Hero MotoCorp Q2: What to expect from the result announcements today

 

Hero MotoCorp is scheduled to announce its September quarter earnings of FY21 (Q2FY21) on Wednesday. Brokerages expect the two-wheeler manufacturer to report up to 13 per cent increase in profit while revenues are expected to rise over 20 per cent, led by volume growth and increase in realisation.

According to Hero MotoCorp's monthly auto sales data, the company sold 18.14 lakh units during the quarter under review, up 7.3 per cent from 16.9 lakh units sold in Q2FY20. The company had sold 5.63 lakh units in Q1FY21.

At the bourses, shares of Hero MotoCorp rallied 23.5 per cent during the September quarter as compared to 9 per cent gain in the S&P BSE Sensex, ACE Equity data show.

Here's a quick look at what leading brokerages expect from Hero MotoCorp's September quarter nos.

Emkay

The brokerage expects Hero MotoCorp's revenue to grow 25.7 per cent on YoY basis to Rs 9,518.1 crore from Rs 7,570.7 crore reported in the year-ago quarter, owing to increase in realisation. Realisation, meanwhile, is expected to increase due to BS-VI launches and price hikes. The bottom line is also likely to grow 10.7 per cent YoY to Rs 1,018.7 crore from Rs 919.8 crore reported in Q2FY20.

Emkay expects the company's gross margin to decrease due to partial pass-through of BS6 impact. Also, Ebitda margin is expected to contract 66 basis points (bps) YoY to 13.9 per cent due to fall in gross margin. Earnings before interest, tax, depreciation, and ammortisation (Ebitda) is seen rising 20 per cent YoY to Rs 1,321.4 crore.

Prabhudas Lilladher

According to the brokerage, with volume increase of around 7 per cent YoY and realisation increase of around 20 per cent YoY on account of recent product price hikes and BS6 pricing, Hero MotoCorp's revenue should increase 29 per cent YoY to Rs 9,752.6 crore. Net profit is also likely to rise 13.8 per cent YoY at Rs 1,053.6 crore.

Operating margins are expected to remain stable YoY at 14.5 per cent as higher raw material cost is likely to get offset by positive operating leverage. Ebitda is seen at Rs 1,412.2 crore as compared to Rs 1,101.1 crore in Q2FY20.

HDFC Securities

Analysts at HDFC Securities are building a 25 per cent YoY increase in Hero MotoCorp's Q2 revenues at Rs 9,440 crore, while net profit is seen flat at Rs 920 crore.

"Hero MotoCorp's two-wheeler volumes are up 7 per cent YoY in Q2. We expect Ebitda margin at 12.8 per cent, up 916 bps sequentially but down 174 bps on YoY basis," HDFC Securities said.

"Besides, market share trends in the premium segment post the launch of the Xtreme 160cc and festive season expectations and current inventory levels will be the key monitorables," it said.

BP Wealth

The brokerage is building 24.2 per cent YoY growth in Hero MotoCorp's Q2 revenues at Rs 9,400 crore, led by strong volume growth. Ebitda margins are expected to remain flat on YoY basis, driven by cost saving and higher operating leverage. Net profit is seen increasing 10.7 per cent YoY to Rs 1,010 crore.

On the operational front, BP Wealth expects Hero MotoCorp's Ebitda to grow 22.7 per cent YoY to Rs 1,351.6 crore while Ebitda margin may remain almost flat at 14.4 per cent as compared to 14.5 per cent in the year-ago quarter.

Hero MotoCorp plans to launch BS-VI upgrades of ten bikes, scooters by Feb

The country's largest two-wheeler maker Hero MotoCorp plans to drive in BS-VI upgrades of around ten products, including five top-selling bikes and scooters by February next year, as it aims to upgrade its product portfolio well before the deadline of April, 1 2020, according to sources.

The two wheeler major plans to showcase the upgraded products at an event in February 2020 at its R&D centre (Centre of Innovation and Technology), in Jaipur,

"Within the next 4-8 weeks, the company will launch around ten BS-VI products including its key products such as Splendor, HF Deluxe, Glamour motorcycles and Maestro Edge scooter, a company source said.

