Hero MotoCorp: Steady ride

India’s largest two-wheeler maker Hero MoroCorp has decided to ramp up its production facility on hopes of demand revival in the near term. The company’s management expects a demand pickup, especially from the rural markets, as the government slowly easing the lockdown measures.

The New Delhi based manufacturer has also decided to reduce capex by 40% to Rs 600 crore for the current fiscal, as part of its cost cutting exercise.

It is also being aggressively approached by the Non Banking Financial Companies (NBFCs) for funding two-wheeler buyers as the lower tenure loans are considered safe.

As of now retails has been chasing the production. The rural and semi urban market are showing signs of a pick-up due to a good harvest and benefits of the financial package.

Hero MotoCorp plans to increase production to more than 4 lakh units in June. The company produced just 1.12 lakh motorcycles and scooters last month after restarting production from May 4.

The company reported a 15% on year decrease in net profit to Rs 620.71 crore, for the quarter ending March 31, as a result of a significant decline in retail sales in March, due to the adverse impact of the Covid -19 pandemic and the subsequent lockdown measures imposed the by the centre and states to contain the spread of the virus.

Net sales during the period decreased by 20.88% on year to Rs 6238.39 crore as a consequence of 25.71% drop in vehicle sales to 13.23 lakh units.

It’s operating profit slumped 38% from the year-ago quarter. Operating profit margins dropped three percentage points from the year-ago to 10.6%, the lowest in recent times. Hero MotoCorp saw one-time expenses and provisions.

On the positive side, the company is making efforts of trimming costs, rationalising capital expenditure and launched initiatives to improve productivity will help it tide over pandemic endured disruptions.

Also, all its manufacturing plants and vendors have resumed operations. The company started dispatching vehicles to retailers in May, and with enquiries from customers on the rise, volumes are likely to improve gradually.

Hero MotoCorp’s rural exposure, large presence in the economy and entry-level motorcycle segments are also seen as an advantage. Hence net net we expect improvement in overall volumes and performance going ahead from from the H2 of FY21 onwards and a full normal recovery in FY22.

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