Hero MotoCorp up 5% on hopes of healthy business outlook

Shares of Hero MotoCorp (HMCL) were up 5 per cent to Rs 2,536.65 on the BSE in Thursday’s intra-day trade after the management displayed confidence of growing ahead of the industry.

"In the coming months, the company will be able to drive profitable growth through the combination of key strategic initiatives such as acceleration of Leap-II savings program to offset the higher commodity prices and input costs and cash flow management," HMCL said.

With the macro indicators in place, the management anticipates to see double-digit growth in FY23. A combination of marriage season and mini festivals (Gudi Padwa/Ugadi) is expected to drive better retails in April 2022. 

With the economy picking up, the management expects the demand for motorcycles and scooters to see a positive turnaround in the coming months. “While concerns related to high input costs continue to remain a challenge, we will keep monitoring the situation and take judicious measures as appropriate. The forecast of a normal monsoon is likely to aid the crops, which in turn is expected to improve cash flows in rural sector. All these factors are likely to help in a steady recovery in consumer sentiments and market demand,” said Niranjan Gupta, Chief Financial Officer of HMCL.

Meanwhile, for January-March quarter (Q4FY22), India's largest two-wheeler maker Hero MotoCorp posted weak set of numbers as both bottom and top line took a hit, mainly due to weak rural demand, price hikes and high raw material costs.

The company’s revenue from operations fell 14 per cent year on year (YoY) to Rs 7,422 crore in Q4FY22 and profit after tax declined 27.5 per cent YoY at Rs 627 crore. Meanwhile, earnings before interest, taxes, depreciation, and amortization (EBITDA) margin contracted to 11.2 per cent from 13.9 per cent and volumes declined by 24 per cent YoY and 8 per cent sequentially. Besides that, the company’s operating performance was affected due to higher other expenses (non-recurring), diluted by stable raw material costs and price hikes.

Analysts at Motilal Oswal Financial Services believe that the company is near bottom from a demand perspective. This, coupled with stable commodity prices, can drive earnings over the next two-to-three years. “HMCL is a good proxy on a rural market recovery, with its stronghold being the 100cc Motorcycle segment. It has low vulnerability to electric vehicles (EVs), as it garners just 8 per cent volumes from scooters and its core 100cc motorcycle is less prone to EVs,” the brokerage firm said 

That apart, analysts at ICICI Securities expect volume to grow at a CAGR of 8 per cent over FY22-24E, driven by need for personal mobility. "Revenues are seen growing at 12.9 per cent CAGR over FY22-24E with EBITDA margins at 12-13 per cent," ICICI Securities said. The brokerage firm retains 'hold' stance on the stock, amid faster than anticipated EV transition domestically.