Hero MotoCorp sees a bumpy ride in Q4

Automakers are facing the double whammy of rising input costs and subdued demand.

In response to battle the higher commodity costs, automakers are resorting to price hikes, which is further weighing on demand. 

Hero MotoCorp Ltd in its March quarter (Q4FY22) earnings call said that it has raised prices by Rs1,000 per unit in April which is over and above the significant price hike taken in FY22.

Note that in FY22, even as net realization rose by 11.2% year-on-year (y-o-y), it could only partially offset the y-o-y volume decline of 14.6% in FY22 with standalone revenue from operations falling by 5% y-o-y to Rs29,246 crore.

In Q4, net realization rose by 12.7% y-o-y led by price hikes, favourable mix and higher share of spare revenue.

But a fall in volumes by 24% y-o-y meant a decline in standalone revenue by 14.6% y-o-y to Rs7,422 crore.

However, cost savings program led to 17% y-o-y and 8% sequential rise in gross profit per vehicle to Rs19,172.

Nevertheless, increase in other expenses led to a drop in Ebitda (earnings before interest, tax, depreciation and amortization) per vehicle by 10% y-o-y and 6% sequentially. Ebitda margin fell by 279 bps y-o-y to 11.2%.

Going ahead, demand is likely to recover given the upcoming marriage season.

The management expects the industry to grow by double digits in FY23. True, there is a benefit from the low base in FY22.

In April, Hero MotoCorp's volumes rose by 12% y-o-y but declined by 7% sequentially.

Further, the rural market is likely to recover with the expectations of normal monsoon and rising exports of wheat amid geopolitical tensions.