India's Hero MotoCorp misses quarterly profit view on rising costs

What happened

Hero MotoCorp's second-quarter profit after tax was 14.56 billion rupees, below the 15.22 billion rupees analysts expected, as expenses rose to 129.42 billion rupees from 105.06 billion a year earlier. Revenue rose 21% and vehicle sales rose 10.5%.

Confirmed

Global impact / market context

Higher costs for steel and copper, which are raw materials, can shrink the profit Hero keeps on each sale even when demand and revenue grow. That cost pressure can reduce cash generated for new products just as rivals report stronger profits.

Analyst inference

Hero's profit miss stands out because rivals Bajaj Auto and TVS Motor posted bigger-than-expected profits this week. Analysts expect sales growth to slow in the fiscal second half due to a high year-ago base, which means the comparison with last year becomes harder.

Analyst inference

What to watch

1. Hero approved an additional investment of up to 3 billion rupees in its Netherlands subsidiary to grow its global business, which could affect future capital spending plans. Confirmed
2. Analysts warned sales growth is expected to moderate in the second half of the fiscal year, despite resilient underlying demand, because the year-ago comparison base is high. Confirmed
3. Watch Hero's costs per vehicle and any price increases; if raw material prices stay high, profit per sale could stay compressed even if vehicle sales keep growing. Analyst inference

Evidence

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