Hero Moto Q1 net down 11%, hopeful of 7-8% FY14 ind growth

Nachiket Kelkar
moneycontrol.com

Hero MotoCorp missed street expectations on Wednesday, with first quarter net profit declining 11 percent year-on-year to Rs 549 crore due to higher tax rate. The India's largest two-wheeler maker reported a total income of Rs 6,160 crore, down 1.4 percent in April-June. Analysts on average had expected Hero MotoCorp to report a net profit of Rs 580 crore, on revenue of Rs 6,310 crore, according to a CNBC-TV18 poll. The profit was lower due to higher tax rate on account of the expiry of 5 years of 100 percent exemption given to the company's Haridwar plant, and the newly levied higher surcharge in the Union Budget, the maker of Splendor motorcycle and Pleasure scooter said. The Haridwar plant contributes to 35-36 percent of the company's total production. "With the expiry of the tax benefit, the tax liability on Hero MotoCorp went up to 26.9 percent for the quarter, whereas it was 16.3 percent in the previous quarter," it said. The tax expenses were 70 percent higher at Rs 202 crore in April-June. Ravi Sud, Hero's CFO, said that the tax rate in the current financial year will be close to 27 percent. Excluding the higher tax rate, the company's EBITDA (earnings before interest, taxes, depreciation and amortization) was in-line with expectations of Rs 915 crore (down 2 percent). EBITDA margin for the quarter stood at 14.8 percent. Profit before tax came in at Rs 750 crore, versus Rs 735 crore a year ago. Two-wheeler companies in India have hit speed-bumps in the last few months amid the overall economic slowdown. Hero MotoCorp's sales declined 5 percent last quarter to 15.59 lakh units. "The 100-125cc motorcycle volumes have grown well. But the 150cc motorcycle segment is declining the most. So our premium-end bikes are under pressure," Anil Dua, Senior VP - sales & marketing, said in a post earnings conference call. Due to the fall in premium motorcycle sales, its average realisations also declined to Rs 39,000, Dua said. The Rs 500-1,500 per vehicle price hike that Hero MotoCorp took effective May 1 cushioned the fall in revenue, he added. OUTLOOK Hero MotoCorp had earlier guided for 7-8 percent growth in two-wheeler sales for the industry in FY14. Dua says it is clearly not a double-digit growth year. But despite the sluggish start in the first quarter, he is still hopefull that the 7-8 percent growth can be achieved by the industry this year and next year the growth should return to double-digits. A good monsoon rains should fuel rural demand and that coupled with new launches around the festive season make Hero officials "very optimistic" of growth in the second half of the current financial year. Hero MotoCorp has also maintained its target to sell 1 million motorcycles in the international market (Africa, Latin America and South Asia) by 2015-16. Dua says the target is easily achieveable given that the African market size itself is 2 million vehicles per year and Latin America has market size of 4 million a year. The company has recently launched in markets like Guatemala and Honduras in Latin America and Kenya, Burkina Faso and Ivory Coast in Africa. It will launch its motorcycles in Peru and Equador in August, Dua said. Hero is a new brand in the these markets and so the company is doing high voltage launches. NEW LAUNCHES Hero MotoCorp will launch more than 7-8 products this year, Dua said. This will include refreshes, re-launching some of its old products, new variants of existing products and also new models across motorcycles and scooters. Usually, out of the new products, Hero MotoCorp launches 1-2 new models each year and that strategy will continue, Dua said. All the new models that the company launches going ahead will its own and not from its erstwhile Honda's stable, he added. Therefore, going ahead, there will no question of paying any royalty to to Honda. Hero MotoCorp has already entered into technology tieups with US-based Erik Buell Racing (EBR) Austria's AVL and Italy's Engines Engineering. Earlier this month, it extended its partnership with EBR by picking up 49 percent stake in the high-end sports bike maker for USD 25 million. Hero officials say, over a period of time EBR should become its extended arm as far as technology is concerned. There is a long-term possibility that Hero could launch products in the US market and EBR could introduce products here in India. Hero MotoCorp shares closed down 2 percent at Rs 1,754.50 on NSE on Wednesday. The results were announced after markets closed. nachiket.kelkar@network18online.com