Hero MotoCorp reported an 11% decline in net profits for the first quarter ended June 30, 2013 due to declining sales and a higher tax burden from the expiration of a five-year tax exemption at its largest plant in Haridwar. While net sales fell 1.4% and domestic bike and scooter sales dropped 4%, profit before tax rose 2%. The company faces increased competition from Honda and Bajaj but plans new launches to coincide with the festive season and expand exports to Latin America. Analysts say the results were better than expected and performance could improve due to new launches and market expansion, though competition may intensify.

1. Hero MotoCorp Net Skids Again
Profits in June quarter slide11% to Rs. 548.6 crore after 5-year
tax holiday for Haridwar facility expires
Hero MotoCorp on Wednesday reported its fourth consecutive drop in quarterly net
profits. The country’s largest two-wheeler company was impacted by declining sales and
higher tax burden due to the expiry of a five-year exemption at its largest manufacturing
facility in Haridwar and levy of a new surcharge.
The company reported 11% decline in its net profit at Rs.548.58crore for the first quarter
ended June 30, 2013. Its net sales fell 1.4%to Rs. 6,127crore in Q1 from Rs. 6,247crore
of last year. Hero’s domestic sales of bikes and scooters dipped 4% during the quarter
to15.59lakh units from16.42lakh units sold in the previous year. However, profit before
tax rose 2% to Rs. 750 crore in the same quarter.
Hero MotoCorp’s profits have been consistently declining. It fell by 27% in the quarter
ended September 2012, 20% in the quarter ended December and 5% in the March
quarter.
Expiry of exemption on Hero Moto-Corp’s Haridwar plant, which churns out 35% of its
production, increased the company’s tax liability, impacting its bottom line. The
company’s tax liability increased to 26.9%in the quarter from16.3% in the
corresponding quarter of the previous year. The plant had enjoyed 100% exemption
from April 2008-March 2013.
The company said profits in the April-June period were also hit by the 10% surcharge on
income tax introduced in the budget.
Hero MD and CEO Pawan Munjal said, “Despite a marginal de-growth in our volumes
during the quarter and the overall economic downturn we posted the best ever profit
before tax that surpassed the previous as well as the corresponding quarter. Heavy and
early rains in June have slowed down the sales momentum a bit, but we are optimistic
about volume growth in the second half of the fiscal.”
The company is facing increased competition from Honda Motor Co and Baja j Auto
which are gaining ground in the Indian two-wheeler market. Hero plans new launches to
coincide with the festive season. “We are planning a product offensive in the next few

2. months with several refreshed versions. On the export front, after entering Central
America and Africa, we are now geared up for Latin American markets of Peru and
Ecuador in the month of August,” Munjal said. The company plans to bring in 10 new
products including refreshes of its existing product in the current fiscal.
“The company has posted good results that are better than my expectations. Going
forward, we expect better performance due to new launches planned by the company as
well as its foray into new export market,” says Mahantesh Sabarad, senior vice-president
of equity research at Fortune Securities.
Yaresh Kothari, research analyst at Angel Broking, said that fiscal performance in the
April-June quarter was in line with the expectations. “The company managed to perform
decently with regard to profits though the increasing competition from Honda would
make times tougher for the Hero MotoCorp,” he said.
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