Hero MotoCorp Q4 review: Margin under strain, demand outlook muted

Buffeted by multiple macroeconomic and regulatory headwinds in the two-wheeler segment, Hero MotoCorp on April 26 posted a disappointing set of numbers for the March quarter of 2018-19.

Year-on-year, net operating revenue dropped 7.9 percent after a significant volume decline of 10.8 percent. Average realisation, however, witnessed an annual growth of 3.2 percent. Factors such as rising fuel prices, hardening interest rates, higher compulsory long-term insurance prices, and economic downturn ahead of the general elections have been demand spoilers.

Negative operating leverage, coupled with pricier raw material, pressured earnings before interest, tax, depreciation and amortisation (EBITDA), which fell 22 percent. EBITDA margin also contracted by 243.8 bps on a YoY basis. Profit-after-tax (PAT) too came off by 24.5 percent.

Given the soft demand outlook, the stock has corrected by more than 30 percent from its 52-week high, making the valuation very attractive. We believe the outlook for near-term remains sluggish, but long-term view is positive.

Follow @NitinAgrawal65

For more research articles, visit our Moneycontrol Research page.