Hero MotoCorp expecting robust Q1 result on rural recovery, low base
Hero MotoCorp is seen as the biggest gainer as the rural market recovers since the company’s reach cannot be matched by any of its rivals
New Delhi: India’s largest two wheeler manufacturer Hero Moto Corp Ltd is expected to witness double-digit increase in its revenue and net profit in the April-June quarter (Q1), riding on surging demand for its entry-level motorcycles on the back of revival in rural demand and the low base in the corresponding period as demand dipped before the implementation of goods and services tax (GST).
According to automobile sector analysts, Hero MotoCorp will be the biggest gainer as the rural market recovers since the company’s reach cannot be matched by any of its rivals. Rural markets contribute almost 50-55% of the total volumes of the company.
Also, this is the first time in five years the volume growth in the motorcycle segment has outpaced that of the scooters which has been growing in double digits.
“The low base and surging rural sales will help the company report strong top line but increasing cost especially raw materials may have an adverse impact on the Ebitda margins. Also, tax exemption in the Haridwar capacity has exhausted which may also impact a bit. Overall it should be a strong quarter for Hero MotoCorp,” said an analyst with a foreign brokerage firm.
Analysts at brokerage HDFC Securities Ltd expect the company to report revenue growth of 13% year-on-year driven by a sales growth of 13% while operating margins are expected to contract by 52 basis points y-o-y to 15.7% led by input cost pressure.
One basis point is one-hundredth of a percentage point.
“Demand outlook for FY19 is positive across segments, driven by healthy rural sales momentum, expectation of normal monsoon for the third year in a row, and a pick-up in economic activities,” said Abhishek Jain, analyst at HDFC Securities.
Hero Moto Corp sold a record 2,104,949 units in the April-June period, surpassing the earlier record of 2,022,805 units set in the second quarter of FY18.
Overall, sales of motorcycles in the first quarter of the current fiscal increased by 19.47% to 3,651,542 units while the same for scooters increased to 1,818,235 units.