The world’s top two-wheeler manufacturer by volume said profit growth remained limited in the quarter to December despite record sales due to currency fluctuations and higher cost of metals. Hero MotoCorp Ltd. recovered after losing almost 2% in opening trade on Friday.
The stock is currently selling at 13.4 x FY2015 earnings at the CMP. The stock lost 1.47% to conclude the day at Rs 1,970.45.
The Delhi-based company reported that for the three months ended December 31, net profit increased by 7.5% year over year to Rs 525 crore. Sales increased by 7% to 16,80 lakh units, the most ever for a quarter.
On the bottom line, Hero MotoCorp announced lower-than-expected earnings, with pressures on the EBITDA margin brought on by unfavourable currency movement as well as a rise in advertising and promotional costs.
The MD & CEO of Hero MotoCorp, Pawan Munjal, stated in a statement that ‘despite some strong sales in the quarter, our margins (EBIDTA) were affected due to currency fluctuation and higher metal costs.’ ‘While the industry as a whole is constantly under pressure for a variety of reasons, we are confident in and committed to delivering consistent value to our stakeholders,’ the statement reads.
Due to the negative effects of the unfavourable currency movement and also because of a considerable increase in other expenses, EBITDA margins during the quarter fell drastically by 150 bps QoQ to 13.1%, which was lower than our projections of 13.9 %.
However, the business cautioned that a flat market and increasing gasoline prices could affect sales in the fourth quarter, according to ET. Analysts who follow the auto industry claimed that they anticipated larger volumes and better earnings from Hero.
While unfavorable currency movement had an impact on raw material costs, which as a percentage of sales increased by 120bps qoq, other expenses increased by 29.4% qoq as a result of higher royalties paid on newer models as well as higher advertising and promotional costs brought on by the festival season and increased competition, according to a note from Angel Broking.
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