Hero MotoCorp’s operating income fell 20.2% year-on-year to  ₹1,101 crore in Q2FY20 (Bloomberg file)
Hero MotoCorp’s operating income fell 20.2% year-on-year to 1,101 crore in Q2FY20 (Bloomberg file)

Hero MotoCorp Q2 numbers ahead of estimates, but fall in market share a concern

  • In July-September, revenue fell 16.7% to 7,571 crore, but was still ahead of consensus estimate of 7,390 crore
  • Hero MotoCorp continued to lose market share in the domestic two-wheeler market, which declined to 35.5% in H1FY20 from 35.8% in H1FY19

Hero MotoCorp Ltd’s second-quarter results beat analysts’ estimates, but the loss of market share is disconcerting for investors.

In July-September, Hero MotoCorp’s revenue declined 16.7% to 7,571 crore, but was still ahead of consensus estimate of 7,390 crore. Revenue was higher than estimates due to spares and other operating income.

Volume growth has been a key concern for Hero MotoCorp as it continues to grapple with the increase in competitive intensity. Volumes declined 21% year-on-year to 1.7 million units. Higher realisations per unit due to a better product mix saved the day as it grew 5% year-on-year.

Hero MotoCorp continued to lose market share in the domestic two-wheeler market, which declined to 35.5% in H1FY20 from 35.8% in H1FY19. New products in the two-wheeler market failed to have the desired effect. “Although HMCL will benefit from a recovery in the domestic 2W sales cycle, we expect market share losses to continue, with a further decline to 34.5% by FY22E," said analysts at Emkay Global Financial Services in a note to clients.

Hero MotoCorp’s operating income fell 20.2% y-o-y to 1,101 crore in Q2FY20. However, this was also above the consensus estimates of about 1,025 crore. Operating margins contracted 70 basis points to 14.5% in the second quarter compared with 15.2% in the year-ago quarter.

The company has benefited from the cut in corporate tax rates announced by finance minister Nirmala Sitharaman last month. The company’s tax expense fell to 162.9 crore from 472.17 crore for the same period last year.

This reduction in the effective tax rate for the company boosted net profits. Net profit stood at 919 crore against consensus expectation of 770 crore.

All this is good, and the stock price-earnings multiple of 17 times FY21 forward earnings seems to be fairly priced. Steady, sustainable growth in demand post the festival season holds the key to future performance.

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