India's largest two-wheeler maker Hero MotoCorp's second
quarter net profit declined 27% from a year ago (down 28% sequentially) to Rs
441 crore, hurt by overall slowdown in sales. However, demand has since picked
up from the beginning of the Navratra period, it said on Tuesday.
Its quarterly net sales were down 11% from a year ago (down
17% quarter-on-quarter) to Rs 5,151 crore.
The results were in-line with street expectations of a net
profit of Rs 440 crore on revenue of Rs 5,100 crore, according to a CNBC-TV18
poll.
EBITDA margin was at 13.86%, versus analysts expectations of
13.7%.
"The two-wheeler market in the country has been
adversely impacted due to the overall market slowdown and prevailing sentiments
since the beginning of this quarter...The onset of the festive season has been
encouraging with retail sales of over two lakh in the Navratras," Pawan
Munjal, MD and CEO said in a statement.
While the two-wheeler industry was expecting around 5-6%
sales growth, volumes in-fact slipped 5% in July-September.
Anil Dua, Hero MotoCorp's senior vice president - marketing
and sales said, customers postponed purchases amid the overall weak economic
sentiments fuelled by the lower GDP growth, high inflation, last quarter. Moreover,
the late arrival of the monsoon season had a big impact on sales in rural
areas, he said in a post earnings conference call.
Around 46% of Hero Moto's sales come from rural areas.
Overall in the quarter, the company's sales were down 14%
from a year ago at 13.33 lakh units. Dua says there are some signs now that
customers are back and is hopeful that sales in the festive season, will be at
least similar to last year.
"We were doing around 10,000 unit sales a day in the
Shraddh period (first 15 days of October). Now we are doing around 26,000 a day
(with Navratras arrival), which is similar to last year," he said.
Hero Moto has tied up with HDFC Bank, which will offer auto
loans at 6.99%, which should also help boost festive season sales, the company
feels. The company as such is not offering
any discounts or free gifts to increase sales, it said. Typically interest
rates on auto loans is around 10-11%
The pick-up in two-wheeler sales is led by strong demand for
its new products like the Maestro scooter and Ignitor motorcycle.
In fact, the company is now number two player in scooters
and hopes to double scooter volumes with the new Maestro (around 20,000 sales
so far) and existing Pleasure, Dua said.
The Pleasure scooter is targeted at women and the Maestro at
men and so there is unlikely to be any cannibalization, the company feels.
Hero MotoCorp also strongly refuted recent news and analysts
reports that the overall slowdown coupled with the re-branding of all its
products sans the Honda badge had impacted the company more than any other
player. Bajaj Auto too had recently reported that its Discover brand had now
become the largest selling motorcycle, racing ahead of Hero's Splendor.
Dua said these "propaganda" claims were
"baseless" and linking of the re-branding of its products to just
Hero and the sales slowdown was a "fallacious correlation."
"We have dispatched 1.2 million Splendors in the first
half of this financial year, which is similar to last year. Passion sales were
at 70,000 units, which is the second largest brand," Dua said.
Hero MotoCorp spent Rs 250 crore on capital expenditure in
the first half and has pegged a capex of Rs 300-350 crore in the second half of
this fiscal. The company, which ended its long running joint venture with
Japan's Honda, has already announced plans to set up fourth and fifth plants in
the country, apart from increasing capacity at its existing plants and will
build an integrated research and development centre in Rajasthan.
It has also inked deals with US-based Erik Buel Racing, AVL
of Austria and Italy's Engines Engineering to boost its technology and future
product line-up, in its bid to be a big player globally.
While its products may still have a strong brand recall in
the domestic market, Hero admits it will have to try harder in new markets like
Africa and Latin America, where it hopes to start exporting this year.
In markets like Sri Lanka, where it has now started selling
sans Honda, it has aggressive growth plans, with new showrooms and workshops,
new distributor arrangements and dedicated Hero outlets, Dua said.
"We will have a network of 1.5 times of what we had
earlier," he said.
Hero MotoCorp shares ended down 1.7% at Rs 1,795.75 on NSE
on Tuesday. The results were announced after markets closed.
Source: www.moneycontrol.com
Thanks,
Gaurav Agarwal
Head Dealer
DENIP Consultants Pvt Ltd
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