NEW DELHI: Hero Motocorp Ltd— India’s largest maker of two-wheelers—reported a significant 25.5% fall in net profit to ₹730 crore for the quarter ending 31 March, indicating tepid rural demand and an overall slowdown in the economy in the run-up to the April-May general elections.
Net profit in the corresponding period a year ago stood at ₹967 crore.
Retail sales of two wheelers came under severe pressure in the second half of fiscal year 2019 (FY19) due to factors like increase in third party insurance cost, lack of credit finance and falling income in the agriculture sector due to decreasing commodity prices and inadequate rainfall in certain parts of the country.
As a result, most two-wheeler manufacturers had to enforce production cuts.
Total vehicle sales of the company decreased 11% y-o-y to 1,781,160 units as unsold stocks at dealerships soared across the country, prompting the company to offer increased discounts.
In turn, net sales or the revenue during the period decreased by 7.9% to ₹7,885 crore from ₹8,564 crore in the year-ago quarter.
The Delhi-based manufacturer could not beat the Bloomberg estimate of its net profit pegged at ₹746 crore and but managed to beat net sales estimates pegged at ₹7,764.2 crore.
As the company had offered huge discounts and cut production during the quarter, its operating profit—or earnings before interest, taxes, depreciation and amortization (Ebitda)—declined by 21.9% to ₹1,069 crore from ₹1370.5 crore a year ago.
Operating margins during the quarter contracted by 240 basis points to 13.6% from 16% in the year ago period.
According to Pawan Munjal, chairman, Hero MotoCorp, while the near-term prospect of the domestic two-wheeler market is likely to remain challenging, the festive season however is expected to brighten sentiment and revive growth in the second half of FY20.
“We remain committed to creating sustained value for our stakeholders. It is a testimony to our grit and resilience that we registered record sales of 7.8 million units during the fiscal year, amidst a sluggish market scenario in several geographies and maintained our leadership amid challenging market environments,” said Munjal. We also gave shape to our vision of creating multiple hubs of research and development excellence by setting-up our first international technology center in Germany,” he added.
As sales during the quarter continued to decline, stocks at the dealerships stood around 90 days to 100 days. Rural markets have been under pressure in the second half of the FY 19 as result of the distress in the agriculture sector. Sales from the rural market comprise around 55% to 60% of the total sales of the company.
For the fiscal year ending March 31, the net profit of the company decreased by 6.8% to ₹3,466.35 crore while revenue increased by 2.36% to ₹33,650.5 crore.