Hero MotoCorp to engineer faster recovery in sales than peers: Analysts2 min read . Updated: 11 Jun 2020, 05:48 PM IST
- The pandemic will also lead to a shift in personal mobility which will positively impact sales of the company’s motorcycles
- Rural markets contribute almost 50-60% of the company’s total sales and demand in the rural areas are likely to revive faster
Hero MotoCorp Ltd – country’s largest two-wheeler manufacturer - is better placed to withstand to the current coronavirus induced economic downturn compared to its peers, according to brokerages.
The company has strong financials, higher exposure in the rural markets and dominant position in entry level motorcycles, which will help Hero MotoCorp recover quickly from economic fallout of the pandemic.
According to the analysts, the current pandemic will also lead to a shift in personal mobility which will positively impact sales of the company’s motorcycles.
Rural markets contribute almost 50-60% of the company’s total sales and demand in the rural areas are likely to revive faster due to a good summer crop, benefits of the recently announced government benefits and expectation of a good monsoon.
“We continue to like Hero (HMCL) for its market leadership in pockets that are expected to recover quicker once Covid-19 effect subsides and for its robust financials [debt free B/S, healthy return ratios, strong cash generation. The motorcycle space can also witness some downtrading impact from generally reduced spending power, bringing entry level products into focus. Here also, HMCL is the market leader through models like Splendor, HF Deluxe, Passion in 75-110 cc range and Glamour, Splendor 125 in 110-125 cc range," said Shashank Kanodia and Jaimin Desai, research analysts, ICICI Securities.
The Pawan Munjal-led company, on Tuesday reported a 15% year on year decrease in net profit to ₹620.71 crore, for the quarter ending March 31, as a result of a significant decline in retail sales in March, due to the adverse impact of the covid -19 pandemic and the subsequent lockdown.
Net sales during the period decreased by 20.88% year on year to ₹6238.39 crore as a consequence of 25.71% decrease in vehicle sales during the period to 13.23 lakh units.
“The pandemic is a one off issue and shall be behind us quite before our time horizon. Also, considering this pandemic, there will be a radical shift to personal mobility from shared mobility. In view of this, we believe Hero, being the market leader, to be the prime beneficiary on the two-wheeler side of the auto sector. Profitability would improve on cost saving programs, capex reduction and operating leverage stemming from improving volumes," said Ashwin Patil, analyst, LKP Securities.
“HMCL is poised for faster recovery than other two-wheeler peers due to its rural-focused portfolio and market leadership in the entry and executive segments. However, we do expect HMCL to grow slower than the industry in the long run due to expectations of continued value migration from its core executive segment (Splendor and Passion)," said Jinesh Gandhi and Vipul Agarwal, analysts, Motilal Oswal Institutional Equities.