Hero Motocorp cuts capex

Hero Motocorp has pared its capital expenditure for the current fiscal (financial year 202021, or FY21) to ~600 crore as the market leader seeks to cut costs and conserve cash amid the pandemic, the company’s management said in an investor call on Wednesday.

The capex reduction will be applicable in all areas including capacity expansion and renovation, except for research and development, the firm said. “Earlier, our projected capex for the current year was ~1,000 crore. We have rationalised it to ~600 crore for the current year,” said Niranjan Gupta, chief financial officer at Hero Motocorp.

Touching upon the demand scenario after easing of the lockdown, officials said the retail uptick has been very encouraging and Hero hopes to clock 80 per cent (volume) of what it was doing before the pandemic struck, in the current month.

This should be cut around 300,000-350,000 units as it had a monthly run rate of 500,000550,000 units before Covid-19, said Naveen Chauhan, head of sales and after-sales at Hero. Around 90 per cent of the company’s dealer outlets have resumed operations, he said.

On Tuesday, the firm posted a decline of 15 per cent in its standalone net profit for the March quarter (Q4FY20) compared to a year ago. Missing the Street estimates, it fell to ~621 crore in

Q4FY20 as against ~730.32 crore in the year-ago period.

The company’s management stopped short of any quarterly or full year guidance on volumes even as they said the ramp up of demand and supply had been more than satisfactory. Citing good crop output, and the prediction of normal monsoon Hero expects the rural economy to fare better than the urban. The region accounts for one in every two motorcycles sold by the firm. “It is early days to predict a trend, we will have to watch as we move forward,” said Chauhan. Hero Motocorp has potential growth tailwinds in the second half of FY21 from rural recovery and downtrading in motorcycles, said ICICI Securities in a research note on Wednesday.