Hero MotoCorp has already commenced the retail sales of its first BS-VI motorcycle, the Splendor iSmart in November 2019.

The transition to the higher emission norms for the company is being driven at its R&D centre in Jaipur, which was commissioned in March 2016.

Since then, Hero has further enhanced its in-house R&D capabilities by setting-up the Hero Tech Center GmbH, near Munich in Germany.

Besides, the BS-VI transition, the company's is also focusing on a range of new premium products and accessories to increase its market share in such verticals.

At the recent EICMA motor show in Milan, the Hero MotoCorp had showcased the Xtreme 1.R Concept which is expected to hit the roads soon.

"The XPulse Rally Edition that Hero will launch soon, has been developed basis the learnings from the company's motorsport team and will open up a new segment for biking enthusiasts in the country," the source said.

When contacted, a company spokesperson said, We have already launched Splendor iSmart in the market, which is the country's first BS-VI motorcycle. As stated earlier, we have also stopped production of more than 50 variants of our BS-IV range, and now aggressively working towards complete migration of our entire range to BS-VI norms. We will make the announcements on specific products at an appropriate time closer to their market launch."

Earlier this week, the company announced a price hike of up to Rs 2,000 across its product range, effective January.

Suzuki Motorcycle overtakes Hero MotoCorp to be third largest scooter maker

Suzuki Motorcycle India Pvt Ltd (SMIPL) has overtaken Hero MotoCorp to be the third largest scooter maker by sales in the first half (H1) of the current fiscal, according to a latest data by auto industry body SIAM.

Honda Motorcycle & Scooter India (HMSI) continues to be the undisputed leader in the segment followed distantly by Chennai-based TVS Motor Company. In April-September this fiscal, SMIPL sold a total of 3,41,928 units of scooters as compared to Hero MotoCorp's 2,49,365 units, as per Society of Indian Automobile Manufacturers (SIAM) data.

During the comparable period a year ago, SMIPL had sold 2,91,847 units as compared to Hero MotoCorp's 3,91,019 units.

In terms of growth, SMIPL saw its scooter sales grow by 17.16 per cent in April-September this financial year- the only scooter maker among top the top five manufacturers to post positive numbers. Hero MotoCorp, on the other hand, witnessed a decline of 36.23 per cent in the same period.

The total scooter market had declined by 16.94 per cent to 31,17,433 units in the first half of the ongoing fiscal as compared to 37,53,064 units a year ago, as per SIAM.

As for market leader HMSI, scooter sales stood at 17,32,579 units as compared to 21,82,860 units in the same period last fiscal, down 20.62 per cent. Second placed TVS Motor sold 5,98,617 units in the April-September period as against 6,44,981 units, a decline of 7.19 per cent.

India Yamaha Motor continued to be in the fifth spot with a sales of 1,57,483 units as compared to 1,98,385 units in the corresponding period last fiscal, a decline of 20.61 per cent, according to the SIAM data.

Hero MotoCorp might see reduction in earlier-projected capex of Rs 1,500 cr

Hero MotoCorp might see a reduction in its earlier-projected capex of Rs 1,500 crore for the current financial year, as the two-wheeler industry continues to face headwinds with no relief in sight from the prolonged slowdown, a senior company official said.

The country's largest two-wheeler maker, however, expects things to be relatively better in the second half as compared to the first half of the current financial year due to several factors like expectations of pre-buying ahead of BS-VI transition and better response from rural markets due to a good monsoon.

"We had earlier provided a capex (capital expenditure) guidance of Rs 1,500 crore for FY20, but it could be a tad lower as we move forward," Hero MotoCorp Chief Financial Officer Niranjan Gupta told PTI.

The company will recalibrate this overall estimate and decide on the new amount in the coming days, he added.

Earlier, this year, the company had announced that it has doubled its capex for the current financial year to Rs 1,500 crore to upgrade its portfolio to conform to BS-VI emission norms and for its upcoming plant in Andhra Pradesh.

Hero MotoCorp had earmarked a capex of Rs 700 crore in 2018-19.

