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Informist, Saturday, Jul 20, 2024

 

By Darshan Nakhwa 

 

MUMBAI - India's largest two-wheeler maker, Hero MotoCorp Ltd, is expected to report strong growth in key earnings metrics for the June quarter, estimates by brokerage firms show. This growth will be primarily driven by a 13.5% year-on-year increase in despatches, richer product mix, and a recovery in sales of entry-level motorcycles. Higher average selling price, led by price hikes, and moderation in commodity prices will likely aid its performance.

 

The company is expected to report a net profit of 11.84 bln rupees on a revenue of 104.86 bln rupees, according to an average of estimates by 11 brokerages. While its bottomline is projected to grow 44% on year, topline is seen up by 20% on year.

 

Among the estimates, the highest projection for net profit was 12.71 bln rupees and the lowest was 10.61 bln rupees. The highest and the lowest estimates for revenue were 106.54 bln rupees and 100.64 bln rupees, respectively.

 

Kotak Institutional Equities expects Hero MotoCorp's revenue to increase by 21% on year in Apr-Jun, led by a 13-14% year-on-year growth in volumes driven by steady demand trends and recovery in entry-level motorcycles. The 6-7% on year increase in average selling price and an increased share of premium motorcycles in total sales are also likely to aid the company's topline.

 

Motilal Oswal Financial Services has projected the company's average selling price at 69,057 rupees per unit, up from 64,819 rupees a unit in the year-ago period, and 68,373 rupees in Jan-Mar.

 

Even on a sequential basis, Hero MotoCorp is likely to report healthy growth in both the bottomline and topline on account of a 10.3% increase in total despatches. While the company's net profit is likely to grow by 16.5% compared to Jan-Mar, revenue is seen up by 10.2%.

 

Even in terms of cash profit from operations, the company is expected to report strong growth on year and a healthy uptick sequentially. Its earnings before interest, tax, depreciation, and amortisation, or EBITDA, is seen rising 30% on year and 15.3% on quarter to 15.67 bln rupees, according to the average of estimates from nine brokerages.

 

The EBITDA margin is expected to expand to 14.7% in Apr-Jun from 13.8% in the year-ago period and 14.3% in the March quarter, according to the average of estimates from nine brokerages.

 

According to brokerages, the 90 basis points expansion in EBITDA margin on a year-on-year basis is expected to be mainly driven by higher volumes, richer product mix, price hikes, softening of raw material prices and cost optimisation. On a sequential basis, the EBITDA margin is expected to expand by 40 bps due to operating leverage benefits and lower advertisement spends and partly offset by commodity headwinds.

 

In Apr-Jun, prices of aluminium, copper, lead, and rubber rose 6-16% on quarter. However, prices of domestic and Chinese cold rolled coil steel were down 1.2% and 8.1%, respectively. On a year-on-year basis, prices of domestic cold rolled coil steel, aluminium, lead, copper, and rubber declined 2-31%, according to data from Kotak Institutional Equities. 

 

During the quarter, Hero MotoCorp's cost of raw materials consumed as a percentage of revenue is expected to have declined to 67% from 69.4% in Apr-Jun 2023, but it is seen up from 66.4% in Jan-Mar.

 

SALES VOLUME

In Apr-Jun, Hero MotoCorp's total two-wheeler sales rose 13.5% on year and 10.3% sequentially to 1.54 mln units on account of better urban and rural demand. While the rural demand was driven by the expectation of an above normal monsoon, the urban demand was spurred by the expansion of the premium motorcycle portfolio.

 

Hero MotoCorp sold a total of 1.48 mln two-wheelers in India in Apr-Jun, registering a growth of nearly 13% on year and 12% on quarter. The company also exported 50,994 units during the quarter, up 44.4% on year but down nearly 24% sequentially. According to Nuvama Wealth Management, the company's exports are also likely to improve on year on increasing penetration in existing markets, entry into new markets, and change of distributors in Nepal, Nigeria and the Philippines.

 

In two-wheelers, Hero MotoCorp sold 1.44 mln motorcycles in Apr-Jun, representing a growth of slightly over 14% on year and 11.2% on quarter. Its scooter sales grew by nearly 5% on year but were down by 3% on quarter to 94,200 units. 

 

Hero MotoCorp has not yet announced the date for its Apr-Jun earnings. The company's stock has gained nearly 18% since its March quarter earnings. On Friday, the company's shares closed at 5,427.70 rupees on the National Stock Exchange, down 1.4% from the previous close.

 

Following are the Apr-Jun earnings estimates of Hero MotoCorp, in mln rupees, from 11 brokerages:

 

Brokerage	Net Sales	Net Profit	EBITDA
Axis Securities Ltd	105,480	11,950	15,770
Elara Securities (India) Pvt Ltd	104,951	11,730	15,428
Emkay Global Financial Services Ltd	105,982	12,067	15,579
HDFC Securities Ltd	104,951	10,612	----
ICICI Securities Ltd	105,925	12,510	16,555
Kotak Institutional Equities	106,000	11,926	15,822
Motilal Oswal Financial Services Ltd	106,000	12,400	16,000
Nuvama Wealth Management Ltd	102,324	11,195	14,826
Prabhudas Lilladher Pvt Ltd	104,622	11,562	14,856
Sharekhan Ltd	100,640	11,530	----
YES Securities (India) Ltd	106,538	12,712	16,169
Average	104,856	11,836	15,667

 

End

 

Edited by Ashish Shirke

 

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