Hero Motocorp Ltd is expected to report a dip of 35-40 percent in its standalone Profit after Tax (PAT) for the quarter compared to last year while standalone revenues from operations may contract 20-30 percent due to 30 percent decline in volumes. The improvement in average realisations of 13 percent will provide some cushion to the drop in revenues.
On a quarterly basis, experts forecast a 17-22 percent decline in net profit and 10 percent in revenues.
India’s largest two wheeler manufacturer will declare its results today for the quarter ended December 2021. The Gurgaon based company had registered a standalone profit after tax of Rs 1,084 crore in the corresponding quarter a year ago on revenues of Rs 9,776 crore.
In the previous quarter of this financial year, the company had recorded a PAT of Rs 794 crore when revenues stood at Rs 8,453 crore.
Brokerage Views
Motilal Oswal Financial Services
It expects the volumes to contract 30 percent on-year to 1.29 million units from 1.85 million units in the same quarter a year ago. On a sequential basis, volumes may decline 10 percent from 1.44 million units.
Net realisations are expected to improve 13 percent on-year to Rs 59,936 per unit from Rs 52,977 per unit recorded in the same period a year ago. Compared to previous quarter, the realisations are likely to expand 2 percent from Rs 58,760 per unit.
The decline in volumes will negate the impact of better realizations as the revenues may decline by 21 percent on year to Rs 7,745 crore. Sequentially the revenues may decline 8.4 percent.
The brokerage said the higher prices of metals will also dent the margins as the raw materials cost as a percentage of sales is expected to increase by 130 bps on-year to 72.4 percent. It will remain flat on a quarterly basis.
Staff cost as a percentage of sales is also likely to expand by 120 bps on-year and 50 bps on-quarter to 6.5 percent.
Consequently, EBITDA (earnings before interest, tax, depreciation and amortisation) may decline by 34 percent on year to Rs 939 crore from Rs 1,414 crore and may reduce by 12 percent on quarter from Rs 1,066 crore.
EBITDA margins might witness a decline of 240 bps on year to 12.1 percent. The EBITDA margins in the previous quarter had stood at 12.6 percent.
In view of this, PAT is likely to slump by 35 percent year on year to Rs 702 crore and by 11.6 percent quarter on quarter.
Axis Securities
The brokerage concurs with Motilal Oswal and expects the volumes to decline by 30 percent on year and by 10 percent on quarter to 1.29 million units.
“ASP (average selling price) is likely to decline by 1.5 percent QoQ as benefit of price hikes of roughly 2 percent QoQ may be more than offset by (1) higher discounts and (2) weaker mix – higher share of economy segment, lower mix of spare (12 percent during the quarter compared to 13 percent in the previous quarter) and lower other operating income”, the brokerage said in its report.
Basis this it expects the revenues to decline by 24 percent year on year to Rs 7,480 crore. Sequentially this is a decline of 12 percent.
EBITDA at Rs 850 crore is a reduction of 40 percent year on year and 20 percent on quarter.
“Sequential contraction in margin may be driven by negative operating leverage (volumes down by 10 percent and revenues down by 12 percent QoQ)”, added Axis.
Gross margin is likely to improve 50 bps QoQ due to benefit of normalisation of commodity costs especially precious metals and some raw material-linked cost reduction efforts of the company.
The brokerage expects the PAT to decline 42 percent on year and 21 percent on quarter to Rs 620 crore.
Kotak Institutional Equities
It expects the revenues to decline by 22 percent YoY and 10.2 percent QoQ to Rs 7,593 crore. The decline is likely to be driven by (1) 30 percent YoY decline in volumes and (2) 11 percent YoY increase in ASPs.
The higher cost of raw materials and employee cost might reduce the EBITDA 40.4 percent on year and 21 percent on quarter to Rs 842 crore.
“We expect EBITDA margin to decline by 150 bps QoQ led by negative operating leverage and raw material headwinds”, the brokerage said in its report.
PAT at Rs 618 crore is a decline of 43 percent on year and 22 percent quarter on quarter.
Hero Motocorp stock closed the day at Rs 2,728.85, up Rs 56.9 (+2.1 percent) from its previous close at the National Stock Exchange on February 09. The stock is down 22 percent during the past one year and is trading up 9 percent during the past one month.
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