Hero MotoCorp’s Q3 profit declines, but exceeds estimates
Delhi: Cost-cutting efforts and lower raw material prices helped India’s largest two-wheeler company contain the impact of demonetization on its net profit, which declined 2.67% in the December quarter from a year ago, but beat analyst estimates handsomely.
For the third quarter of 2016-17, Hero MotoCorp Ltd’s net profit declined from Rs793.23 crore in the year ago period to Rs772.05 crore. A Bloomberg poll of 28 analysts had projected a profit of Rs711.1 crore.
Net sales declined to Rs6,898.64 crore from Rs7,807.77 crore and the company sold 1.4 million scooters and motorcycles in the quarter, down from 1.69 million a year ago.
Hero’s chairman and managing director Pawan Munjal struck an optimistic note.
“The industry did witness some negative sentiments during the October-December quarter, but with the agility shown by the government in bringing about a slew of measures to aid citizens at large, the market scenario has begun improving,” he said in a statement.
Hero shares fell 1.07% to Rs3,223.80 on BSE. The benchmark Sensex declined 0.16% to 28,289.92 points. The earnings were announced after the end of trading on Wednesday.
The company said that its ongoing margin rationalization programme and softening of material costs helped it post better numbers amid the circumstances.
The results come on the back of a strong September quarter, when Hero posted its highest ever profit for a quarter at Rs1,004.22 crore with good rains in the monsoon season boosting consumer demand in the run up to the festive season.
Hero’s numbers were subdued in the December quarter after the Narendra Modi-led government invalidated older high-value currency notes in early November. The move hit sales of scooters and motorcycles, some of which, especially in smaller towns and rural areas, are bought on cash. In December, sales of two-wheelers and three-wheelers saw the sharpest decline in monthly sales in 18 years.
Sales of other products, including consumer packaged goods, were also hit.
Rating agency Crisil expects the situation to return to normal by the end of the fourth quarter, although it says not all affected businesses will rebound equally.
“The outlook for fiscal 2018 will be shaped by how long the cash crunch-led disruption lasts. In our base case, we have taken it as a 2-quarter phenomenon—Q3 and Q4 and normalization after that. In this scenario, growth will start approaching the 8% mark in the next fiscal if the monsoon is normal,” Crisil said in a 7 January report.
The government says the impact of currency ban will not spill over to the next financial year.
Munjal claimed the government’s move, along with measures unveiled in the Union budget, and the implementation of the goods and services tax from 1 July, would help the cause of long-term growth. “2017 may well turn out to be a turning point for the industry as well as the country’s economy.”