Hero Moto Q4 net profit seen down 18% to Rs 493cr

Moneycontrol Bureau

Hero MotoCorp will report its fourth quarter earnings on Friday, amid what has been a continued slump in demand in the two-wheeler industry. The India's largest two-wheeler company by sales is expected to report a 18 percent year-on-year decline in quarterly net profit at Rs 493 crore and revenue may slip 0.2 percent to Rs 6,020 crore, according to a CNBC-TV18 poll. Two-wheeler sales of Hero MotoCorp, Bajaj Auto and TVS Motor have hit speed bumps in the last one year as customers have cut back on discretionary spends amid the overall slowdown in the economy, high inflation, rising fuel prices and expensive loans. Hero Moto in particular has been facing an onslaught from its former partner Honda, which has become very agressive now and has launched motorcycles directly pitched against Hero's highest selling Splendor. Hero's fourth quarter volumes are down 3 percent year-on-year to 15.27 lakh units. Honda, meanwhile, has seen a 18 percent uptick at a little over 7 lakh units. "With rising pressures on real income, consumers are staying away from the premium motorcycles and scooters segment. Honda Motorcycle & Scooter India's aggressive marketing in the two-wheeler market has already impacted the position of Hero and TVS," say Umesh Karne and Manashwi Banerjee of Brics Securities. And analysts expect the road ahead remains bumpy and uncertain for Hero, given that it has no significant new launches scheduled this year, even as competition, in particular Honda, ramps up the pressure. Hero is focusing a lot on research and development and has forged several tieups with global firms, like Erik Buell Racing of United States, for instance. But new products are only expected to arrive in 2014-15. Till then, it has to rely on the Splendor and Passion motorcycle brands and Pleasure and Maestro scooters to drive bulk of its sales. TVS Motor recently entered a pact with Germany's sports bike maker BMW Motorrad to develop new motorcycles, first of which is also expected to be launched in 2015. Hero is also exporting its products, but its share will only be about 3 percent of total revenue. In comparision, exports contribute to over 30 percent of total sales for India's second largest motorcycle maker Bajaj Auto. Sluggish sales apart, Hero's margins are likely to remain under pressure, as it continues to spend on marketing and brand building. Its margins hit a 2 year low of 12.6 percent in the third quarter.  However, higher expenses would be offset to an extent by favourable currency movements. The CNBC-TV18 poll forecast 12.7 percent operating profit margin in Q4, down from 15.3 percent a year ago. KEY THINGS TO WATCH -- Margins in Q4 and the road ahead
-- A light on current retail demand environment
-- Sales outlook for FY14
-- Export plans
-- Capex spends over the next couple of years
-- Updates on R&D and joint ventures forged in the last one year
-- Road map of new product rollout STOCK WATCH Hero Moto shares ended up 2.8 percent at Rs 1,617.75 on NSE on Thursday. The stock hit a 52-week low of Rs 1,435 earlier this month and is down over 17 percent since Dec-end. The wider NSE Nifty index has been flattish over the same period.