Hero Moto Beats Estimate, but Stock may Trade in Range
Better cost control helps co offset lower volume growth, single-digit growth in FY18 likely
ET Intelligence Group: Hero MotoCorp, India’s largest motorcycle maker, beat the consensus earnings estimate by a wide margin in the December quarter. Better cost control helped to offset lower volume growth. But, it may not help its stock to break the range-bound movement between ₹ 2,800 and ₹ 3,400 seen since October 2016 given the high volume base in the past which will restrict t h e ye a r- o n - ye a r growth rate in the coming months and a slower demand recovery in the rural market in the aftermath of demonetisation.
The company needs to report a sequential growth of 7.9% in the fourth quarter of the fiscal (March 2017), which means selling 15.9 lakh units more, to avoid reporting a year-on-year volume decline for the fiscal. It sold 50.4 lakh units in the first nine-months of FY17 and another 4.9 lakh units in January 2017. This means it has to sell 5.5 lakh units each in February and March. This will be an uphill task in a weak demandscenario.Analystsexpecta fall of 2% in volume for the current fiscal and a tepid growth of 5% for the next fiscal.
The company’s volume fell by 12% in the third quarter and dropped by 13% in January this year due to a slow recovery in the rural market. Amid lacklustre demand, the company has been focusing on cost control by implementing LEAPS programme.