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Business News/ Markets / Mark To Market/  For Hero MotoCorp, December quarter was a rough ride
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For Hero MotoCorp, December quarter was a rough ride

Investors would do well to closely track developments in the electric vehicle segment. Besides, a pick-up in rural demand is key as Hero primarily caters to entry level segment. In January, Hero’s two-wheeler volumes declined 9.5% sequentially to 356,690 units.

Hero MotoCorp’s December quarter revenue fell 11.5% sequentially to ₹8,031 crore. (Photo: Bloomberg)Premium
Hero MotoCorp’s December quarter revenue fell 11.5% sequentially to 8,031 crore. (Photo: Bloomberg)

A decent expansion in Hero MotoCorp Ltd’s gross margin was the saving grace in a not-so-good December quarter (Q3FY23). Thanks to softening raw material costs, gross margin rose 155 basis points (bps) year-on-year (y-o-y) and 254bps sequentially to 30.6%. One basis point is 0.01%. Also, gross profit per vehicle was at a multi-quarter high of 19,817.

But adverse operating leverage due to weak volumes and a mere 2% sequential growth in price realisations were sore points. Revenue fell 11.5% sequentially to 8,031 crore.

Realisation growth for Hero MotoCorp was much lower when compared to peers Bajaj Auto Ltd and TVS Motor Co. Ltd, which saw a 6-7% rise in Q3. This was because contribution from executive and premium segments contracted by 400bps, note analyst at Prabhudas Lilladher.

Further, an increase in other expenses weighed on Hero’s Ebitda (earnings before interest, tax, depreciation and amortization) margin. The measure rose a modest 10bps sequentially to 11.5% in Q3. Rise in other expenses by 3% sequentially despite a 13% drop in Q3 volumes was possibly due to higher marketing spends on account of launch of Vida V1, point out analysts at Kotak Institutional Equities. Vida V1 is Hero’s electric vehicle.

Investors would do well to closely track developments in the electric vehicle segment. Besides, a pick-up in rural demand is key as Hero primarily caters to entry level segment. In January, Hero’s two-wheeler volumes declined 9.5% sequentially to 356,690 units.

Growth in volumes would be a catalyst for the stock, which is down 11% from its 52-week high of 2,938.60 apiece seen in August. “We continue to remain concerned on demand recovery in less than 125cc motorcycle segment given persistent price increases taken by the original equipment manufacturers over the past few quarters," said analysts at Kotak.

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ABOUT THE AUTHOR
Vineetha Sampath
Vineetha is a part of the Mark to Market team, which specializes in offering cutting edge commentary on stocks and financial reports of companies. Vineetha looks at varied number of sectors, including automobile, aviation, FMCG, internet companies and metals. If you want to know -- why entry-level auto sales are not picking up; or which FMCG companies would be more adversely impacted due to weak rural demand; or why IndiGo’s landing is about to get tougher? You will find these answers and more in her stories. Vineetha is a chartered accountant.
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Published: 08 Feb 2023, 11:46 AM IST
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