Decent Q3, but bumps ahead for Hero
Hero MotoCorp Ltd’s shares hit a 52-week high of ₹4,949.05 apiece in early trading hours on Monday, but proceeded to close nearly 5% lower with broader markets remaining weak. While the two-wheeler maker’s December-quarter (Q3FY24) results were decent, the road ahead appears anything but smooth. In Q3, a sequential volume growth of 3% coupled with flat average selling price meant a 3% rise in operating revenue to ₹9,724 crore.
While Hero’s gross margin expanded by 130 basis points sequentially to 32.7%, the benefit was curbed at the operating profit level due to higher marketing expenses for its electric vehicles. The impact on the Ebitda margin was to the tune of 200 basis points, leading to a sequential drop of 10 basis points in the parameter to 14%. In contrast, Bajaj Auto Ltd and TVS Motor Co.
Ltd saw a sequential uptick in Q3 Ebitda margins, albeit slightly. For FY24, Hero expects the impact on margin due to EV business-related costs to be in the range of 125-150 basis points. However, stable commodity costs and premiumisation would support profitability.
Having said that, the pressing worry continues to be Hero’s market share. The company primarily operates in the entry-level segment and the ongoing premiumisation trend has had a bearing. In Q3, Hero’s market share in domestic motorcycles stood at 41.6%, down from 50.4% in Q4FY23, even after a slew of launches in this financial year, according to Antique Stock Broking.
Some of Hero’s new bikes, including premium vehicles such as Karizma XMR and Harley Davidson X440, bolster its overall portfolio. But to what extent can these help in regaining the lost market share with competition intensifying? Notably, not all of Hero’s launches are bearing fruit. HDFC Securities
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