Hero MotoCorp Q3FY19E Result Expectation

Investors will watch out for management commentary on growing export sales.

Jan 31, 2019 02:01 IST India Infoline News Service

Hero MotoCorp (HMCL) Q3FY19E result expectation:
  • Revenue: Rs7,663cr; (up 5% yoy, down 16% qoq). HMCL will report revenue growth of 5% yoy (down 16% qoq), led almost entirely by volume growth (up 5% yoy, down 16% qoq). This was the weakest quarterly volume growth for HMCL in seven quarters, as festive volumes were partially captured in Q2FY19 as well. Realization will show a flat trend, aided by recent price hikes. It will partly offset the high discounts offered to push sales during festive season.
  • EBITDA: Rs1,094cr; (down 6% yoy, 21% qoq).
  • EBITDA margin: 14.3%; (contraction of 158bps yoy, 89bps qoq). EBITDA margin will contract due to negative operating leverage and weak Rupee. A&P expenses are seasonally higher in H2 compared to H1, which could further affect margins.
  • PAT: Rs751cr; (down 7% yoy, 23% qoq).
Q2FY19 performance highlights:
  • Revenue: Rs9,091cr; (up 9% yoy, 3% qoq). Revenue growth of 9% yoy in Q2FY19 was led by 5.5% yoy volume growth and 3% yoy realization growth. At 3% yoy, realization growth rate was the highest since Q3FY16. HMCL’s strategy of not participating in any pricing-led strategy helped maintain realization growth to a robust level.
  • EBITDA: Rs1,379cr; (down 5% yoy, flat qoq).
  • EBITDA margin: 15.2% (contraction of 222bps yoy, 47bps qoq). Despite price hikes, HMCL saw EBITDA margin contraction on yoy and qoq basis. Hence, it is evident that price hikes were not sufficient to offset input cost inflation and advertising spends.
  • PAT: Rs976cr; (down 3% yoy, 7% qoq). PAT was in line with expectation. It was affected by higher tax rate of 33% during the quarter, against 30% in Q2FY18 and 32% in Q1FY19. PAT was boosted by higher other income (Rs224cr, up 90% yoy, 93% qoq). Other income was higher since the company reached closure of some income tax assessments, which resulted in interest income.
Remarks - Investors will watch out for the following, post Q3FY19 results:
  • Management commentary on growing export sales.
  • Customer response to new launches.
  • Demand trends in rural and urban areas.
  • Current level of inventory in the system, for the sector on the whole and for HMCL in particular.

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