According to brokerage firm ICICI Securities, HMCL is expected to report a muted performance in Q3FY20 primarily tracking decline in volumes and associated perils of negative operating leverage amidst benign raw material costs.
Sales volume in Q3FY20 could come in at 1.54 million units, down 14 per cent year-on-year (YoY) and 9 per cent on quarter-on-quarter (QoQ) with scooters witnessing a steep volume decline of 42 per cent YoY, it added.
“We expect revenues to decline by 12 per cent YoY in Q3FY20 led largely by 14 per cent YoY decline in total volumes. We expect EBITDA margin to decline by 120 basis points YoY due to negative operating leverage and higher discounting owing to weak demand scenario in Q3FY20,” Kotak Securities said in the December quarter earnings preview.
“HMCL’s earnings still seem vulnerable against the backdrop of clarity on competition’s (Bajaj/ TVS) strategy around BS-VI launches which will likely shape the competitive environment here. Further, given the structural challenges, it is difficult to argue for a meaningful multiple improvement,” analysts at JP Morgan said in a recent report.
Post the steep de-rating seen over the last few months, we think that the stock offers valuation support, the brokerage firm said with an upgraded rating of ‘neutral’.
Meanwhile, for the month of January 2020, the market leader HMCL posted a 13.9 per cent YoY decline in total sales due to continued decline in scooter volume (scooter sales declined by 86.6 per cent). Its motorcycle sales were down 6.5 per cent YoY.
The company’s entire scooter portfolio has migrated to BS-VI, and the company has stopped producing any BS-IV scooter. The company has launched BS-VI compliant HF Deluxe motorcycle and Pleasure+ 110 scooter in India. The company has lined up a range of BS-VI products to be rolled-out in the market in the coming weeks.