Hero MotoCorp saw tax outgo declined 91% due to; shift to new tax regime and realignment of excess provisioning due to lower financial year 2020 profits.

Automobile giant Hero MotoCorp reported a 15% on-year fall in profits after tax in the January-March quarter, below expectations owing to the BS-4 inventory clearance and the nation-wide lockdown. Hero MotoCorp, the motorcycle and scooter manufacturer which is among the largest two-wheeler manufacturers in the world, saw sales decline 21% from the previous year as a result, EBITDA margins declined by close to 300 basis points on-year basis to 10.6%. The recovery for the company is largely expected to be driven by demand from rural India and the expected increase in demand for personal transport in urban India. With a 50% surge in stock price from March lows, should investors buy the stock now?

Hero MotoCorp saw tax outgo declined 91% due to; shift to new tax regime and realignment of excess provisioning due to lower financial year 2020 profits. But sales figures took a hit due to imports from China and then the coronavirus aided lockdown. “HMCL’s business was impacted from lockdowns and import disruptions from China for January-February for its BSVI parts supplies and then closure of all its facilities in March,” brokerage and research firm ICICI Securities said. Hero MotoCorp said that revenues for the March quarter would have been Rs 7,400 crore and underlying EBITDA margin could have scaled up to 13.5% if not for the coronavirus related impacts.

Other expenses for Hero MotoCorp were higher than estimates and flat on-quarter in rupee terms despite a 13.4% decline in volumes from the previous quarter. This may include some COVID-19 related costs not mentioned by the firm, according to Brokerage firm Motilal Oswal. : The stock trades at 19.8x/16.2x FY21/FY22E EPS. Dividend paid out by the firm in the last fiscal inched up to Rs 90 per share, up from Rs 87 per share from the previous year.

ICICI Sec has revised their earnings estimates for the next two fiscal years down 4.9% in financial year 2021 and down 2.8% in financial year 2022. PAT is expected to decline 8.8% in the next fiscal before recovering and growing by almost 1% in the financial year 2022. “We like the stock, however, the recent rally (~50%) has minimized our valuation comfort. We cut our EPS for FY21E/FY22E by -8.8%/0.8%, respectively, while maintaining our target multiple at 15x FY22E EPS,” analysts at ICICI Securities said while downgrading the stock from an ADD rating to a HOLD rating with a target price of Rs 2,268 apiece. Motilal Oswal has a BUY rating on the scrip but has refrained from a target price.