Hero MotoCorp Q1 preview: Over 15% fall in profit seen amid falling volume

Hero Motocorp, the country’s largest two-wheeler maker, will announce its June quarter results on Tuesday and analysts expect it to report a decline in revenue as well as profit due to falling volumes amid a sector-wide slowdown.

The company's volumes saw a 12.5 per cent dip in the June quarter on a year-on-year (YoY) basis to 18.4 lakh units. Scooter volumes slumped 37 per cent to 1.2 lakh units while motorcycle volumes declined around 10 per cent YoY to 17.2 lakh units during the quarter.

Analysts at Motilal Oswal see a 19.6 per cent decrease in Hero MotoCorp's net profit to Rs 730.9 crore for the quarter under review as compared to Rs 1,115.2 crore profit reported in the corresponding quarter last year. Revenue, they said, may see an 8 per cent YoY degrowth to Rs 8,096.2 crore.

Brokerage firm Nirmal Bang also expects Hero MotoCorp's PAT (profit after tax) to fall 16.5 per cent YoY to Rs 759.1 crore while revenue is seen at Rs 8,092.4 crore, an 8.1 per cent YoY decrease.

Analysts at ICICI Securities also predicted a fall in profit, albeit lesser, for the company. They peg Hero MotoCorp's Q1FY20 PAT at Rs 792.8 crore and revenue at Rs 8,213.1 crore. "The company is expected to benefit from muted commodity prices amid a high fixed costs base," they said.

At the operating level, analysts see a dip in margin due to higher discounts and adverse working capital owing to weak demand. "Hero MotoCorp may report Ebitda (earnings before interest, tax, depreciation, and ammortisation) at Rs 1,154 crore, down 16.2 per cent YoY, with corresponding Ebitda margins at 14 per cent," analysts at ICICI Securities said.

Motilal Oswal expects Ebitda margin to shrink by 230 bps on a YoY basis to 13.3 per cent, while Ebitda may come in at Rs 1080.4 crore, down 21.6 per cent YoY.

"Realization is expected to grow by 5 per cent YoY to Rs 43,923/unit, largely led by price hikes and a higher share of spares," the brokerage firm said.

Investors will keep a keen eye on any update on the demand trend in rural and urban markets, level of inventory in the system, outlook on exports, and new product launches and the timelines.

At the bourses, Hero MotoCorp marginally underperformed the benchmark S&P BSE Sensex during the quarter by climbing 1.12 per cent as compared to a 1.86 per cent gain in Sensex.