Hero Moto

Hero MotoCorp disappointed the street and all the analysts when it declared its numbers for Q3FY13. High costs and more spend on advertising pushed down the bottomline. As such growth was sluggish and these costs just added on. Net sales of India’s largest two-wheeler company was up 3% (YoY) at Rs.6151 crore. Total expenses rose 6% at Rs.5692 crore  and other expenses, including ad spend was up by a whopping 25% at Rs.625 crore.  Change in product mix and new launches together pushed up these costs. The company’s EBITDA margin, consequently shrunk from 15.6% to 12.59% (YoY). It ended the net profit with a net profit at Rs.488 crore, down 20% (YoY).

Though the ad spend dented margins and bottomline, it helped perk up sales which saw a 18% rise sequentially at 15.73 lakh units but YoY they remained flat, despite new launches like Maestro scooter, Ignitor and Glamour motorcycles. The company expects ad spends to remain high in Q4 too. It plans to launch 7-8 new products next financial year, which will include new launches, refreshes, new variants of existing models. It also maintains its target of achieving 1 million unit sales in international markets by FY17. It has begun construction at its Rajasthan plant, which is expected to become operational in H2FY14. It is yet to acquire land at Gujarat and that plant is scheduled for FY15. And once this too gets commissioned, it expects to have a production capacity of 8.4 million vehicles. One needs to also watch out for the tax rates from FY14 which will go up as benefits enjoyed at its Haridwar plant will expire this fiscal.