Hero MotoCorp posts 27% profit drop amid Honda's market push

Sensing the slowdown in the market, we led the way in adjusting our production plans in Aug and Sep, and this has been reflected in our quarterly sales figures: Pawan Munjal

Hero MotoCorp, the largest two-wheeler manufacturer in India, has reported a 27 per cent decline in net profit to Rs 440.58 crore in the July-September quarter, as sales dropped on slowing demand and tough competition.

The two-wheeler market in India has witnessed the adverse impact of the economic slowdown, rising fuel costs and relatively high interest rates. Hero’s sales, on the other hand, have been impacted due to a strong push by its previous partner Honda Motor Co, which has been trying to get a strong foothold in the Indian market after it broke up with Hero last year.

“Sensing the slowdown in the market, we led the way in adjusting our production plans in August and September, and this has been reflected in our quarterly sales figures,” Pawan Munjal, managing director and chief executive office, Hero MotoCorp, said in a statement.

Hero sold 13,32,805 units during the quarter under review, down 13.67 per cent compared to 15,44,315 units during the corresponding period of the last financial year.

The company’s stock dropped 1.9 per cent on the Bombay Stock Exchange before the results were announced, and was last traded at Rs 1,795.95. The company had reported its net profit at Rs 603.62 crore in the July-September quarter of the last financial year. Hero’s net income during the July-September quarter stood at Rs 5,187.46 crore, down 10.96 per cent as against Rs 5,826.15 crore in the corresponding period last year.

The company’s operating margin during the quarter was at 13.86 per cent, down from 15.76 per cent in the corresponding quarter last fiscal. During the previous quarter (April-June), it reported the operating margin at 15 per cent. However, Munjal is hopeful the festive season would boost the company’s sales. “The onset of the festive season has been encouraging, with retail sales of over 200,000 units during the Navratras,” he added.

The company hopes its global business plans will take shape this fiscal. It planned to launch Hero products in new international markets, including Nigeria, Kenya and Guatemala, Munjal said in the statement. It already exports to Sri Lanka and Nepal.

Pressure from competition was one of the major reasons, apart from the slowdown, for the decline in sales, said Arun Agarwal, auto analyst, Kotak Securities. Kotak Securities has put a “cautious” mark on the stock over the medium term. “The management expects the industry to grow four-five per cent in FY13. However, we remain cautious on the two-wheeler industry given the slowdown in the economy,” he added.