Hero Motocorp Ltd on February 10 reported a standalone net profit of Rs 686 crore, for the third quarter ended December 2021, down 36.7 percent from Rs 1,084 crore reported a year ago. On a sequential basis, the profit has declined 13.6 percent from Rs 794 crore.
The world’s largest two-wheeler manufacturer has reported a standalone revenue of Rs 7,883 crore, declining 19.4 percent from Rs 9,776 crore reported in the same period a year ago. Compared to the previous quarter, the revenue has slumped 6.7 percent from Rs 8,453 crore.
The Gurgaon-based company witnessed a decline in its volume which coupled with raw material inflation headwinds negated the impact of improvement in price realisations and dented the performance of the company in the reported quarter.
“The current fiscal has seen the domestic two-wheeler industry impacted by twin challenge of softer demand due to pandemic and margin squeeze due to sharp commodity cost inflation”, said Niranjan Gupta, Chief Financial Officer, while commenting on the performance for the quarter.
Our continued focus on savings programs combined with judicious price increases have helped cushion the impact on customers as well as margins, he added.
“The recently announced Union Budget, with its focus on growth through increased capital expenditure, as well as continued support to rural and MSME sector augurs well for FY23 demand scenario in general and two wheeler industry in particular”, said Gupta.
Volume
The company sold 12.92 lakh units of two wheelers during the quarter which includes both motorcycles as well as scooters. This was a decline of 30 percent on year from 18.45 lakh units sold by the company in the same period a year ago. On a sequential basis, the volumes declined by 10 percent from 14.38 lakh units sold in the previous quarter.
The company’s global business sold 61 thousand units during the quarter which is a growth of 16 percent year on year.
Parts Business
The spare parts business of the company witnessed strong traction and generated revenues to the tune of Rs 1,186 crore, growing 15 percent year on year.
Costs & Margins
The company was able to implement various cost saving initiatives which helped the company save on costs despite the steep rise in commodity prices.
The cost of raw materials as percentage of sales during the quarter stood at 70 percent which was 110 bps lower year on year and 150 bps lower compared to the previous quarter.
“Commodity cost pressures are expected to ease, as supply imbalances get corrected gradually, some part of which is evident in the softening of precious metal and steel prices”, said Gupta.
“We will continue to accelerate our savings program, premiumize within the brands, and take price increases where necessary”, he added.
The employee costs for the company increased marginally as percentage of sales to 6.6 percent. The increase was 130 bps compared to 5.3 percent recorded in the same quarter a year ago and 60 bps higher compared to 6.0 percent in the previous quarter.
Other expenses at 10.3 percent increased by 50 bps on year and by 120 bps on quarter.
Operationally, the company achieved an EBITDA (earnings before interest, tax, depreciation and amortization) of Rs 960 crore for the quarter, declining by 32 percent on year from Rs 1,414 crore achieved during the same quarter a year ago. On a sequential basis, the EBITDA is lower by 10 percent from Rs 1,066 crore achieved during the previous quarter.
Consequently, EBITDA margins for the company during the reported quarter declined by 230 bps on year to 12.2 percent from 14.5 percent. Sequentially, the margins were lower by 40 bps.
The lower EBITDA margins resulted in lower net margins during the quarter. The net margin during the quarter came in at 8.7 percent which was 240 bps lower than 11.1 percent achieved during the same period last year. Compared to the previous quarter, the net margins were lower by 70 bps.
Progress on EV
The plans for the launch of Electric Vehicle are progressing on track and the product will be produced at the company’s manufacturing facility at Chittoor, Andhra Pradesh.
“Through its investments and partnerships like Ather Energy and Gogoro Inc., we are also working towards building the entire EV ecosystem – from product to technology, to sales service, customer care, operations and innovation”, said Gupta. “Sustainability and Emerging Mobility is a priority area for Hero MotoCorp and the company continues to enhance its efforts in this direction”.
Dividend Payout
The company has declared an interim dividend @ 3000% i.e. Rs. 60 per equity share (face value of Rs. 2 each) for the financial year 2021-22. The record date has been fixed as February 22 and the dividend will be paid to the eligible shareholders on March 12.
Hero Motocorp stock closed at Rs 2,734, up Rs 5.25 from its previous close at the National Stock Exchange on February 10. The stock is down 22 percent during the past one year and is trading up 6 percent during the past one month.
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