Aided by higher prices, improvement in operating performance and reversal-of-inventorisation benefits, Hero MotoCorp Ltd on Thursday reported a 32 percent year-on-year (YoY) rise in its first quarter standalone net profit at Rs 825 crore as compared to Rs 624.52 crore a year ago. The company's revenue increased 4.5 percent to Rs 8,767.27 crore in Q1FY24 as against Rs 8,392.54 crore in the year-ago period.
Lower commodity costs, price hikes, positive operating leverage and a richer product mix also helped the company boost its bottom line.
Niranjan Gupta, Chief Executive Officer, Hero MotoCorp, said, “Our underlying margins in ICE business have returned to pre‐Covid levels, providing us the necessary fuel for growth as we move forward. The singular focus as we move ahead will be growth and market share.”
The performance
The country’s largest two-wheeler maker posted robust financials despite a dip in volumes. The company’s total sales, including exports, declined by 3 percent to 13.53 lakh units during the April to June period vis-à-vis 13.90 lakh units in the same period last year. Domestic sales were marginally down by 0.8 percent on a YoY basis while exports slumped by 43 percent.
“We have begun strengthening our presence in the premium segment and pre‐booking numbers for Harley Davidson X440 is a good start. We will see more launches of new models in this segment over the next few quarters, as we intend to win big in the premium segment. Our EV presence is getting scaled up and we are on track to cover 100 cities by December this year," added Gupta.
The company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) for Q1FY24 stood at Rs 1,206 crore, up 28 percent.
Driven by softening of commodity costs, accelerated savings programs, and judicious price increases, the EBITDA margin for the quarter stood at 13.8 percent, reflecting an improvement of 250 basis points (bps). The underlying EBITDA margin for the ICE business stands at 14.5 percent, excluding the impact of the EV business.
EBITDA margin is a measure of a company's operating profit as a percentage of its revenue. Profit Before Tax and exceptional items for the quarter was at Rs 1,255 crore, a growth of 52 percent over Rs 824 crore reported in the previous quarter. Consolidated revenue from operations stood at Rs 8,851 crore, a growth of 5 percent over the previous year, and PAT at Rs 701 crore, a growth of 20 percent over the previous year.
Analysts at Kotak Institutional Equities attributed the drop in sales volumes to continued weakness in the entry-level motorcycle segment demand.
Meets St expectations
The results were in line with analysts’ expectations. According to a poll of five brokerages, Hero MotoCorp’s net profit during the first quarter of this fiscal was expected to rise 26 percent YoY to Rs 786 crore. The company’s revenue from operations was projected to increase 4.5 percent to Rs 8,754 crore, as per the estimates.
The analysts had claimed that while total vehicle sales are likely to fall by 3 percent on a YoY basis there will be a 7 percent increase in sales over the last quarter. On the other hand, exports are poised to fall 43 percent from the corresponding quarter of the previous fiscal.
Recently, Nirmal Bang, in its earnings estimates, expected Hero MotoCorp to report a net profit of Rs 775 crore up 23.6 percent YoY (up 9 percent quarter on quarter). Furthermore, net sales were expected to increase 9.8 percent YoY (up 1.5 percent QoQ) to Rs 8,150.7 crore, according to the brokerage.
Nirmal Bang had also predicted that EBITDA was likely to rise by 18.8 percent YoY (up 6.4 percent QoQ) to Rs 983.3 crore.
On August 10, Hero MotoCorp’s share price dropped 0.91 percent to Rs 3,029.35 on the BSE.
The outlook
Meanwhile, Hero MotoCorp expects the momentum to build up in the coming quarters on account of “favourable economic indicators” and “positive consumer sentiments”. With a slew of new launches lined up this year, the company is also accelerating its presence in the premium space.
“The key economic indicators are trending in a positive direction and a normal monsoon augurs well for demand as we will soon enter the festive season. Reduced inflationary pressures, moving forward, should result in more spending power in the hands of consumers. Overall, we see a positive scenario on the demand side, especially for the second half of this year and onwards,” Gupta added.
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