Hero MotoCorp Q3 Results: Profit Beats Estimates Despite Lower Sales

Hero MotoCorp Ltd.’s quarterly profit surpassed analysts’ expectations as lower raw material costs helped it earn more on every vehicle it sold despite weak sales.

Net profit rose 14.5 percent over last year to Rs 880.4 crore during the quarter ended December, according to its exchange filing. Analyst estimates tracked by Bloomberg had pegged the profit at Rs 690 crore.

• Revenue fell 11 percent on a yearly basis to Rs 6,996 crore—in line with the analysts’ estimate of Rs 6,693 crore.
• Operating profit fell 6 percent to Rs 1,039 crore.
• Operating margin expanded 80 basis points to 14.84 percent.
• Sales during the quarter stood at 15.4 lakh units.

The results come at a time when the automobile industry is facing a prolonged slowdown as Indians cut back on spending amid weak economic growth. The industry’s worst slump in at least two decades has seen motorcycle sales fall almost 13 percent, according to industry lobby Society of Indian Automobile Manufacturers.

“The two-wheeler industry continues to face challenges amidst an overall economic slowdown,” Niranjan Gupta, chief financial officer of Hero MotoCorp, was quoted as saying in a media statement. “It will take some time for the industry to see a sustained recovery.”

Still, India’s largest two-wheeler manufacturer was able to offset the impact of weaker sales as it improved realisations and benefited from a lower corporate tax rate. Hero MotoCorp paid a tax rate of about 13 percent during the quarter, compared with 32 percent in the same period last year, according to the BloombergQuint’s calculations based on the filings. Realisations, or what it earns per vehicle, rose 4 percent to Rs 45,408 per unit.

Gupta said that the announcements in the Union Budget 2020 coupled with positive early indicators of Rabi crop will help trigger a turnaround. “We expect to see a positive turnaround in the second half of the new fiscal 2020-21.”

Hero MotoCorp has also announced an interim dividend of Rs 65 per share.

Concall Takeaways:

• Results were driven by cost savings and corporate tax cut.
• All models are Bharat Stage-VI ready. Will stop BS-IV production by mid-February.
• Lower commodity prices aided margins this time. Expect the prices to go up going forward.
• Prices have gone up 12-15 percent due to BS-VI transition; expect positive trends in sales to emerge from second half of financial year 2020-21.
• Increased growth in high margin spare parts business has also led to higher margins.
• Plan to commission the Andhra Pradesh plant this quarter.
• Don’t see any change in the dividend policy.

Shares of Hero MotoCorp closed 1.56 percent higher, ahead of the earnings announcement, while the benchmark NSE Nifty 50 gained 0.4 percent.