Hero MotoCorp Q3FY22 Preview: Profit likely to decline up to 40% YoY amid weak demand; brokerages say

Auto major Hero MotoCorp is scheduled to announce muted third quarter earnings of the financial year 2021-22 (Q3FY22).

Auto major Hero MotoCorp is scheduled to announce muted third quarter earnings of the financial year 2021-22 (Q3FY22). Most of the analyst estimate the company to report negative year-on-year growth in top and bottom line, while the margins may see massive contraction during the quarter.

According to Motilal Oswal’s expectations, the adjusted profit of the company to slip by over 35 per cent to Rs 701 crore in Q3FY22 as compared to Rs 1084 crore in the same quarter a year ago, and revenues to decline by almost 21 per cent year-on-year to Rs 7744 crore in December-end quarter.

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In its commentary, the brokerage house said, “Very weak volumes may impact the performance of the company, however, price hikes and cost-cutting to dilute the overall impact.” It added, “RM cost inflation weighs on adverse operating leverage and EPS downgrades due to weak demand.”

Similarly, another brokerage firm ShareKhan sees the third quarter EBITDA margins of the company contracting by 326 basis points to 11.2 per cent from 14.5 per cent YoY. It also estimates that the profit to fall by almost 41 per cent YoY to Rs 641 crore during the quarter.

Similarly, the revenue of the company to come at Rs 7722 crore, down 21 per cent YoY, the domestic brokerage house points out in its results preview.

In its report ShareKhan said, the automobile companies expected to perform moderately in Q3FY22 with average decline in revenue of 2.2 per cent YoY, led by semiconductors shortage globally and weak festive season and retains a positive view, driven by expected volume recovery across sector.

Despite mute earnings expectations, both the brokerage houses see potential growth in the stock price of the company, as Motilal Oswal suggests to Buy Hero Moto shares for target price of Rs 2875 per share, 16 per cent upside and ShareKhan also advices to Buy for Rs 4030 per share target.

The shares of Hero MotoCorp closed over 2 per cent higher to Rs 2782 per share on the BSE, as against over 1 per cent rise in the S&P BSE Sensex.

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