Hero Q3 net sharply below St estimates at Rs 524 crore

Written by FE Online | New Delhi | Updated: Jan 31 2014, 09:15am hrs
Hero MotoCorp recorded a net profit sharply below Street expectations for the quarter ended December 31 due to unfavourable currency movement, higher tax rates at its Haridwar plant and increased marketing costs for 15 new products.

The two-wheeler market leader announced a 7.5% rise in net profit to Rs 524.66 crore in Q3FY14 while various analyst polls had estimated a profit of between R590 crore and Rs 620 crore due to record festive season sales. Net sales for the quarter, the highest recorded by Hero, were up 11.3% to Rs 6,846 crore. However, this was was much closer to analysts estimates of Rs 6,900-crore turnover for the quarter.

MD & CEO Pawan Munjal said, we have been able to post solid sales in the quarter in a relatively dull market. However, our Ebidta has been affected due to only partial recovery of rising metal costs and currency fluctuation.

The Ebitda margin for the quarter stood at 13.06%, lower than the 14.5% in Q2 but higher than the Ebitda margins of 12.59% in the same quarter last year. He added, we are excited about the Auto Expo where we will showcase our vision for the future of two-wheelers.

Other expenses, such as marketing, transportation and power costs, rose 18% in the quarter. Other expenses are about 10% of our net sales and a quarter of this is marketing and advertising costs. Transportation is the biggest chunk, and also power, CFO Ravi Sud said.

One important factor that impacted our net profit is an increased tax rate. Tax benefits for the Haridwar plant are coming to a partial end. Therefore, our tax rate went up from 16.5% to 27.5% this quarter, Sud added.

Hero, which split with Japanese partner Honda in 2011, has been aggressively developing its products and increasing global presence it has set a target of selling 1 million out of 10 million units in overseas markets by 2016-17. By March, Hero plans to have a presence in 20 new markets with at least four assembly operations globally.

The company has started despatching vehicles to Tanzania, Uganda, Burundi, Egypt, Ecuador and Bangladesh. In Tanzania and Uganda, Hero will set up assembly plants. It will also finalise a joint venture agreement in Colombia within the first three months of 2014 for a manufacturing unit to cater to the Latin American markets. In the first quarter of 2014, Hero will also enter Ethiopia, Turkey and Nicaragua.

Hero expects to commission its fourth plant at Neemrana by March end. This will take its annual production capacity to 7.6 million units from 6.9 million units today across its Gurgaon, Dharuhera and Haridwar plants. Its fifth plant in Gujarat, delayed by slow land acquisition, is scheduled to begin operations only by early FY16. Heros capex for FY14 stood at Rs 1,200 crore, which will rise to Rs 1,500-1,800 crore in FY15.

The Hero scrip closed 3.43% down on the BSE at Rs 1,999.75 on Thursday.