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Hero MotoCorp (HMCL) Q2FY19E result expectation

Hero MotoCorp Expectations for Q2FY19E:
  • Revenue: Rs8,936cr; up 7% yoy (1% qoq). Top-line growth will be guided by 5% yoy (1% qoq) volume growth and 1% yoy (flat qoq) growth in Average Selling Price (ASP). The company’s move towards higher capacity motorcycles (200cc bikes and 125cc scooters) will lead to further improvement in ASP in subsequent quarters.
  • EBITDA: Rs1,457cr; flat yoy (up 6% qoq).
  • EBITDA margin: 16.3%; contraction of 110bps yoy (expansion of 68bps qoq). Company has taken consistent price hikes during the quarter to combat input cost inflation. It also took a price hike (up to Rs900 per vehicle) effective October 2018. Despite the price hike, EBITDA margin will shrink 110bps yoy since it will not be sufficient to pass on entire input cost inflation.
  • PAT: Rs966cr, down 4% yoy (up 6% qoq). Expiration of tax benefits at Haridwar will lead to yoy decline in net profit.
Q1FY19 performance highlights:
  • Revenue: Rs8,810cr; up 10% yoy (3% qoq). Top-line growth comprised of volume growth of 14% yoy (5% qoq). However, realization at Rs41,853 per vehicle was 3% yoy lower (2% qoq lower), due to higher proportion of entry level motorcycles.
  • EBITDA: Rs1,377cr; up 6% yoy (0.5% qoq).
  • EBITDA margin: 15.6%; contraction of 60bps yoy (contraction of 37bps yoy). Despite keeping operating costs under check, higher input costs dented Standalone EBITDA for the company during the quarter.
  • PAT: Rs909cr, down 1% yoy (down 6% qoq). On the whole, HMCL reported lower than expected numbers for Q1FY19 owing to three factors: – i) higher raw material expenses (due to ongoing commodity cost inflation), ii) pressure on realization (due to weak product mix) and iii) higher tax rate (due to expiration of benefit at Haridwar plant).
Remarks – Investors will watch out for the following, post Q2FY19 results:
  • Management commentary on growing export sales.
  • Company’s reaction to pricing-led strategy adopted by peer Bajaj Auto.
  • Customer response to new launches.
  • Demand trends in rural and urban areas. Change (if any) in rural demand after unsatisfactory rainfall in several parts of the country.

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