 "Hero MotoCorp: Cost spurt hurts in a record quarter")
Despite recording the highest ever quarterly volumes and revenue in the December 2013 quarter (Q3), Hero MotoCorp disappointed on operating and net profit fronts. While higher raw material costs, especially other expenses, dented operating profits, a larger tax rate saw net profit come below expectations at Rs 524 crore.
Although the number was up eight per cent year-on-year (y-o-y), it was below the Rs 600-crore mark expected by most analysts. The tax rate spurted to 27 per cent in Q3, compared with 16.3 per cent a year ago, as tax breaks at Haridwar operations come to an end.
The company attributed the rise in other expenses to higher freight expenses and royalty on four new products. While analysts believe some part of promotional costs would have increased other expenses, the company says these are higher than the previous quarters but in line with the year-ago quarter. The impact would have been higher, had it not been for the margin transformation project which helped save Rs 45 crore in Q3. From 13-14 per cent currently, the company by FY17 plans to improve margins by 300 bps as part of the project. Hero does not expect raw material costs to increase but expects these to stabilise.
On sales, though these fell three per cent, y-o-y, in December, on the back of 1.1 million sales in October and November, Q3 sales volumes were up seven per cent. Coupled with price rises effective October at an average of Rs 750 a unit, revenues were up 11 per cent to Rs 6,877 crore.
The company said sales were bouncing back since the second half of January, with a run rate of 20,000 units a day. Exports continue to disappoint. The firm says those are likely to perk up with new products and export infrastructure being set up in various geographies. Positively, strong demand for scooters has helped Hero post a 27 per cent jump in volumes in this segment in FY14 so far. The segment now accounts for 12.5 per cent of Hero’s two-wheelers’ volumes, against 9.8 per cent a year ago. New launches in this category will help Hero improve its market share further (year-to-date it is up 150 bps, to about 20 per cent).
Although the number was up eight per cent year-on-year (y-o-y), it was below the Rs 600-crore mark expected by most analysts. The tax rate spurted to 27 per cent in Q3, compared with 16.3 per cent a year ago, as tax breaks at Haridwar operations come to an end.
The company attributed the rise in other expenses to higher freight expenses and royalty on four new products. While analysts believe some part of promotional costs would have increased other expenses, the company says these are higher than the previous quarters but in line with the year-ago quarter. The impact would have been higher, had it not been for the margin transformation project which helped save Rs 45 crore in Q3. From 13-14 per cent currently, the company by FY17 plans to improve margins by 300 bps as part of the project. Hero does not expect raw material costs to increase but expects these to stabilise.
On sales, though these fell three per cent, y-o-y, in December, on the back of 1.1 million sales in October and November, Q3 sales volumes were up seven per cent. Coupled with price rises effective October at an average of Rs 750 a unit, revenues were up 11 per cent to Rs 6,877 crore.
The company said sales were bouncing back since the second half of January, with a run rate of 20,000 units a day. Exports continue to disappoint. The firm says those are likely to perk up with new products and export infrastructure being set up in various geographies. Positively, strong demand for scooters has helped Hero post a 27 per cent jump in volumes in this segment in FY14 so far. The segment now accounts for 12.5 per cent of Hero’s two-wheelers’ volumes, against 9.8 per cent a year ago. New launches in this category will help Hero improve its market share further (year-to-date it is up 150 bps, to about 20 per cent).