Q1 results: Hero MotoCorp misses profit, pricing strategy now key
Analysts reckon Hero MotoCorp may indulge in selective offers as far as pricing is concerned
Hero MotoCorp Ltd’s June quarter (Q1) net profit of ₹ 909 crore is a bit disappointing. Many analysts were expecting the company to report a profit of about ₹ 1,000 crore. Tax benefits at the two-wheeler maker’s manufacturing facility at Haridwar came to an end in the March quarter and that adversely impacted net profit growth last quarter. Also, “other income” declined.
Analysts reckon reported price realizations have declined on a year-on-year and quarter-on-quarter basis. One reason for the decline is that spare part revenues were muted. Revenue growth of 10.5% was driven by volumes.
What offers some comfort is that Ebitda (earnings before interest, taxes, depreciation and amortization) margin was at 15.6%, broadly in keeping with Street estimates. This is also commendable in the backdrop of higher commodity costs.
Shares of leading two-wheeler makers declined after Bajaj Auto Ltd’s management said in a call on Monday that it has charted out an aggressive pricing strategy in the entry-level motorcycle segment. The Hero MotoCorp stock was no exception, declining by about 8% so far since Friday.
Currently, the stock trades at about 16 times estimated earnings for this fiscal year, based on Bloomberg data. Even as valuations don’t appear demanding at these levels, the company’s strategy on pricing will be crucial. Company officials in a conference call with analysts after the Q1 results said that aggressive pricing didn’t work. They added pricing differential has been there for more than a year and despite that, Hero MotoCorp has managed to increase its market share.
Analysts reckon the company may indulge in selective offers as far as pricing is concerned.
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