Hero MotorCorp net up 1%, beats estimates

India's rural consumption of automobiles has been under pressure since the past year due to erratic and deficient rainfall

Helped by new launches and favourable input prices, Hero MotoCorp reported a 1.1 per cent rise in its second quarter net profit, beating Street estimates. Analysts were expecting the company to report a decline in revenues and profit on lower volumes. However, new launches and lower input prices helped the company improve realisations and expand margins.

The company, India’s largest two-wheeler manufacturer, posted Rs 772 crore net profit for the quarter ended September 30 against Rs 763 crore in the year-ago period. A Bloomberg had poll pegged the net profit at Rs 717 crore for the reporting quarter. Growth in net profit has come on the back of a fall in net sales, which stood at Rs 6,837 crore for the quarter, a 1.1 per cent drop compared to Rs 6,915 crore a year ago. Hero's operating margins expanded 70 basis points sequentially and 230 basis points year-on-year to 15.8 per cent during the quarter, which helped the company grow profits despite lower sales.  

Nitesh Sharma of Phillip Capital says: "Sequential realization improvement of three per cent surprised us as well as the Street. Had it not been for realization increase margin improvement wouldn’t have been so sharp."The company's net profit would have been higher on a sharp improvement in margins, but higher taxes and depreciation along with lower other income restricted profit growth.

The fall in sales was largely due to weak demand from the rural areas, which generate half the sales for the Delhi-based company. Hero's sales dipped seven per cent to 1,574,861 units compared to 1,692,523 units sold in the same quarter last year.

Rural consumption of automobiles has been under pressure for the past year due to erratic and deficient rainfall. However, with the onset of the festive season, automotive companies are optimistic of a reversal in trend.

Pawan Munjal, chairman and managing director of Hero MotoCorp, said, “The quarter saw the beginning of a sales revival and we’re cautiously optimistic this trend will continue in the second half of the financial year. The festive season could lead to positive sentiment in the market, which may help maintain the momentum in the coming months.”

Other income of the company nearly halved to Rs 102 crore in the quarter from Rs 193 crore posted in the corresponding quarter last year. Earnings before interest, taxes, depreciation and amortisation, or Ebitda, margin for the quarter stood at 15.85 per cent against 13.52 per cent in the year-ago quarter.

In its disclosure, Hero stated it made a collective capital investment of Rs 38.77 crore in fully-owned subsidiaries HMC Netherlands BV and HMC Americas Inc. Further, it invested Rs 197 crore in its associate company Hero Fincorp by way of rights issue. Both investments were made during the reporting quarter.

During the quarter under review, the company unveiled two new scooters - Maestro Edge and Duet. The firm also opened its first overseas manufacturing plant at Columbia having a capacity of 150,000 units.