Wednesday, December 30, 2015

HERO MOTOCORP: Riding through a challenging path

The Hero MotoCorp stock has been on a downtrend for most of 2015, losing about 20 per cent from a peak of Rs.3,212 recorded a year ago. With two-wheelers facing weak demand, the stock may not move up in a hurry. But it may still be a good bet from a dividend yield perspective. The company has always been a benevolent dividend payer, and has declared dividends consistently at least for the last 15 years. The dividend yield for 2014-15 stands at 2.35 per cent.

Stuck in the rut

So far this fiscal, domestic two-wheeler sales volume has grown only by about 1.7 per cent, compared to the double-digit growth recorded by cars, trucks and buses. Lacklustre rural incomes due to factors such as erratic monsoons, low minimum support prices and tapering of rural job schemes, such as the NREGA, have impacted two-wheeler sales. With Hero MotoCorp having a big presence in bikes with up to 110 cc engine capacity that cater to rural demand, the company has seen a drop in sales volumes in this segment.

Scores well

However, the company has waded through challenging times reasonably well. For one, it has made further inroads into the 110-125 cc or the executive segment bikes (Super Splendor, Glamour and Ignitor), improving its market share in this segment by about 5 percentage points to 38 per cent now.

Higher realisations from these bikes, coupled with low input costs, have helped — for the half year ended September 2015, it recorded a 14.8 per cent growth in net profit to Rs.1,522 crore.

It has also kept the interest going through periodic new launches and refreshments, such as Splendor Pro, Splendor iSmart, Maestro Edge and Duet. The Seventh Pay Commission award also bodes well for two-wheeler demand

Like a few other domestic auto manufacturers in the listed space, Hero MotoCorp is also cash-rich and has cushion to navigate through slowdown years without skimping much on dividends.

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