Jul-Sep results of industry leaders give mixed signals
Hero witnessed a surge in sales of its entry-level motorcycles in the rural and semi-urban markets after the lockdown measures were relaxed, helped by bountiful rain, a good summer crop, increased government spending and a shift towards personal mobility during the pandemic.Updated: Oct 29, 2020, 07:53 IST
Hero MotoCorp Ltd, India’s largest two-wheeler maker, reported a robust recovery in demand in rural and semi-urban markets after the government eased the nationwide lockdown.
Net profit rose 8.9% from a year earlier to Rs953 crore for the September quarter. Two-wheeler sales rose 7.7% to 1.82 million units, a more than threefold jump from the 565,000 units sold in the preceding quarter.
The New Delhi-based company generates around 60% of its total sales from the rural market, and its performance is considered a proxy for consumption trends in rural India.
Hero witnessed a surge in sales of its entry-level motorcycles in the rural and semi-urban markets after the lockdown measures were relaxed, helped by bountiful rain, a good summer crop, increased government spending and a shift towards personal mobility during the pandemic. “The earnings in the second quarter of FY21 reflects a strong performance, signalling a gradual revival from the negative impact of the global pandemic. The challenging economic environment is headed for a recovery on the back of various initiatives by the government, especially those directed towards rural and semi-urban regions of the country,” said Niranjan Gupta, chief financial officer, Hero MotoCorp.
Investors are optimistic that Hero will benefit from a shift in demand towards entry and executive segment motorcycles due to the faster recovery in sales in the rural areas and growing consumer preference for personal mobility during the covid pandemic.
The surge in sales has helped the company wrest market share in two-wheelers from rivals Bajaj Auto Ltd and Honda Motorcycle and Scooter India Pvt. Ltd.
“Based on early estimates, we expect the momentum to continue into the festive season, which has started well for us,” added Gupta.
The recovery in demand to pre-pandemic levels, resumption of supply chain and logistics, cost and cash management, along with judicious price increases, has helped deliver profitability, he said.
In the corresponding period last fiscal, the company had reported a profit of Rs874.80 crore. Hero beat analysts estimates in a Bloomberg survey, which pegged September quarter revenue at Rs8,763 crore.
Net profit was in line with the Rs964 crore estimate in the survey. The rise in Hero’s sales during the quarter points to a faster turnaround in the rural economy. Hero reported a 16% year-on-year rise in domestic wholesales for September to 697,293 units. Dispatches in August and July were 568,674 units and 514,509 units, respectively. Hero resumed operations at its Haryana and Uttarakhand plants from 5 May, selling just 120,000 units in the month.
With a quicker rebound in rural sales, revenue from operations in the September quarter grew 23.6% to Rs9,367crore.
Aided by the sharp growth in revenue, the operating profit, or earnings before interest, taxes, depreciation and amortization, climbed 16.8% to Rs1,286 crore.