Hero MotoCorp Limited (HMCL) is an Indian multinational motorcycle and scooter manufacturer headquartered in New Delhi. The company is one of the largest two-wheeler manufacturers globally and in India, where it has a market share of about 37% in the two-wheeler industry.
The company started in 1984 as a Technological collaboration with Honda, Japan. Before this collaboration, Hero was selling Cycles under the brand name, Hero Cycles.
Hero Moto Corp was previously known as “Hero Honda” and the company is one of India’s first motorcycle manufacturers. In 2011, Honda group sold its 26% stake in the company to the Munjals (company promoters) and closed the joint venture. After the termination of joint venture, the company was renamed as Hero MotoCorp.
Quarterly Growth Walkthrough
Hero MotoCorp posted a consolidated net profit of Rs 721 crore for the December quarter as compared with Rs 704 crore during the same quarter of the previous fiscal year. This is a mere 2.4 percent rise in net profit on a year-on-year basis.
Hero MotoCorp’s revenue from operations for the December quarter were seen at Rs 8,118 crore as compared to Rs 8,013 crore during the December quarter of FY22. This is a tiny rise in revenue of 1.3 percent. The sales from the rural areas have been very poor. The EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) for the quarter was witnessed at Rs 942 crore. The EBITDA margin has risen by a short 10bps sequentially to 11.5% in Q3.
Realisation growth for Hero MotoCorp was comparatively lower as against the company’s peers Bajaj Auto Ltd and TVS Motor Co. Ltd, which put out a 6-7% rise in the December quarter. This decline was due to the poor performance of the executive and premium segments which have shrunk by 400bps.
An increase in other expenses has dragged down Hero MotoCorp’s EBITDA margin. The rise in other expenses by 3% sequentially in spite of a 13% drop in Q3 volumes was majorly due to high marketing expenditure on behalf of the launch of Vida V1 (Hero MotoCorp’s new electric vehicle).
In January, Hero MotoCorp’s two-wheeler volumes declined 9.5% sequentially to 356,690 units.
Word from the Board
Niranjan Gupta, Chief Financial Officer (CFO), Hero MotoCorp said that “We have started recovering our market shares and expect this journey to continue backed by exciting launches lined up over next few quarters, especially in premium segment. This, coupled with our renewed focus on savings programme should also help in improving our margin profile going forward.”
The CFO continued his statement with “We are excited about our EV programme, with Vida being established as premium and aspirational brand. We are planning to roll this out across multiple cities in FY 24. Our R&D teams are working on accelerated portfolio expansion as well, in the EV space.”
Declaration of Dividend
The company has declared an interim dividend of 3250% which is Rs 65 per equity share for the financial year 2022-23. The Board has decided that 17th February 2023 will be the record date for determining the entitlement of members for the purpose of payment for the interim dividend. The payment of interim dividend/dispatch of dividend warrants will be completed by March 9, 2023.
Technical Analysis
Hero MotoCorp stock price has failed to break over the 38.2% retracement level and faces a selling pressure. The stock price is below the 200-day moving average and the MFI is at 34 points which indicates us that the stock has become relatively cheap for the mid-term and long-term. Accumulation of the stock at the current 50% retracement level as well as when the stock falls down the 61.8% retracement level would be a good entry point for investors. The stock might face short-term downward pressure due to the poor rural markets and slow recovery in volume as reported from the December quarter results.
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