In the fast-paced world of motorcycles, there’s a name that has long been synonymous with innovation and excellence. And that is none other than Hero MotoCorp. But in recent years, a shadow of uncertainty has crept over this iconic brand. It left enthusiasts and investors alike questioning its trajectory. Is Hero MotoCorp declining?
Join us as we uncover the secrets behind Hero MotoCorp’s journey so far. And the exciting paths it may take in the future!
(A) The story so far: Is Hero MotoCorp declining?
First of all, let’s look at the following data-
|July Sales||12% decline (3,91,310 units).|
|Stock Performance (July)||3% dip|
|August Sales||4.93% YoY Increase|
|Total: 4.89 lakh units (motorcycles and scooters)|
|Domestic: 4.72 lakh units, 4.93% YoY increase.|
|Stock Performance (August)||5.6% boost in August|
|14% surge in 6 months|
|Decline Pattern||Ongoing fluctuation in sales and shares|
|2% share decline due to poor Q3 results|
|Future Outlook||Board meeting on Aug 10, 2023, for critical matters.|
|Overall Assessment||Sales and shares decline, recent dynamic surge|
Indeed, Hero MotoCorp, the renowned two-wheeler manufacturer, has encountered some turbulent times. In the recent month of July, the company witnessed a disheartening 12% drop in its total sales. This factor consequently led to a 3% dip in its stock prices.
This was not an isolated incident, as the company had previously grappled with a 2% decline in its shares, triggered by lackluster results in the third quarter.
(A.1) What do these fluctuations say?
These fluctuations hint at a concerning pattern for Hero MotoCorp, one that has left investors and enthusiasts on edge. Yet, amidst these challenges, a glimmer of hope emerged when the company’s shares experienced a welcome boost of 5.6% in August, courtesy of a noteworthy uptick in sales. But again, this is not consistent and is going through multiple ups and downs.
So, by now you might have got the answer to your question- Is Hero MotoCorp declining? The answer is “Yes! Hero MotoCorp is declining in terms of sales and shares.”
As we peer into the future, the company’s Board of Directors is poised to convene on the 10th of August, 2023, to deliberate and ratify a range of critical matters. While these developments paint a picture of a company facing adversity, they also tell a tale of resilience and determination in the face of daunting obstacles. Hero MotoCorp’s journey is one worth keeping a close eye on.
(A.2) Total Sales in July
Hero MotoCorp, one of India’s leading motorcycle manufacturers, has encountered a significant setback in its sales performance for the month of July. The company reported a 12% decline in total sales, with only 3,91,310 units sold compared to the 4,45,580 units sold during the same period last year.
(B) Factors Behind the Declining Trajectory of Hero MotoCorp
Now, let’s peep into the facts that led to the decline trajectory of the Automobile giant-
(B.1) Domestic Sales Plunge
The decline in sales is primarily attributed to a drop in domestic sales, which saw a substantial decrease from 4,30,684 units in July 2022 to 3,71,204 units in July 2023. This decline can be linked to various factors, with inclement weather conditions playing a significant role.
(B.2) Exports Buck the Trend
Interestingly, while domestic sales plummeted, Hero MotoCorp experienced a boost in its export figures. The company managed to export 20,106 units in July, compared to 14,896 units during the same month in the previous year. This suggests that the company’s international markets remain relatively robust despite the domestic setback.
(B.3) Weather-Related Challenges
Hero MotoCorp attributed the sales decline to unfavorable weather conditions, including heavy rains and floods in several parts of the country. These adverse weather events not only disrupted transportation and logistics. But also led to crop damage and a sharp reduction in customer footfalls at dealerships.
(B.4) Market Response
The news of the sales decline had an immediate impact on Hero MotoCorp’s stock prices. It caused a 3% drop to Rs 3,019 in early Wednesday trading on the Bombay Stock Exchange (BSE).
