Hero Moto

The market was disappointed with the Q3Fy15 performance of Hero Motocorp as it fell below estimates. Its net profit for the quarter rose 11% (YoY) at Rs.583 crore while total income was down 0.5% at Rs.6839 crore. What really dented the numbers was the fall in demand but more importantly, its operating costs soared on account of global brand building strategy for which it had roped in Tiger Woods as its global partner. Employee costs soared 30% while other expenses rose 9%. What is worrisome is that the sales were so tepid that it was not able to offset this Tiget Woods, one-time expense.

Consequently, operating profit fell 8.5% at Rs.822 crore and margins fell 105 bps at 12.02%. Demand did take a beating as the company concentrated on maintaining realization as same levels. In fact sales have been showing a cooling down since November. Hopefully, in the coming months, sales will show signs of picking up and it would have enough volumes to bear such big marketing expenses. Competition is heating up with others – Bajaj and TVS also hiking up their marketing spend. Thus coming months will show whether Hero would be able to beat competition or not.