 "Hero MotoCorp's profit below Street estimates")
Hero MotoCorp's March quarter performance was expected to be weak, as motorcycle sales were down, both domestic and exports. While domestic volumes declined 0.9 per cent year-on-year (y-o-y) to 1,541,843 units, exports fell three per cent to 33,658 units.
Given the decline in volumes, sales growth was estimated at a modest one per cent but the company has surprised on the top line by reporting a 4.3 per cent y-o-y growth to Rs 6,794 crore. The Street was expecting sales of Rs 6,580 crore. The surprise in sales growth was driven by a better product mix and some currency gains.
However, profit growth got crimped due to compression in operating margins and an impairment of Rs 155 crore of equity investment in Erik Buell Racing. Hero's net profit declined 14 per cent y-o-y to Rs 476 crore. The company's investment, through a subsidiary, in the US company declared bankrupt, led to the impairment. Operating margin fell 130 basis points y-o-y to 12.34 per cent.
The margins also suffered as the company only partly passed on the increase in excise duty to consumers.
While the company intends to increase margins to 16 per cent levels over the next few years, the Street expects the margins to remain under pressure in the coming quarters, as promotional expenses could remain elevated.
The quarter has also seen costs increase for the company, even as other auto makers have seen raw material costs ease. Hero's consumption of materials increased 2.2 per cent y-o-y to Rs 4,760 crore. Employee benefit costs rose 29 per cent to Rs 304 crore, while other expenses rose 25 per cent to Rs 882 crore. Other income declined 24.5 per cent to Rs 92 crore during the quarter.
The company has conveyed that overall improvement in the economy and sentiment is needed to return to double-digit volume growth. During the financial year, Hero expects the industry to grow at five-six per cent.
Given the decline in volumes, sales growth was estimated at a modest one per cent but the company has surprised on the top line by reporting a 4.3 per cent y-o-y growth to Rs 6,794 crore. The Street was expecting sales of Rs 6,580 crore. The surprise in sales growth was driven by a better product mix and some currency gains.
However, profit growth got crimped due to compression in operating margins and an impairment of Rs 155 crore of equity investment in Erik Buell Racing. Hero's net profit declined 14 per cent y-o-y to Rs 476 crore. The company's investment, through a subsidiary, in the US company declared bankrupt, led to the impairment. Operating margin fell 130 basis points y-o-y to 12.34 per cent.
The margins also suffered as the company only partly passed on the increase in excise duty to consumers.
While the company intends to increase margins to 16 per cent levels over the next few years, the Street expects the margins to remain under pressure in the coming quarters, as promotional expenses could remain elevated.
The quarter has also seen costs increase for the company, even as other auto makers have seen raw material costs ease. Hero's consumption of materials increased 2.2 per cent y-o-y to Rs 4,760 crore. Employee benefit costs rose 29 per cent to Rs 304 crore, while other expenses rose 25 per cent to Rs 882 crore. Other income declined 24.5 per cent to Rs 92 crore during the quarter.
The company has conveyed that overall improvement in the economy and sentiment is needed to return to double-digit volume growth. During the financial year, Hero expects the industry to grow at five-six per cent.