However, the drop in sales wasn’t the sole reason for the sudden drop in Hero MotoCorp stock prices in the market. What is the other reason? You may wonder.
The decline in stock price occurred amid ongoing legal and regulatory challenges facing the company. And what’s that? The raids by the Enforcement Directorate and investigations into alleged corporate governance issues and tax evasion.
For a deeper dive into the specifics, stay tuned as we venture into the next section.
(C) Hero MotoCorp faces share price decline amidst legal investigation
In a startling turn of events, Hero MotoCorp, India’s prominent two-wheeler manufacturer, faced a substantial drop in its share price. The prices plunged over 4% in August. The catalyst for this decline was the Enforcement Directorate conducting raids at the residence of the company’s chairman, Pawan Munjal. These actions were part of an extensive money laundering investigation.
As the news of the ED’s activities made headlines, Hero MotoCorp’s shares experienced a sharp 4.4% fall, settling at Rs 3,063.
(C.1) Investigation Origins and Previous Incidents
The investigation was initiated following a complaint from the Directorate of Revenue Intelligence (DRI) against an individual allegedly closely connected to Pawan Munjal. This individual had previously faced investigation for carrying undeclared foreign currency, and the DRI had even arrested Pawan Munjal at Delhi airport with foreign currency worth Rs 81 lakh.
Additionally, in March 2022, the Income Tax Department conducted searches at 25 locations linked to Hero MotoCorp as part of a separate investigation into alleged tax evasion.
(C.2) Pawan Munjal’s influence and associations
Pawan Munjal, at the helm of Hero MotoCorp, played a pivotal role in the company’s global expansion after its separation from Honda in 2011. Notably, he holds executive positions in two prominent industry bodies, the Confederation of Indian Industry (CII) and the Society of Indian Automobile Manufacturers (SIAM).
These recent events cast a shadow on the company’s operations and raise questions about its future amidst ongoing legal scrutiny. Hero MotoCorp, once an industry leader, now finds itself navigating turbulent waters with shareholder confidence hanging in the balance.
(D) What went wrong with its popular two-wheelers?
Hero MotoCorp was going through multiple challenges including a legal battle and decline in sales. Another factor that popped out was the issue with its two-wheelers.
Let’s look at the details one by one-
(D.1) Fierce Competition in the Scooter Segment
The journey of Hero Motocorp, the renowned two-wheeler manufacturer, has recently hit some speed bumps. One significant hurdle has been the fierce competition within the scooter segment. Here, Hero found itself in a tight race with other scooter manufacturers, and this intense rivalry took a toll on the popularity of their scooters.
(D.2) Battling Scooter Rivals
Hero, known for its motorcycles, had to contend with formidable opponents in the scooter arena. The competition was stiff, with other scooter brands vying for the attention of eager consumers. This competitive landscape put Hero’s scooters to the test, affecting their popularity in the market.
(D.3) Inventory Woes Amidst Bike Success
While Hero’s bikes basked in the limelight of popularity, overshadowing their other products, the company faced a different kind of challenge. High inventory levels became a thorn in Hero’s side. Despite dwindling demand, the company continued to flood dealerships with excessive stock.
(D.4) The Inventory Overflow Dilemma
The consequence of Hero’s decision to maintain high inventory levels was clear – dealerships became overcrowded with unsold two-wheelers. This not only strained the company’s financial resources but also created an unfavorable perception among potential buyers.
When you combine these factors – the cutthroat competition in the scooter market and the burden of surplus inventory – you get a clearer picture of the decline in popularity that Hero Motocorp’s two-wheelers have been facing. The road ahead for the company involves navigating these challenges to regain its foothold in the dynamic world of two-wheeler manufacturing.
(E) Balance Sheet Strength: Does Hero MotoCorp have debt?
Let’s dive into Hero MotoCorp’s financial situation.
