Hero MotoCorp Ltd Q1 FY23 Result Updates. Input cost pressures to impact performance.

Hero MotoCorp Ltd Q1 FY23 Result Updates.
Input cost pressures to impact performance.

Hero MotoCorp Ltd reported a net profit of Rs. 624.5 crores, increased by 70.9% YoY from Rs. 365.4 crores and down by 0.4% QoQ from Rs. 627.1 crores. The net profit margin came at 7.4%, up by 78 bps YoY and down by 101 bps QoQ.
The total income stood at Rs. 8392.5 crores as compared to Rs. 5487.1 crores up by 53% YoY and 13.1% QoQ from Rs. 7421.7 crores. Gross margin for the quarter is 27.2%, down by 24 bps YoY and 348 bps QoQ.
The Earnings before interest, tax, depreciation and, amortization is at Rs. 940.8 crores as against 514.8 crores in June 2021 and 827.6 crores in the March quarter.
Q1FY23 numbers are below estimates largely due to input cost pressures, which expect to cool-off in the subsequent quarters owing to softening of commodity prices.

Domestic market share improved.

QoQ domestic motorcycle market share improved by 425bps to 51.8% and scooters share improved by 60bps to 6.7%. This is driven by premium xTec series, healthy marriage season & rural uptick. Export demand is facing headwinds due to currency depreciation & geopolitical conditions.
Two wheeler demand is on a healthy trajectory supported by normal monsoon & opening up of all sectors in the economy. Hero MotoCorp’s Q1 retails were better than wholesales. The underlying demand is good and the momentum is in the right direction. The company launched various models in xTec series; this along with future launches should help improve the market share in scooters and motorcycles. xTec series prices are 7-10% higher than base models, the demand for these models are better than anticipated.
July sales were lower as some variants were facing chip issues. Normal inventory level is 6-8 weeks, and by the end of June, the inventory was 6-7 weeks. On scooters, it launched Destini 125cc xTec model with good features and has been doing well. Export demand is facing some headwinds due to currency depreciation & geopolitical conditions . The demand for xTec series is healthy despite 7-10% higher prices.
Employee cost inched-up by 13% QoQ due to salary revision (higher increments than previous years) and bonus. Some part of it will moderate. No major cost impact expected due to OBD2. Other income declined sharply due to MTM loss of Rs 600mn. Blended realization dropped QoQ by 3% due to lower sales from spare parts, lower other operating income (Rs 1.09bn in Q1 vs. Rs 1.86bn in Q4) and expiry of Neemrana plant benefit. The core realization improved by Rs 800 QoQ due to price increase and better mix. QoQ drop is mostly due to seasonality.

The shares of Hero MotoCorp Ltd are trading at Rs. 2802.25, down by 0.15%.

Valuations:
The return on equity (ROE) is 14.4% for the quarter ended June 2022. The price-to-earning (P/E) ratio stood at 21.2. The return on capital employed (ROCE) for the company is 18.6%. The price to book value of Hero MotoCorp Ltd is 3.55. The EV/EBITDA is 13.3. EPS during the quarter came at Rs. 133.