairment charge, the profit would have come higher than the year-ago figure, but it would have still been lower than the Bloomberg consensus estimate of Rs 636.7 crore.

Revenue from sales rose nearly four per cent to Rs 6,695 crore, and was ahead of estimates of Rs 6,580 crore. Net profit for the year ended March rose over 13 per cent to Rs 2,385.6 crore while net sales increased nine per cent to Rs 27,350 crore.

The impairment of Rs 155 crore is on account of equity investment in Erik Buell Racing (EBR). US-based EBR, in which Hero MotoCorp’s subsidiary had acquired a 49.2 per cent stake in 2013, has filed for bankruptcy.

The employee costs were up nearly 29 per cent year-on-year to Rs 304 crore; other expenses were up 25 per cent at Rs 882 crore. The other income too fell sharply by 24.5 per cent year-on-year to Rs 93 crore.

The results were declared after stock markets closed trading for the day. At the BSE, the company’s stock closed at Rs 2,354, up 1.21 from the previous day’s close. The company had posted a six per cent year-on-year increase in units sold during the last financial year. However, maintaining that could be a challenge owing to the declining purchasing power in rural India.

“The sector has remained sluggish due to the slowing rural economy on poor crop realisation and moderating wages in the rural markets. Near to medium term, we remain cautiously optimistic. An overall improvement in the economy and positive market sentiments are required”, Pawan Munjal, vice-chairman and chief executive and managing director said.

The company has seen a 29 per cent jump in employee benefits expenses for the quarter at Rs 304 crore. For the whole year, the number went up 26 per cent to Rs 1,172 crore. Raw material cost for the year rose 8.6 per cent to Rs 19,784 crore.

Experts anticipate a challenging year ahead for the company. “Given the problems in rural India, the company will face challenge in growing sales volume. There will be pressure on margins due to rising wage cost and expenditure on promotions. The stock will under-perform the market”, said Saurabh Jain, Assistant Vice President (Fundamental Research) at SMC Global Securities.