Hero MotoCorp's net profit is likely to fall on the back of higher average tax rate, as tax incentives it got at Haridwar plant have expired, and sales volumes in the first quarter declined 5 percent.
India's largest two-wheeler maker Hero MotoCorp will report its first quarter earnings on Wednesday. The company, like rivals such as Bajaj Auto and TVS Motor, has been hit with sluggish demand in the domestic market. And that impact will be visible in the results for the April-June quarter.
Analysts on average expect Hero MotoCorp to report a net profit of Rs 580 crore, down 6 percent year-on-year, according to a CNBC-TV18 poll. A fall in sales volumes and higher average tax rate, will hurt profits, analysts say.
The comany had said earlier that its tax rate this will increase to 22-23 percent from earlier 16.3 percent as tax incentives it got at Haridwar plant have expired.
The Splendor motorcycle and Maestro scooter maker's quarterly revenue is seen up 1 percent at Rs 6,310 crore.
Hero's total sales volumes last quarter declined 5 percent year-on-year to 15.6 lakh units. While its motorcycle sales were down 9 percent to 13.92 lakh units, scooter sales jumped 40 percent to 1.66 lakh units.
The company is facing stiff competition from Bajaj Auto, which will launch 6 new Discover models this year, to take on Hero's Splendor and Passion range of motorcycles. Its erstwhile Japanese partner Honda too has got very aggressive and has launched the Dream Yuga and Dream Neo in the commuter segment, where Hero is dominant.
Despite the overall dip in sales, Hero is expected to maintain operating margin at around 14.4 percent, compared with 14.9 percent in the year ago quarter.
Prices hike of Rs 500-1,500 per vehicle taken during the quarter, coupled with benefits of a weaker yen and lower raw material prices will aid margins.
In comparison, India's second largest motorcycle maker Bajaj Auto reported a first quarter net profit of Rs 738 crore, up 3 percent year-on-year, helped by higher export realisations. Its net sales grew 1 percent to Rs 4,911 crore and operating profit margin came in at 18.5 percent.
"Expect only a modest performance from Hero as volumes remained tepid," says Emkay Global Financial Services.
It says margins will be largely flat as benefits from price hikes are offset by product mix and higher research & development and export launch expenses.
The yen depreciation will benefit on royalty expenses and this would offset deterioration in product mix, according to Kotak Institutional Equities.
KEY THINGS TO WATCH
- Market share in the quarter
- Current retail demand in the domestic market
- Outlook for the rest of the year
- Exports roadmap
- New launches planned in the year
- Updates on expansion and new product development
Hero MotoCorp shares closed down 0.4 percent at Rs 1,782 on NSE in afternoon trade on Tuesday. As of Monday's close, the stock had gained 16 percent since March-end, outperforming the wider Nifty index, which had gained 6.1 percent, and the CNX Auto index, which was up 8.5 percent.