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New launches augurs well for growth in mid to long term

Hero Motocorp Ltd (Hero) reported subdued set of numbers in Q3, both on sequential as well as yoy basis. Volumes fell 4% yoy on recovery seen post pandemic in the base quarter and 13.2% qoq on high base of festive Q2. Topline still managed to grow by 2% yoy on 6.2% growth in ASPs on price hikes taken and better product mix. Revenues declined 11.5% qoq to ?80.3 bn as realizations somewhat supported them by growing 2% qoq. The spares business also supported the cause as they grew slightly qoq and 6% yoy at ?12.59 bn. The retail demand in Q3 witnessed a solid recovery on the back of array of XTech launches (30% of volumes currently), continuation of festive demand seen in Q2 and recovery in sentiments. Input costs to sales ratio in Q3 was at 69.4%, down from 72% qoq and 71% yoy. Other expenses to sales expanded up to 12.3% from 10.3% yoy and 10.6% qoq on higher expenses related with EV expansion as they had an adverse impact of 70 bps on other expenses. EBITDA margins were sequentially up by just 10bps at 11.5% as the input cost benefits were somewhat offset by higher other expenses as mentioned above. As depreciation expenses remained flattish yoy and qoq, and other income grew by 51% (on absence of MTM losses in Q3; seen in Gogoro and other investments in the previous quarters), PBT grew by just 3% yoy while PAT grew by 4% yoy and de-growing by 1% qoq at ?7.11 bn.

Volumes to move up on solid launches

The company is gaining strength through the XTech (Extra Technology) variant expansion across its brands (30% of current demand) seen in Q3. In the premium bikes segment, the company attained market share of higher single digits on the back of the recent launches of X-treme 160R and X-Pulse 200T bikes. Going forward, the intrinsic growth drivers are expected to remain intact with the rural markets showing green shoots in the key markets of UP, Bihar, MP, Rajasthan and West Bengal. Rabi crop output is also expected to be bountiful on good monsoon in CY 22 and good reservoir levels. Marriage season has just started and is expected to continue for the next six months. This will surely boost demand, mainly in the rural markets. Urban demand remained strong throughout the quarter. On the EV side, Hero has launched EV scooter under the ‘Vida’ brand in the three major cities of Delhi, Jaipur and Bangalore in December and January, and has forged several partnerships and collaborations on this front including charging infrastructure. By March, the company will have its EV presence cross 10 cities.

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