Commenting on the outlook for the rest of the current fiscal, Gupta said, "As things stand, we do see some improvement in the sentiment in the second half of the fiscal, which will be partially reflected during the festive season." There is also the anticipation of better participation from the rural markets in third and fourth quarters owing to good monsoon, he added.

"So, versus the first half of the financial year, the second half should definitely be better, also because of the possibility of pre-buying ahead of the BS-VI transition on April 1, 2020. Thus, multiple factors may lead to some positivity in the months to come," Gupta said.

The overall automobile industry is going through an unprecedent downturn with wholesales witnessing its worst-ever drop in two decades in August with despatches in all segments, including passenger vehicles and two-wheelers, plummeting to an all-time low.

With slowing market, manufacturers have been forced to take drastic steps such as production cuts and in some cases even reduction in workforce. Elaborating on the steps being taken by the company to spur growth, Gupta said, it is taking various measures at the point-of-sales level like running customer-oriented schemes to help generate demand and increase footfalls in dealerships.

"Our efforts are guided in the direction of increasing retail sales and, therefore, all the schemes and promotions are towards increasing the throughput and also reducing the inventory," Gupta said.

Besides, the company has also extended the credit period in order to support the dealers, he added.

"We have also launched new brand campaigns for our premium product portfolio to drive engagement with customers. At our operations levels, we are looking at increasing our efficiencies and in line with that, we have recently launched a VRS (voluntary retirement scheme) option for our employees," Gupta said.

The scheme - which is valid till September 28 -- is applicable for employees who are at least 40 years of age and have completed a minimum of five years of continuous service at the company.

Hero MotoCorp asks govt for phased GST reduction to avoid revenue losses

Hero MotoCorp on Thursday urged the government to consider a phase-wise reduction in GST on automobiles, cutting rates for two-wheelers in the first stage, and deferring tax cut on four-wheelers to a later stage.

The country's largest two-wheeler maker said the move would help the government contain potential revenue loss, and at the same time provide relief to around 20 million probable two-wheeler buyers across the country.

"I understand that potential adverse impact on government revenue is becoming a constraint (for GST rate cut). While increased sales should take care of that, even if we assume a shortfall in revenue, a resolution can be found if we approach this topic in phases," Hero MotoCorp CFO Niranjan Gupta told PTI.

The government may look at reducing the GST for only two-wheelers as the first step and defer it for four-wheelers, he added.

"This will contain the potential revenue loss, and also cover around 20 million buyers," Gupta said.

To begin with, the government can even look at bringing two-wheelers up to 150 cc into the 18 per cent goods and services tax (GST) slab, he said, adding that this will provide relief to almost 16 million probable customers - mostly in small towns and rural areas - with minimal revenue impact.

"Thereafter, the same can be extended to other segments, basis the outcome and fiscal space that the government may have," Gupta said.

The two-wheeler market in India is pegged at around 20 million units per year with lower than 150-cc bikes accounting for the bulk of sales.

Gupta said that the company, for some time now, has been pointing out that two-wheelers below 150 cc are definitely not items of luxury or sin goods.

"They are drivers of economy, especially in the heart of the nation, in tier II, III cities and villages. They not only provide mobility to millions, but also make them employable and support small businesses. Thus, it is unfair to club them under the same category as four-wheelers or expensive motorcycles," Gupta said.

Hence, the GST council needs to have a separate slab for two-wheelers below 150 cc category at 18 per cent, he added.

"This is basis end use, and not overall segmentation," Gupta said.

When asked if the GST rate cut should come now or close to BS-VI transition, he said: "We believe that it needs to be an immediate step, as it will help in boosting the sentiment right now and increase sales, and also help insulate the BS-VI impact."

The current slowdown in the industry is due to a significant price increase through multiple policy and structural changes over the past couple of years. This, along with other factors such as liquidity crunch, low economic sentiments, reduced rural incomes, has put a cumulative impact on sales, Gupta said.

"Therefore, the need is for an immediate respite, at least for the economic enablers, like two-wheelers up to 150 cc segment," he added.

It is prudent to act now with a booster shot (GST rate cut), rather than wait for natural cyclical recovery, because the domino effect of prolonged auto industry slowdown could lead to widespread impact on overall economy, Gupta noted.

