Hero Motocorp sold more bikes in second quarter and that will aid revenue growth — but profit may remain under pressure

• Hero Motocorp will announce its second-quarter results tomorrow (October 28) for the quarter ending September 30.
• The company sold 7.3% more bikes in the second quarter compared to the same period last year.
• According to analysts, an average 4% profit growth is likely in the second quarter.

Hero Motocorp will announce its second-quarter results tomorrow (October 28) for the quarter ending September 30. According to an ICICI Securities report, Hero is likely to see robust revenue growth on the back of strong volumes. The company sold 7.3% more bikes in the second quarter compared to the same period last year.

Here’s what brokerages expect from Hero Motocorp in second-quarter:

Despite the strong demand for its bikes, IIFL expects its profit after tax to decline at least 6.3%. However, brokerages remain divided over its earnings performance expectations. On average, the company is slated to see at least 4% profit growth in the quarter.


High commodity prices to tighten the profit growth, despite strong revenue growth

According to IIFL Securities, a sudden spike in some commodity prices will keep its profit growth low in the second quarter. While the company did make certain changes in its price range, according to analysts, that may not be enough.

“To partially offset the rising input costs and commodity prices, the company has made an upward revision in the ex-showroom prices of its motorcycles and scooters by up to 2%, with the exact quantum varying on the basis of the model and specific market. The revised prices are effective from October 1, 2020,” the two-wheeler maker said in its September month sales report.

Hero is in a sweet spot compared to it other two-wheeler peers

However, despite the rising cost, Hero Moto’s earnings will still be better than other peers. According to Motilal Oswal, Hero has always been in a sweet spot throughout the pandemic compared to its other two-wheeler peers. The strong rural-led recovery plays to its strength in the economy–executive category in the motorcycles segment.

Hero has the largest share in the rural market, and that led to a quicker growth than its peers. The biker maker holds a 59% market share in the 100cc economy segment.

“With an apt product portfolio for the rural market, the highest brand recall, and a strong distribution network, it is best placed to benefit from low penetration and ongoing momentum in the rural economy,” the Motilal Oswal report said.

Hero Motocorp’s share price reflects investor optimism and recovery trends. It has gained over 17% since the beginning of the second quarter.

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