Motorcycle sales drive Hero’s Q1 net profit to a record high
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New Delhi: India’s largest two-wheeler company Hero MotoCorp Ltd on Monday said that its net profit for the quarter ended 30 June rose 18.3% to a record high due to an increase in motorcycle sales.
Net profit increased to Rs.883.10 crore during the quarter from Rs.747.54 crore in the year-ago period. Net sales rose to Rs.8,010.66 crore from Rs.7,435.47 crore. The company sold 1.75 million two-wheelers during the quarter as against 1.64 million in the year-ago period.
Reacting to the news, shares of Hero MotoCorp on Monday rose 3.47% to Rs.3,553.55 apiece but settled at Rs.3,456.80, up 0.66%. Accordingly, the market capitalization of the company increased by Rs.449.3 crore to Rs.69,028.87 crore.
The firm’s earnings before interest, tax, depreciation and amortization or Ebitda margin for the June quarter came in at 16.63%, as against 15.09% for the corresponding year-ago quarter.
Arun Agarwal, associate vice-president (research), Kotak Securities, said that Hero’s revenues were below his expectations but the Ebitda margin came in ahead of estimates.
“Adjusted Ebitda margin was one of the highest in the past several quarters. Due to strong operating performance, net profits came in better than expected,” Agarwal said.
Pawan Munjal, chairman and managing director of Hero MotoCorp, said that the company will look to carry forward the momentum generated during the quarter to the rest of the year.
“The sales growth has resulted in positive financial results for the quarter, and has given us the momentum to carry forward as we prepare for the upcoming festive season,” Munjal said, adding that above-average monsoon and implementation of the Seventh Pay Commission recommendations will boost sales.
The prediction of better-than-average monsoon rainfall has fanned hopes of faster growth. Good rainfall is expected to boost farm output and improve demand for everything from motorcycles to smartphones and tractors. Improved rural consumption will increase gross domestic product by as much as a percentage point in the fastest-growing major economy in the world, according to CLSA Asia-Pacific Markets estimates.
The state-run India Meteorological Department and private forecaster Skymet Weather Services Pvt. Ltd have predicted above-normal rain during the June-September south-west monsoon season after two consecutive years of drought.
Till 4 August, India has received 2% more than the long-period average rainfall with nearly 90% of the country’s area receiving excess to normal rainfall and 11% of the country’s area receiving deficient rainfall since the start of the monsoon season in June.
“Going ahead, good monsoons are expected to boost motorcycle demand in rural areas and Hero will likely benefit due to its high presence in rural India. Furthermore, the Seventh Pay Commission payout will provide additional boost to overall two-wheeler demand,” Agarwal of Kotak Securities said.
Hero has already started to see a pick-up in demand for its two-wheelers, which is in contrast to the position of the country’s largest passenger car maker Maruti Suzuki India Ltd, which on 27 July said that sentiment in rural India had not recovered.
“Our rural sales have grown 7% during the quarter,” A. Srinivasu, national head of sales at Hero MotoCorp, said in an analyst call on Monday.
“Across the country, rural has picked up due to good sentiment. Northern and southern parts are slow. Rest of the markets have done well,” he added.
Srinivasu expects Hero to post double-digit growth in sales during the September quarter as demand will pick up around the festive season.
The rest of the year, he said, will end with Hero’s growth being in high single digits.