Hero MotoCorp Q4 profit declines 14% on discounts for BS III vehicles
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New Delhi: Hero MotoCorp Ltd’s fiscal-fourth quarter profit fell 14% as India’s largest motorcycle maker sold Bharat Stage III compliant two-wheelers at a discount to clear inventory, following a court directive.
Net profit declined to Rs717.75 crore in the three months ended 31 March from Rs833.29 crore in the year ago period. That compares with the Rs741.3 crore estimate of 25 analysts in a Bloomberg survey.
Net sales declined 7.6% to Rs7,606.31 crore from Rs8,227.93 crore. Two-wheeler sales declined 7% to 1.6 million in the quarter from 1.72 million a year ago.
Ebitda margin for the quarter narrowed to 12.79% in the March quarter from 14.66% in the year-ago period.
The company said in a statement that it had taken a proactive approach towards the launch of BS IV compliant vehicles, and liquidated large BS III inventory leading up to 29 March. The cost of liquidation of BS III inventory at a discount was Rs193 crore.
“In the last two days of the month, the company took some tactical steps to assist its dealers and incentivise the customers with an objective to liquidate the remaining BS III stocks, resulting in a one-time impact on the margins of the fourth quarter,” it said in a statement.
The Supreme Court on 28 March banned the sale of vehicles that are not compliant with Bharat Stage IV (BS IV) emission standards from 1 April, leaving auto companies with just three days in which to dispose of thousands of older vehicles. The industry had an inventory of around 820,000 units of non-compliant two-wheelers, commercial vehicles, both small and large, passenger vehicles and three wheelers. Of these, the two-wheeler inventory was estimated at more than 670,000 units.
This was the second straight quarterly decline in profits for the New Delhi-based company. It has ceded considerable market share to former partner and now rival Honda Motorcycle & Scooters India.
In the September quarter, Hero posted its highest ever profit for a quarter at Rs1,004.22 crore with good monsoon rains 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 in cash. In December, sales of two-wheelers and three-wheelers saw the sharpest decline in monthly sales in 18 years.
Hero, however, has vowed to stem the decline in its market share as it plans to introduce at least six new models in 2017-18, apart from making a capital expenditure of Rs2,500 crore until 2018-19.
The investments are largely aimed at new product development, digitization, phase-wise capacity installation and expansion at its manufacturing facility in Gujarat. A part of this investment will also go into Hero’s upcoming facilities in Andhra Pradesh and Bangladesh, the company’s chairman and managing director Pawan Munjal said in a statement.
The capex includes investments towards upgradation and modernization of plant machinery.
Munjal said new product development will continue to be a priority with a focus on scooters and premium segments.
“With all these initiatives, we will further consolidate our leadership in 2017-18, without compromising on the bottom line and our margins through judicious utilisation of our resources and rationalisation of costs,” Munjal said.
Hero shares rose 1% to Rs3,322.40 on BSE, while the benchmark Sensex rose 1.05% to 30,248.17 points. The earnings were announced after the end of trading on Wednesday.