HeroMotoCorp Q1 results update
Last updated: 14 Aug, 2020 | 09:53 am
- Profit nearly wiped out: India’s largest two-wheeler manufacturer Hero MotoCorp has reported a 95% on-year drop in net profit in Q1FY21 to ₹61 crore, on the back of tepid sales numbers in the quarter. Analysts had earlier estimated a net profit of about ₹82.2-crore.
- Sales plunge in the quarter: The company drew a blank in sales in the month of April, owing to the nationwide lockdown imposed in March. Hero MotoCorp sold a total of 5.65 Lacs units of motorcycles and scooters in the period, with more than 4.50 lakh units in the month of June alone.
- Steep recovery: “Leading the path of rapid recovery, Hero MotoCorp’s sales rose for the third straight month to cross 5-lakh units in July, about 95% of pre-Covid levels.” The company said that it is seeing green shoots in the economy, and expect the recovery to sustain and get stronger as we move towards the festive season.
- Getting back to normalcy: With strict safety measures and protocols in place, about 95% of the customer touchpoints of Hero MotoCorp are fully operational and the company's eight production facilities - six in India and two in global markets have resumed manufacturing.
While the pandemic had brought the production and sales to a grinding halt in April, two-wheeler manufacturers have shown robust resilience in sales in the last two months. Hero has been able to deliver a positive bottom line, despite only 25% capacity utilization. This was due to cost optimization and improved productivity.
Nearly half of Hero’s domestic sales comes from rural India. Demand for entry-level motorcycles has recovered faster, especially in rural and semi-urban India, following a normal monsoon, good summer crop and a shift towards personal mobility over public transport to better practise social distancing. A good rabi crop forecast points to improving rural incomes, which should benefit the firm. Further, government focus on agriculture and the rural economy is likely to continue in the near- to medium-term, again a good tailwind for Hero.
Consensus recommendation: Hold (Based on views of 46 analysts from external institutions)