Even before Hero MotoCorp Ltd announced its June quarter (Q1 FY20) results, the stock tanked 6.1% to ₹2,258.80, close to its 52-week low on the National Stock Exchange. As expected, the results were weak, in line with the 12.5% year-on-year drop in sales volume, announced earlier this month
Margin pressures along with the 9% drop in net sales led to a steep 16% fall in Ebitda to ₹1,158 crore. Ebitda stands for earnings before interest, tax, depreciation and amortization.
Two-wheeler demand has borne the brunt of the economic slowdown and cost pressures due to regulatory changes. According to Pradesh Jain, executive vice president at Yes Securities Ltd, “Increase in cost of ownership is likely to delay demand recovery. From the time insurance was hiked for vehicles till BS-VI emission norms come into force, the cost of owning a two-wheeler will increase substantially, which is bound to hurt demand."
This is what has taken the Hero MotoCorp stock downhill. On the back of falling sales and profit margins, consensus earnings per share estimate on the Street have fallen from ₹227 for FY21 to ₹181 in the past year. So, the 30% drop in share price over the period is not surprising.
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