Hero MotoCorp Reports Substantial Rise in Net Profit. Is it Worth a Look?

The two-wheeler major Hero MotoCorp reported a 498% year on year (YoY) rise in net profit to Rs 3.7 bn for the quarter ended June, which was below the street's estimate.

The country's largest two-wheeler maker reported an 85% YoY rise in revenue from operations to Rs 54.9 bn, which was also below estimate.

The strong growth in net profit and sales on a year on year basis for the company was aided by a depressed base in the year-ago quarter, which was impacted by the national lockdown to contain the spread of the Covid-19 pandemic.

On the operating front, the company's earnings before interest, tax, depreciation, and amortisation jumped 377% YoY to Rs 5.2 bn. The company's operating margin in the quarter stood at 9.4%.

On 6 May 2021, the board of directors had recommended a final dividend of Rs 35 per equity share (face value of Rs 2 per share) for the financial year ended 31 March 2021, which together with the interim dividend of Rs 70 per share, has been approved by the shareholders.

Lockdown impact on the company's sales

The company's operations and financial results were partially impacted by the lockdown announced by various state governments during the quarter.

The New Delhi-based motorcycle maker sold 35% fewer units than in the preceding quarter at 10.24 lakh units in the April-June period.

That's because local lockdowns stalled production and shut dealerships in most parts of the country.

Besides, the nation's hinterland, expected to drive two-wheeler sales buoyed by a good monsoon, bumper crop, increased government spending, was ravaged by the pandemic's second wave.

High cost of ownership due to costly fuel, a series of price hikes prior to the pandemic and then again to counter the surge in commodity costs, too, weighed on the sales.

Commodity costs continued to rise, and are impacting the industry margins, said Niranjan Gupta, chief financial officer at Hero MotoCorp.

The company, he said, remains optimistic about demand over the coming months with the start of the festive season and a healthy monsoon and encouraging farm activity.

Hero MotoCorp electric scooter set for global debut

Two-wheeler maker Hero MotoCorp has unveiled its first EV (an electric scooter) and aims to launch a slew of electric products from beginning 2022.

On 10 August 2021, the company shared a glimpse of its upcoming electric scooter during a live stream to mark the tenth anniversary of the company.

While electric scooters have only accounted for a fraction of overall two-wheeler sales in the country so far, things are changing rather quickly, and Hero's entry will only accelerate EV adoption in the two-wheeler market.

Hero MotoCorp chairman Pawan Munjal during the company's 10th anniversary celebrations, said,

• The coming decade is the decade of electrification and we are working on developing our own EV products at different levels. We are vigorously testing electric two-wheelers at Jaipur and Munich.

He added that the company is working on multiple other products, including the ones with battery swapping technology from its Taiwanese partner Gogoro.

A bit about the company's rivals in the EV space.

Hero MotoCorp, which also owns a 35% stake in EV startup Ather Energy, plans to launch its first electric product before the end of the financial year 2022.

Hero MotoCorp's unveiling of its first EV comes at a time when SoftBank-backed Ola is launching its first e-scooter on 15 August 2021.

Ola claims to have built the world's largest e-two-wheeler facility in Tamil Nadu and aims to dominate domestic as well as foreign markets.

Additionally, Hero's long-term competitors such as Bajaj Auto and TVS Motor - already have a product in the EV space.

Bajaj Auto is the second-largest manufacturer of motorcycles in India, followed by TVS Motors in terms of market share.

How the stock markets reacted to Hero MotoCorp

Shares of Hero MotoCorp opened the day at Rs 2,800 on the BSE and Rs 2,796.9 on the NSE.

At the time of writing, the company's shares were trading down by 0.2% on the BSE.

At its current price, it is trading at a P/E of 18.6.

The share touched its 52-week high of Rs 3,628.6 and 52-week low of Rs 2,709.9 on 17 February 2021 and 11 August 2020, respectively.

Over the last 30 days, the Hero MotoCorp share price is down 4%. Over the last one year, the company's share price is up 2.6%.

About Hero MotoCorp

Hero MotoCorp Limited, formerly Hero Honda, is an Indian multinational motorcycle and scooter manufacturer based in New Delhi, India.

The company is the largest two-wheeler manufacturer in the world, and in India, where it has a market share of about 46% in the two-wheeler category.

Hero MotoCorp has five manufacturing facilities based at Dharuhera, Gurugram, Neemrana, Haridwar, and Halol under the Green Field stage.

These plants together have a production capacity of over 7.6 m two-wheelers. The company also has a sales and service network with over 6,000 dealerships and service points across India.

In 2007, Hero MotoCorp incorporated Hero Electric as a 100% subsidiary of the group. The company started manufacturing electric scooters from its Ludhiana plant.

For more details about the company, you can have a look at Hero MotoCorp's factsheet and Hero MotoCorp's quarterly results on our website.

You can also compare Hero MotoCorp with its peers.

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