Hero Moto Q2 preview: Brokerages see fall in profit on slow revenue growth

Brokerage houses expect profit de-growth in the range of 5-15 percent year-on-year (YoY) for the quarter due to weak operational performance and slow revenue growth.

Motilal Oswal expects profit to decline 9.8 percent YoY (up 0.3 percent QoQ) to Rs 9,116 crore while Edelweiss sees 11.7 percent de-growth in bottomline.

Emkay Research expects net income to fall 5.1 percent year-on-year to Rs 9,591 crore.

Revenue

Revenue growth for the quarter ended September 2018 is expected to be in the range of 3-9 percent year-on-year, according to brokerage houses.

Motilal Oswal sees net revenue growth at 8.1 percent while Edelweiss expects revenue growth of 6.6 percent YoY, largely driven by volume growth of 4 percent YoY and higher realisations.

The volume growth was driven by healthy rural sentiment. Realisation is likely to grow by 2.5 percent YoY (1.3 percent QoQ) largely led by price hikes, Motilal Oswal said.

Emkay Research said, "We expect standalone revenue to grow by 9 percent YoY (up 4 percent QoQ) to Rs 9,119.3 crore led by growth in volume and 3 percent YoY (up 2 percent QoQ) growth in realisation. Realisations are expected to improve sequentially on price hikes and higher spare revenues."

Operational Performance

Overall operational performance is expected to be weak due to slowdown in volume, increase in raw material prices and adverse currency.

"Weak volume growth along with adverse cost pressures in the form of insurance cost escalation, raw material price increase and adverse currency (around 10-12 percent of net imports, direct plus indirect) to impact operating margin," Ambit Capital said.

It expects operating profit margin at 15 percent, down 225 bps YoY should result in bottomline declining by 15 percent YoY. EBITDA (earnings before interest, tax, depreciation and amortisation) may fall 10 percent YoY.

Edelweiss said operating margins are likely to contract 50 bps sequentially impacted by higher costs and expiration of the Haridwar plant tax benefits while Emkay Research feels EBITDA margin should contract by 20bps QoQ (down 200bps YoY) to 15.4 percent due to commodity inflation and adverse currency movement.

Key issues to watch out for

Motilal Oswal said the key issues to watch out for would be update on demand trend in rural and urban markets, level of inventory in the system, new product launches and the timelines, and outlook on exports.