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Hero MotoCorp Q4 results preview: Analysts see over 30% decline in profit

Edelweiss expects volumes of 2W companies to recover faster than PVs
Hero MotoCorp is set to announce its March quarter results for 2019-20 (Q4FY20) on Tuesday and analysts expect the country's largest two-wheeler maker to report over 20 per cent fall in top-line, led by 25 per cent YoY decline in total volumes. The company had reported revenue of Rs 7,885 crore and net profit of Rs 730.3 crore in Q4FY19.

According to monthly sales data provided by the company, Hero MotoCorp sold 13.34 lakh units during the quarter under review, down 25 per cent from 17.81 lakh units in the year-ago quarter.

April was a wipeout month for many automobile firms in India due to the Covid-19 induced lockdown. However, sales have since started re-emerging as India looks to re-open its economy gradually. In a note, Edelweiss said, that over the medium-to-long term, it expects volumes of two-wheeler (2W) companies to recover faster than passenger vehicles (PVs), "given that 2Ws are still considered utility goods in India."

At the bourses, Hero MotoCorp tumbled 34.37 per cent in Q4FY20 as compared to Nifty's 29.4 per cent fall in the same period. Meanwhile, the Nifty Auto index declined 42.3 per cent, ACE equity data show.

Here's what leading brokerages expect from Hero MotoCorp's Q4FY20 results:

Kotak Securities

The brokerage expects Hero MotoCorp's revenues to decline by 23 per cent YoY in the quarter under review to Rs 6,059.7 crore, led by a 25 per cent decline in volume while profit after tax (PAT) may come in at around Rs 464.4 crore - down 36.4 per cent on a YoY basis.

"We expect Ebitda (Earnings before interest, tax, depreciation, and ammortisation) to decline by 38 per cent YoY to Rs 668 crore, led by negative operating leverage in 4QFY20 while Ebitda margin is expected to contract 254 basis points YoY to 11 per cent," the brokerage said in a preview note.

Axis Capital

Analysts at Axis Capital see Hero MotoCorp's Q4 revenue declining by 22 per cent YoY to 6,160 crore. The brokerage is building in 5 per cent YoY increase in average selling prices (ASPs) on regulation driven price increases, as well as around Rs 200 crore discounts offered by the company to extinguish BS4 stock. Bottom-line is seen sliding 36 per cent YoY to Rs 470 crore.

"We expect margin to decline by 300 bps YoY largely due to negative operating leverage. Sequential decline in margin (down 430 bps QoQ) is due to 300 bps decline in gross margin due to higher discounts partially offset by lower commodity costs and 130 bps due to negative operating leverage," the brokerage said, adding that the Ebitda margin could come in at 10.5 per cent from 13.6 per cent in the year-ago period.

Dolat Capital

Hero MotoCorp's revenue is likely to fall by 28 per cent YoY to Rs 5,684.6 crore, led by 25 per cent de-growth in volume and 3 per cent de-growth in realisation. We see operating margin to contract 255 bps YoY to 11 per cent, led by negative operating leverage and high discounts," the brokerage said. It pegs the company's Q4 profit after tax (PAT) at Rs 6,25.8 crore, down 41.5 per cent while Ebitda is seen at Rs 6,25.8 crore, down 41.6 per cent.

Edelweiss Securities

The brokerage is building in a 20.1 per cent YoY fall in Hero MotoCorp's revenue to Rs 6,302.1 crore for Q4FY20 while PAT is seen declining 17.9 per cent YoY to Rs 599.8 crore. Besides, the analysts at the brokerage firm expect the company's Ebitda margin to remain under pressure at around 13 per cent (down around 200bps sequentially) due to negative operating leverage as well as efforts to normalise inventory, offset marginally by cost focus and improved realizations (higher share of BSVI vehicles). Ebitda may also decline 24.1 per cent YoY to Rs 811.9 crore.



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