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Informist, Tuesday, Feb. 4, 2025

 

By Anand JC

 

MUMBAI - Earnings growth of two-wheeler major Hero MotoCorp Ltd. for the December quarter may be restricted to a low single digit, with the company registering flattish volume growth for the reporting quarter, analysts have said. Recovery in exports and easing raw material prices may offset domestic sluggishness.

 

Hero MotoCorp is expected to report a net profit of INR 11.19 billion for the reporting quarter, as per a consensus of 12 analyst estimates. This would translate to a 4% on-year growth but a 7% sequential decline.

 

The same set of analysts are projecting a revenue of INR 101.23 billion for the December quarter for Hero MotoCorp. The company's top line is expected to report a growth of 4% on year and a sequential fall of 3%. A favourable and stable product mix may drive the gains in the company's revenue.

 

Slow down in demand in the final quarter of 2024 may result in the two-wheeler industry reporting only a modest on-year growth in their revenues. This is despite companies offering higher discounts during the festival season and despite the segment leading the automobile industry's overall growth in the first six months of the ongoing financial year.

 

As per Motilal Oswal Financial Services, this is an incremental worrying factor for the industry. "The only silver lining for 2W OEMs has been that exports are now seeing a gradual recovery in key markets, including Africa," Motilal Oswal wrote in a note.

 

VOLUME DISAPPOINTMENT

Despatches by two-wheeler companies during the reporting quarter were below market expectations owing to a high base and increased competitive intensity in the high volume categories. However, Prabhudas Lilladher sees exports continuing for two-wheeler companies, which offset the drag in the domestic market, leading to an overall volume growth in mid-single-digits.

 

Nirmal Bang Institutional Equities expects Hero MotoCorp's volume for the December quarter to decrease roughly 4% year-on-year, and remain flat on-year. Hero MotoCorp's sold 1.46 million units in the September quarter and 1.51 million units in the December quarter of 2023.

 

"Within 2Ws, sustenance of demand led by high discounts, new launches helped sustain retails in led rural and urban markets, however the pace of growth moderated led by high base," YES Securities said in a note.

 

Analysts at YES Securities and Motilal Oswal expect the two-wheeler company's realisations for the December quarter to improve by 4% on year, leading to a similar quantum of increase in its top line. For the September quarter, Hero MotoCorp's realisation was INR 68,851 per unit, and for the December quarter of 2023, it was INR 66,604 per unit.

 

OPERATING PROFIT

Hero MotoCorp's earnings before interest, taxes, depreciation, and amortisation for the December quarter is expected to increase 5% to INR 14.34 billion, as per an average of 11 analyst estimates. Sequentially, it is expected to fall 5%.

 

During the December quarter, prices of certain key raw materials fell. Analysts at Incred Equities note that raw material prices saw sequential softening in the mid-digits, which could affect the profitability of two-wheeler companies. However, prices of aluminium in the reporting quarter spiked 6% sequentially, the firm said.

 

For the September quarter, the company's EBITDA margin was 14.5% and for the December quarter of 2023, it was 15.1%. YES Securities expects Hero MotoCorp's EBITDA margin for the trailing December quarter to expand 60 basis points on year and 20 bps sequentially to 14.6% led by a benign raw material prices. Nirmal Bang expects its margins to grow 20 bps on-year.

 

While raw material prices have been stable, the company's investments in the electric vehicle business may offset some gains, leading to a flattish margin, Prabhudas Lilladher said.

 

The company had reported its September quarter earnings on Nov. 14 after market hours. Between then and Tuesday, its share price has appreciated a little over 2%. On Tuesday, shares of Hero MotoCorp closed at INR 4,237.10 on the National Stock Exchange, down 1.2%. 

 

Following are the Oct-Dec consolidated earnings estimates for Hero MotoCorp based on reports from 12 brokerage firms in descending order by the estimate of net profit:

 

BROKERAGE	Net sales (in INR mln)	Net profit (in INR mln)	EBITDA (in INR mln)
YES Securities (India) Ltd	1,01,288	11,484	14,822
Emkay Global Financial Services Ltd	1,03,201	11,459	14,758
Sharekhan Ltd	1,00,930	11,380	---
Elara Securities (India) Pvt Ltd	1,01,792	11,326	14,251
Nuvama Wealth Management Ltd	1,01,603	11,295	14,216
Nomura Equity Research	1,02,466	11,170	14,340
Motilal Oswal Financial Services Ltd	1,01,288	11,147	14,225
Incred Research Services Pvt Ltd	1,02,370	11,061	14,588
Axis Securities Ltd	1,00,420	11,060	14,170
Nirmal Bang Equities Pvt Ltd	99,668	11,034	14,153
Kotak Institutional Equities	99,777	10,997	14,177
Prabhudas Lilladher Pvt Ltd	99,932	10,897	14,090
Average	1,01,227.9	11,192.5	14,344.6

End

 

Edited by Akul Nishant Akhoury

 

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