The country’s largest two-wheeler manufacturer, Hero MotoCorp, on Thursday missed market estimates by posting a 20.41% drop in its net profit at Rs.487.89 crore during the October-December period, largely on the back of sluggish sales and rising cost incurred on inputs as well as marketing and brand-building exercises. During the same period last year, it had posted a net profit of R613.03 crore.
Total income during the period went up 2.51% to R6,187.62 crore against R6,035.96 crore in the corresponding period last fiscal. Ebitda margins stood at 12.59%, lower than the 13.86% in Q2 and 15.6% during the same period last fiscal.
Pawan Munjal, MD & CEO, Hero MotoCorp, said, “The last two quarters have been challenging for the industry on account of the delayed monsoons, rising fuel prices and subdued sentiments. However, we have had good growth this festive season. Not only have we sold over 1.1 million two-wheelers in the months of October and November, our despatches were consistently over 5-lakh every month of this quarter. This trend may be an early sign of recovery and we hope the domestic two-wheeler industry will revert to higher growth rates in near future”.
Raw material costs went up 120 bps in Q3 as a percentage of net sales on account of product mix, said Ravi Sud, CFO, in an investor call. However, he added that some gains are expected in Q4 with the depreciation of the yen. Meanwhile, ‘other expenses’ increased 25% in Q3 to R625 crore on land purchases and building activities, apart from marketing expenses on the branding change.
“The second half of FY13 was heavier than the first in terms of marketing expenses because of the way the launches were planned and there is some remaining in Q4 as well. Our marketing spend is typically 2% of net sales, but in the second half it will be higher than that,” Anil Dua, senior vice-president for sales & marketing, said in the investor call.
Dua further added that growth in Q3 was driven by rural sales where funds are now flowing in from banks and other financiers. Rural demand had been down in Q2 on fears of drought, but after the monsoons arrived, sales have picked up. “We hope to pull up sales in Q4 and continue with the recovery of Q3 with things like Makar Sakranti. The next few months are crucial but we expect good sales,” said Dua.