Hero MotoCorp Q3 profit skids 37%, revenue falls 19% on lower two-wheeler sales

Hero MotoCorp, the largest two-wheeler maker in the world by volumes, reported poor numbers for the third quarter ended December 31, 2021 as demand in rural markets remains soft.

The company reported a 37% decline in standalone net profit to Rs 686 crore for the third quarter from Rs 1,084 crore in the year-ago period. This was in line with what analysts were expecting, albeit towards the higher end of the decline expected by various brokerage houses.

The consolidated profit after tax for the quarter was Rs 704 crore, down 31% over the year ago period.

The company’s revenue slipped 19% to Rs 7,883 crore for the quarter from Rs 9,776 crore in the third quarter ended December 31, 2020. Consolidated revenue came at Rs 8,013 crore, down 18.5% from a year earlier.

Hero MotoCorp’s share price has lost a fourth of its value in the last one year. It was down 2.62% in opening trades on Friday in a weak Mumbai market. The company declared its results late night on Thursday.

Meanwhile, the firm has declared an interim dividend of Rs 60 a share.

Check out: Hero Motocorp Shares Q3 Results

Other Key Highlights

1) The company sold 12.92 lakh units of two-wheelers in Q3, down 30% from the same period a year ago.

2) On a sequential basis, volumes declined 10%. International sales grew 16% to 61,000 units.

3) The spare parts unit generated revenue of Rs 1,186 crore, up 15%.

4) The cost of raw materials as percentage of sales stood at 70%, 110 bps lower year on year and 150 bps lower sequentially.

5) EBITDA came at Rs 960 crore for the quarter, down 32% from a year earlier and 10% on a sequential basis.

6) EBITDA margins declined by 230 bps to 12.2%. Sequentially, the margins were lower by 40 bps.

7) Net margin during the quarter stood at 8.7%, down 240 bps YoY and a decline of 70 bps compared with Q2.

Management Commentary

Niranjan Gupta, Chief Financial Officer of Hero MotoCorp, said the current fiscal year has seen the domestic two-wheeler industry impacted by the twin challenges of softer demand due to the Covid-19 pandemic and margin squeeze due to sharp commodity cost inflation.

“Our continued focus on savings programs combined with judicious price increases have helped cushion the impact on customers as well as margins,” he said.

With rapid easing of the third wave of Covid-19, and full re-opening of all the sectors of the economy in coming weeks, including the hospitality and education sectors, the company expects a much broader economic recovery and increase in consumer confidence.

“The recently announced Union Budget, with its focus on growth through increased capital expenditure, as well as continued support to rural and MSME sector augurs well for FY23 demand scenario in general and two-wheeler industry in particular,” Gupta said.

“Commodity cost pressures are expected to ease, as supply imbalances get corrected gradually, some part of which is evident in the softening of precious metal and steel prices. We will continue to accelerate our savings program, premiumise within the brands, and take price increases where necessary,” he added.

Also read: Mahindra & Mahindra Shares Q3 Results