Facing unprecedented slump in sales, the automobile industry has long been demanding reduction in GST rate from the present 28 per cent to 18 per cent.

The GST Council, headed by Finance Minister Nirmala Sitharaman and comprising representatives of all states and union territories, is scheduled to meet on September 20 in Goa.

Hero MotoCorp shuts plants from Aug 15-18, says market situation to blame

India's largest two-wheeler maker, Hero MotoCorp has decided to close its manufacturing facilities for three days. The reasons stated are annual holiday and due to the prevailing market condition. After car makers announced plant closures for a few days, Hero will be the first two-wheeler maker to officially announce a temporary stop in production.

The company stated that production planning is a matter of advance monitoring of market dynamics and prudent demand forecasting. This helps us to plan our production well in advance, thereby enabling us to stay flexible, both in terms of volumes and production schedules, it said.

"In line with this trend, our manufacturing facilities will be closed from August 15 to 18. While this has been part of the annual holiday calendar on account of Independence Day, Raksha Bandhan and the weekend, it also partly reflects the prevailing market demand scenario," said the company in an announcement to the NSE.

Mahindra & Mahindra (M&M) has already announced the closure of its plants for 8-14 days in July-September. Similarly, Tata Motors has announced closure for eight days, Maruti Suzuki for three days, Toyota Kirloskar also for eight days, Ashok Leyland for nine days, Bosch for 10 days, Jamna Auto for 20, and Wabco for 19, according to reports. 

While Hero MotoCorp has five plants in India, the construction of its sixth manufacturing facility, at Sricity in Andhra Pradesh's Chittoor district, has reached an advanced stage. It will have an annual installed capacity of 1.8 million units. Once this facility is completed, it will take the company's total installed capacity to around 11 million units.

The company reported sales of 535,810 units in July 2019, slipping 21 per cent from the same month a year ago, when the two-wheeler manufacturer had reported overall sales volumes of 679,862 units. The company's sales have been declining since the beginning of the current financial year, but it has been able to despatch more than 600,000 two-wheelers during the last two months.

In the April-July period this year, the two-wheeler market leader's production stood at 2,466,802 units, down 12.03 per cent from the year-ago period. 

The sluggish market environment prevalent in the first quarter has continued in the beginning of the second quarter as well, and its impact is visible in the despatch volumes. The outlook for the rest of the year will be dependent on multiple factors, including the progress of the monsoon and festive season offtake, as well as improvement in the liquidity situation, said the company.

Hero MotoCorp widens gap over Honda in two-wheeler sales in FY19

Hero MotoCorp stretched its lead to around 2 million units over rival and erstwhile partner Honda in two-wheeler sales in 2018-19 amid a slowdown in the domestic market.

In the fiscal year ended March 31, the homegrown two-wheeler major sold 78,20,745 units as compared to 59,00,840 units sold by Honda Motorcycle and Scooter India (HMSI), according to the latest sales figures issued by the companies.

In the fiscal 2017-18, Hero MotoCorp sold 75,87,130 units, while HMSI sold 61,23,877 units. Thus, Hero's lead over HMSI increased by 19,19,905 units in FY19 as compared to 14,63,253 units in FY18.

Hero said it has been able to keep sales higher during FY19 through forays into premium motorcycle segment with the launch of the 'Xtreme 200R' and the fast growing 125cc scooter segment with Destini 125, besides existing models.

On the other hand, HMSI, which had declared its ambition to be the number one two-wheeler maker in India by 2020 overtaking Hero, said challenging and disruptive second half of 2018-19 significantly wiped off the two-wheeler industry growth of first half.

HMSI cited issue such as increased insurance premium in September 2018 dampened festival sentiments, and pre-festival stock buildup was converted into high inventories for the two-wheeler industry.

The company said it had re-aligned supplies with domestic demand to correct inventories and support its dealer partners.

In FY19, Pune-based Bajaj Auto maintained its position as the third biggest two-wheeler maker in India with sales of 42,36,873 units as against 33,69,334 units in the previous fiscal, a growth of 26 per cent.

TVS Motor Co said it sold 3.7 million units in 2018-19 as compared to 3.36 million units in the previous year, a growth of 12 per cent.