Shares in Hero MotCorp Ltd, India’s largest motorcycle manufacturer, gained as much as 5.4 percent in early morning trade after the company’s January-March profit beat street estimates.
The company’s results were above analysts expectations on strong operational performance. The profits were boosted by higher than expected margins which came in at 13.8 per cent aided by weak yen and falling costs despite a 5 per cent decline in motorcycle volumes.
Net profit for Jan-March quarter stood at Rs 574.23 crore versus Rs 603.59 crore in the same period last year as overall slowdown in volumes and intense competition took a toll on its profitability. The topline grew marginally to Rs 6,145 crore due to decline in volumes for the quarter.
According to Gautam Sinha Roy, VP – Equities, Motilal Oswal Securities, the company reported better than expected net profit driven by strong EBITDA margin. The strong beat in margin was due to higher realisation and lower RM costs.
“The company has re-launched all its premium segment bikes during this quarter. It has planned a capex of Rs 25 billion over the next 18-24 months to add new capacity in its two plants at Rajasthan and Gujarat. The total capacity addition will be ~2.2mn and take its total capacity to 9mn by end of FY14,” said Dolat Capital Market report.
“Also, it has entered Africa and Latin America. The recent underperformance makes it the best bet in the two wheeler segment. It is currently trading at 12xFY15E. We recommend Buy,” the report added.
At 12:30 p.m. the stock was at Rs 1,652.75, up 3.51 per cent, on the NSE. It touched a high of Rs 1,683.85 and a low of Rs 1,633.10 in trade today.