What to watch out in Bajaj Auto, Hero Moto's Q3 results?

Moneycontrol Bureau

India's top two-wheeler makers Hero MotoCorp and Bajaj Auto will report third quarter earnings on Thursday amid signs that the slowdown that has hurt passenger vehicle sales is catching up with scooters and motorcycles.

Two wheeler companies, especially Bajaj Auto and TVS Motor, have seen some slowdown post the festive season. But overall in 2011-12, while passenger car sales have slowed down to a crawl, two-wheeler sales have maintained a good momentum. So far this fiscal, two-wheeler sales have risen 18% from a year ago. Domestic sales are up 16% and exports surged 31%, points out a report by Angel Broking.

Hero MotoCorp reported highest ever volumes during the Oct-Dec quarter. That coupled with higher operating leverage will help profits grow 27.7% year-on-year, said Pinc Research's Vineet Hetamasaria and Nikhil Deshpande.

They expect Bajaj Auto's net profit will increase 17.2% from a year ago, helped by price hikes it took in the domestic as well as export markets. Bajaj Auto's one-third volumes are from export markets and so the depreciation in rupee during the third quarter will also benefit earnings.

Key things to watch out from Bajaj Auto:

- Demand outlook for the fourth quarter and fiscal 2013. 

- Commentary on currency swings. Auto companies import a lot of  components, and Bajaj Auto also exports vehicles to other developing markets. So foreign exchange movement and its impact will keenly eyed.

- Commentary on new launches. Bajaj Auto has several launches planned in calendar 2012, which include the KTM Duke and new Pulsar motorcycle.

- Outlook on three-wheeler segment. The company also launched its four-wheeler RE60 earlier this month and investors will be interested in getting a road map for sales and marketing from Bajaj.

Key things to watch out from Hero MotoCorp:

- Demand outlook for the fourth quarter and fiscal 2013. Hero MotoCorp has regained market share in the past few months, which now stands at over 40%

- The royalty payment it makes to Japan's Honda is also expected to be higher due to a sharp appreciation of the Yen against the Rupee.

- New Launches. Hero MotoCorp has already launched the Impulse motorcycle and Maestro scooter. It will also launch the Ignitor and Passion X Pro motorcycles during the year.

- Hero MotoCorp faces several challenges it needs to address. For instance, new product development sans Honda, developing export markets and building a fourth plant to satisfy strong demand.

Hero MotoCorp shares have fallen near 6% since September 30. Bajaj Auto shares have fallen 5.4%. The wider NSE Nifty is up 0.25% during the same period. On Wednesday, Hero MotoCorp shares closed up 1.8% at Rs 1,860.65. Bajaj Auto ended up 0.2% at Rs 1,454.75 on NSE.

Emkay, Motilal Oswal and Pinc have a "buy" rating on Bajaj Auto, Angel recommends an "accumulate" and Kotak has "add" rating,

On Hero MotoCorp, Motilal Oswal has a "buy", Emkay and Pinc recommend "accumulate", Angel has a "neutral" rating and Kotak advises a "sell."

Nachiket Kelkar
nachiket.kelkar@network18online.com