Hero MotoCorp will report its earnings on Tuesday amid what has been a very sluggish second quarter for the two-wheeler industry in general.
After a build-up in inventories in the first-half of the calendar 2012, the India's largest two-wheeler maker has seen its volumes slip 14% year-on-year in July-September, even as its former partner Honda, now more aggressive, gained market share.
For the second quarter, analysts on average expect Hero's net profit to decline 27% at Rs 440 crore, while revenue is seen down 12.5% at Rs 5,100 crore, according to a CNBC-TV18 poll. On a sequential basis its net profit is likely to fall 28.4% and revenue will dip by 18.3%.
The company's operating margins are seen at 13.7% in Q2, down from 14.9% in Q1 and 15.7% a year ago. EBITDA (earnings before interest, taxes, depreciation and amortization) is expected at Rs 700 crore in July-Sep, versus Rs 936 crore in April-June and Rs 918 crore in the year ago quarter.
Last quarter the management had indicated that margin pressure would likley continue due to one quarter lag of currency on indirect imports.
KEY THINGS TO WATCH:
-- Volume growth in the second quarter and the first half. Its volumes are down 3.3% in the first six months of this year, with a sharp 14% decline in Q2.
-- EBITDA margins. CNBC-TV18 estimates a 120 bps quarter-on-quarter decline due to higher advertising spends and lag impact of appreciating yen versus rupee.
-- Market share update. Rival Bajaj Auto, which reported second quarter earnings last week, had claimed in the quarter that its Discover motorcycle brand had raced past Hero's Splendor as the largest selling motorcycle in the country.
-- Overall Hero's market share year-to-date this financial year is down to 53.5% from 55.7%, while Honda has gained share to 11.4% from 7% earlier.
-- Update on new product pipeline and new technology development. Post its break up with Honda, Hero has inked deals with US-based Erik Buell Racing and AVL of Austria.
-- Demand outlook for the rest of the year.
Hero MotoCorp has slipped 11% in the last three months as the street has raised concerns over weakness in rural demand and increasing competiting from Honda.
CLSA has a "sell" rating on the stock with a target price of Rs 1,700. Deutsche Bank too downgraded Hero to "sell" earlier this month with a target price of Rs 1,650.
"The anticipated structural change in the Indian two-wheeler market due to the break-up of the JV between Hero and Honda is becoming apparent earlier than expected. Unlike in the past, market leader Hero has been impacted the most during the current slowdown even as Honda has gained market share," Deutsche analysts Amyn Pirani and Srinivas Rao had said.
Further, the analysts had also pointed out that Hero faced more operating risks compared with Bajaj Auto, since the domestic market accounted for over 90% of revenue for Hero, compared with just around 50% for Bajaj.
Hero Moto shares were down 1.3% at Rs 1,803.85 on NSE in morning trade.