Hero MotoCorp Q2 Results Review - Festive Spirits To Drive Demand Recovery: Motilal Oswal

Motilal Oswal Report

Hero MotoCorp Ltd.’s Q2 FY22 performance was broadly in-line, as QoQ volume recovery and commodity costs benefits supported margin recovery.

The company has recorded a 20% retail sales growth over the 32-day festive season and the demand momentum is expected to continue, led by the season.

Hero MotoCorp's revenue/Ebitda/profit after tax grew 7%/-3%/-10% YoY to Rs 90.75 billion/Rs 10.4 billion/Rs 7.2 billion, respectively, in Q2 FY23. The same grew 25%/25%/16% in H1 FY23.

Net realisations grew 8% YoY to Rs 63,500 (versus estimate Rs 61,600), driven by price hikes and better mix. Volumes were flat YoY (up 3% QoQ).

Gross margins expanded 30 basis points YoY (80 bps QoQ) to 28% (versus estimate 29.2%), driven by lower commodity costs (QoQ), price hikes, and better mix.

However, higher other expenses due to increase in marketing spend ahead of the festive season diluted the benefit of gross margin expansion, leading to Ebitda margins improving by just 20 bps QoQ to 11.4% (versus our estimate 11.6%).

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