Hero MotoCorp Q3 net up 11% at Rs 583 crore

NEW DELHI: Hero MotorCorp, India's largest two-wheeler maker by volumes, on Tuesday reported a lower-than-expected quarterly profit as promotional costs in new international markets and employee expenses jumped with the start of its fourth plant.

The company said net profit rose 11% from a year earlier to Rs 583 crore for the quarter to December. Turnover (net sales and other operating income) was down 0.5% to Rs 6,839 crore. Two-wheeler sales at the company declined 2% to 1,648,548. Shares of Hero MotorCorp slipped 0.78% to close at Rs 2,812.35 on the BSE on Tuesday. The company announced the results after trading hours.

The results were also impacted by the 30% rise in employee expenses to Rs 316 crore in the quarter, on account of new employee cost at the Neemrana plant, which became operational in October last year.

The company said its other expenses also rose to Rs 798.95 crore, largely due to its global brand building strategy, under which it had roped in golf celebrity Tiger Woods as its global corporate partner. The company did not disclose the endorsement fee it paid to Woods. At the operating level, profit before tax stood at Rs 829 crore, while earnings before interest, tax, depreciation, and amortisation (Ebitda) margin stood at 12.02. The company said high interest rates along with the slowing global markets could hurt revenues in the coming quarter and the rest of the fiscal.

“While sentiments are already high with the central government expected to revive the economy, the other factors such as interest rates, retail inflation and the likely changes in global economy will also play a role in determining the industry growth in the coming quarters,” said Hero MotoCorp Vice-Chairman & CEO Pawan Munjal.

While sales at Hero grew around 7% in the current fiscal, those at its partner-turned-competitor Honda Motors grew at 23% in the same period, helping the domestic market clock an 11% growth in two-wheeler sales. Analyst tracking the company said high cost and lower sales checked the profitability of all major auto companies in the Indian market. Most analysts had expected Hero to post a net profit of around Rs 703 crore in the third quarter.
The company had a profit of Rs 524.66 crore during the same period of previous fiscal.

Net sales of the company, however, declined marginally to Rs 6,792.51 crore during the October-December period, as against Rs 6,845.91 crore during the same period of previous fiscal, Hero MotoCorp Ltd said in a statement.

During the quarter, the company's total sales stood at 16,48,548 units.

Commenting on the results, Hero MotoCorp Vice Chairman, Chief Executive Officer & Managing Director Pawan Munjal said: "We continue to make investments as we pass through a phase of global expansion, capacity enhancement and brand building and these added expenses have impacted our margins in the third quarter."

He added that the company believes that these are investments which will yield the desired results in the long term.

"Going forward, we remain cautiously optimistic about the business climate. With crude prices hovering below the USD 50 mark, and commodity prices continuing to remain soft, a lot will also depend on the much-awaited budget to be presented by the central government later this month," Munjal said.

While sentiments are already high with the central government expected to revive the economy, the other factors such as interest rates, retail inflation and the likely changes in global economy will also play a role in determining the industry growth in the coming quarters, he added.

As part of the global expansion, Hero made its debut in Colombia during the quarter while it also roped in Tiger Woods as its global corporate partner to intensify brand building initiatives in global markets, Munjal said.

Hero MotoCorp shares closed at Rs 2,812.35 apiece on the BSE, down 0.78 per cent from previous close.