Hero MotoCorp’s Q3 profit up 51% YoY on higher volumes, realisation

Hero MotoCorp Ltd today reported strong growth in its net profit for the December quarter on a year-on-year basis, aided by robust improvement in margins. Higher volume and the premiumisation trend on top of moderation in input cost inflation boosted the company’s profit margins. 

India’s largest two-wheeler maker posted standalone net profit growth of 51% on year to Rs 1,073.38 crore, aided by a healthy operating performance during the quarter. Revenue from operations rose 21% to Rs 9,723.73 crore as volume grew on a low base in the year-ago quarter.

Hero MotoCorp sold a total of 14.60 lakh two-wheelers during the three months, which represents a growth of 18% on year. In the year-ago quarter, the company’s total volume fell 4% to 12.40 lakh units amid weakness in both domestic and export markets.

Two-wheeler sales are now witnessing a gradual recovery with strong sales in the festival season and an uptick in rural demand. Also, Hero MotoCorp has been focusing more on adding premium products to its portfolio with an eye on higher margins.

“Our recent launches in the premium segment have met with early success, and we are ramping up the capacity of our upper premium models,” Chief Executive Officer Niranjan Gupta said. Hero MotoCorp started deliveries of Harley Davidson X440, the first motorcycle to be co-developed by the company and Harley-Davidson, in the third quarter while the deliveries of new Karizma commenced towards the end of the second quarter.

On the profitability front, Hero MotoCorp’s operating profit, or earnings before interest, tax, depreciation and amortisation (EBITDA) grew 47% on year to Rs 1,362 crore. Operating profit margin or EBITDA margin expanded by 250 basis points to 14% from the year-ago quarter, driven by moderation in commodity cost inflation and higher realisation.

Margin expansion was aided by commodity cost, leap savings, premiumisation and judicious price changes, the company said. The cost of raw materials consumed as a percentage of revenue from operations during the quarter declined to 66.7% from 70% in the comparable period. “Moving forward, our Margin shape will allow us to fuel our growth even more,” Gupta added.

Hero MotoCorp noted that it's parts accessories and merchandise business has crossed annualised revenue of Rs 5,000 Crore, and the company plans to invest Rs 600 crore for capacity expansion by setting up a new parts centre in Tirupati.

On a consolidated basis, net profit increased to Rs 1,093.41 crore from Rs 726.03 crore in the year-ago period. Profit from associate companies, however, came in at Rs 44.29 crore, down from Rs 83.03 crore. Hero MotoCorp’s associate companies include Hero FinCorp Ltd and Ather Energy Pvt Ltd.