PL First Cut - Hero MotoCorp [HMCL IN|

PL First Cut – Hero MotoCorp [HMCL IN| - *Himanshu Singh – Research Analyst, Prabhudas Lilladher Pvt Ltd*

Hero MotoCorp [HMCL IN| TP: INR3,460 | ACCUMULATE]

First Cut 1QFY24 results – strong improvement in margins

Standalone revenue grew by c5% YoY to Rs. 87.7bn and came below our (Rs. 89.3bn) and Bloomberg consensus estimates (BBGe) (Rs. 89.6bn). Standalone EBITDA margins at 13.8% (+255bps YoY and +c70bps QoQ) were higher than our (12.7%) and BBGe (13.2%). Gross margin was lower QoQ 140bps but came higher than our expectation, while strong control on other expenses helped increase the margin beat, employee cost came largely in line (HMCL has taken a one-off charge of Rs. 1.6bn for VRS). Higher than expected other income and lower depreciation expenses aided the beat on adj PAT versus PLe by c15% and vs BBGe by c8%.

Management commentary

“Driven by softening of commodity costs, accelerated savings programs, and judicious price increases, EBITDA margin for the quarter stood at 13.8%, reflecting an improvement of 250 bps. The underlying EBITDA margin for ICE Business stands at 14.5%, excluding the impact of EV business.”

“Hero MotoCorp expects the momentum to build-up in the coming quarters on account of favorable economic indicators and positive consumer sentiments.”

“Overall, we see a positive scenario on demand side, especially for second half of this year and onwards”

“The singular focus as we move ahead will be growth and market share.”

PL View:

Strong performance on the margins side, with ICE business reaching pre-covid margins of 14.5% in 1QFY24. Commentary by the management on demand is strong and they expect 2H growth to be better than 1H, also the commentary over focus on market share and growth has become more aggressive from management’s side. The only pain point from the results would be the negative impact from the EV business which the company is looking to scale up aggressively in the coming quarters. The EV segment has shown a pretty significant loss at EBITDA level (loss of Rs. 570mn) which is likely higher than the revenues from the EV portfolio, as per calculation, which we need to investigate. Also, after the slow first quarter and commentary on strong demand only from 2HFY24, we need more clarity over the earlier guidance of double digit revenue growth for FY24. The call is scheduled for tomorrow at 11:30 AM and we will circle back with more details post that.

Standalone Financial performance vs PLe:

Revenue grew YoY by 4.5% to Rs. 88bn, and QoQ by 5.5%, and a miss vs PLe by -1.8%

EBITDA grew YoY by 28.2% to Rs. 12bn, and QoQ by 11.4%, and beat PLe by 6.8%

APAT grew YoY by 57.7% to Rs. 10bn, and QoQ by 14.6%, and beat PLe by 19.5%

EBITDA margin expanded YoY by 255 bps to 13.8%, and QoQ by 72 bps, and expanded PLe by 111bps

Revenue per unit grew YoY by 7.4%, was flattish QoQ by -0.9%, and a miss vs PLe by -1.8%

EBITDA per unit grew YoY by 31.8%, and QoQ by 4.6%, and beat PLe by 6.8%