Hero MotoCorp Q1 preview: Profit may dip up to 94% YoY as sales take a hit

Hero MotoCorp is scheduled to announce its June quarter results for the first quarter of fiscal 2021 (Q1FY21) on Thursday. Analysts expect the company's Q1 net profit to tumble anywhere in the range of 72-94 per cent on a year-on-year basis (YoY), led by massive decline in overall volumes. Revenues are also seen declining around 60 per cent YoY due to the disruption in the company's operations caused by coronavirus-led nationwide lockdown.


During the quarter under review, Hero MotoCorp sold 5.63 lakh units, down 69.4 per cent YoY from 18.4 lakh units in Q1FY20. In the year-ago quarter, the company had sold 13.34 lakh units. In Q1FY20, it had reported revenue of Rs 8,030.3 crore and profit of Rs 741.1 crore on a standalone basis.


At the bourses, Hero MotoCorp's stock gained 34.7 per cent during the quarter under review as compared to the benchmark S&P BSE Sensex's 18.48 per cent gain in the same period, ACE Equity data show.


According to analysts, Hero MotoCorp's channel inventory levels, demand outlook and customer response for new products launched will be the key monitorables.


Here's what the leading brokerages expect from Hero MotoCorp's Q1FY21 results.



Nomura is building around 63 per cent YoY decline in Hero MotoCorp's Q1 revenues to Rs 6,405.4 crore amid sharp decline in overall volumes. Net profit is also seen tumbling 87 per cent YoY to Rs 755.9 crore.


"Margins to decline to 4.3 per cent from 14.4 per cent in the year-ago quarter (1,013 basis points decline) on BS-6 cost pass through and fixed costs. Ebitda is seen at Rs 826.9 crore, down 89 per cent from Rs 1,158 crore reported in Q1FY20," the brokerage said.



Emkay Global


The brokerage expects Hero MotoCorp's revenues to fall 62.4 per cent YoY to Rs 3,022.7 crore, led by a 69 per cent drop in volumes. However, the fall will be cushioned by an increase in realizations and higher share of spares. "Realisations are expected to increase due to price hikes (BSVI, safety norms and cost inflation). Gross margin is expected to increase due to higher spare mix and lower input cost," it said. Overall, the brokerage expects Hero MotoCorp's profit to fall 72 per cent YoY from Rs 763.2 crore to Rs 214.1 crore. Sequentially, profit would decline 65.5 per cent.


Meanwhile, Ebitda margins are expected to contract to 7.1 per cent from 14.4 per cent in the year-ago quarter due to a lower scale. Earnings before interest, tax, depreciation, and ammortisation (Ebitda) may dip 81.5 per cent YoY to Rs 214.7 crore.


ICICI Securities


Analysts at ICICI Securities see Hero MotoCorp's Q1 revenue dipping around 67 per cent YoY to Rs 2,659.4 crore, largely due to the massive volume drop. Profit is expected to register an even bigger fall (down 85 per cent YoY) to Rs 77.7 crore.


However, it expects net realisations to improve around 8 per cent due to pass-through of the BS-VI price increase. Ebitda margin is expected to decline 917 bps YoY due to higher other expenses (up 189 bps) and sticky employee costs (up 727 bps). Ebitda may come in at Rs 1,39.6 crore, a fall of 88 per cent YoY and 70 per cent on a sequential basis.


Nirmal Bang


According to Nirmal Bang, the company's negative operating leverage (on lower volume due to Covid-19 lockdown) and lower utilisation level (due to supply challenges) during the quarter is likely to affect its Ebitda margin which is seen at 2 per cent, down from 14.4 per cent in Q1FY20.


Hero MotoCorp's revenue may fall 66.4 per cent YoY to Rs 2,700.6 crore while net profit may tumble 93.8 per cent YoY to Rs 48.7 crore. The company is seen reporting an Ebitda of Rs 54 crore, down 95.3 per cent YoY.


Prabhudas Lilladher


According to analysts at Prabhudas Lilladher, "With volume decline of around 69 per cent YoY but expected realisation increase of around 10.5 per cent YoY on account of recent product price hikes and BS6 mix, revenue to decline 66 per cent YoY to Rs 2712.8 crore while profit may come down 84.8 per cent YoY to Rs 115.6 crore.


"Operating margins are expected to contract 980 bps YoY and 600 bps sequentially to 4.6 per cent led by negative operating leverage. Ebitda is seen falling 89.3 per cent YoY to Rs 123.6 crore," they said.