Does Hero MotoCorp have debt? Yes! It is under a pile of debt! As of March 2023, the company had ₹3.13 billion in debt, a significant decrease from the ₹6.05 billion it had just one year earlier. But here’s where it gets interesting – Hero MotoCorp also had ₹40.4 billion in cash, leaving it with a net cash position of ₹37.2 billion.
(E.1) Assessing the Balance Sheet
Now, let’s take a closer look at Hero MotoCorp’s balance sheet. The latest data reveals that the company had ₹60.1 billion in liabilities due within a year, with ₹11.2 billion in liabilities falling due after that period. On the flip side, they held ₹40.4 billion in cash and ₹33.2 billion in receivables due within 12 months. Crunching the numbers means Hero MotoCorp had ₹2.19 billion more in liquid assets than it had in total liabilities.
(E.2) A Solid Balance Sheet
The big picture here is that Hero MotoCorp’s balance sheet appears robust. Its total liabilities are roughly balanced by its liquid assets, suggesting a stable financial position. While it might be hard to fathom that a company worth ₹598.6 billion is struggling for cash, it’s always wise to keep an eye on the balance sheet. In simpler terms, Hero MotoCorp has a net cash position, indicating it doesn’t carry a heavy debt burden.
(E.3) A Positive EBIT Growth
Adding to the favorable picture, Hero MotoCorp achieved a 21% growth in EBIT (Earnings Before Interest and Tax) in the past year. This growth bodes well for its ability to manage and eventually pay down its debt. While analyzing debt levels, the balance sheet is a crucial starting point. However, the company’s future profitability will ultimately determine if it can strengthen its financial position over time.
(E.4) The Significance of Free Cash Flow
Lastly, it’s important to consider free cash flow when assessing a company’s ability to handle debt. Hero MotoCorp may have net cash on its balance sheet, but what really matters is how well it converts its EBIT into free cash flow. Over the past three years, Hero MotoCorp generated free cash flow equivalent to 52% of its EBIT, which is a healthy figure. This indicates the company is in a strong position to manage its debt when necessary.
(E.5) What’s next? Is the financial position of Hero MotoCorp disappointing?
While we understand concerns about debt, Hero MotoCorp’s financial position is reassuring. With a net cash position of ₹37.2 billion and more liquid assets than liabilities, the company appears well-prepared. Furthermore, the notable 21% year-on-year EBIT growth adds to its financial strength. So, is Hero MotoCorp’s debt a significant risk? It doesn’t appear so. Remember, though, that assessing investment risks involves looking beyond the balance sheet and considering various factors in your investment decisions.
(F) Is Hero MotoCorp better than Bajaj Motors?
Now, here comes the most captivating segment of our discussion. After all, who can resist the thrill of a clash between automotive titans?
So, first of all, let’s look at the overall difference between the two automobile giants-
(F.1) Hero MotoCorp vs Bajaj Motors
|Particulars||Hero MotoCorp||Bajaj Auto|
|Headquarters||New Delhi, India||Pune, India|
|Key Products||Motorcycles and Scooters||Motorcycles and Three-wheelers|
|Market Share (India)||One of the largest in India||Significant Presence|
|Global Presence||Presence in over 40 countries||Exports to over 70 countries|
|Financial Performance||Fluctuating (Ups and Downs)||Strong|
|Innovation||Known for its fuel-efficient models |
and eco-friendly initiatives (e-scooters)
|Known for innovation in motorcycle |
Both the brands seem to be quite good and competent. That makes the judgment more complicated. Isn’t it? When it comes to comparing industry giants like Hero MotoCorp and Bajaj Auto, opinions vary widely. It’s a battle of the titans in the world of two-wheelers, and discerning who comes out on top is no easy task.
Note: When it comes to two-wheelers, you can never miss the success story of Royal Enfield. Although they aren’t as affordable as Hero or Bajaj bikes but still, they still drive folks crazy. Check it out for more details.
Returning to our discussion, let’s look at the opinions of the experts and analysts based on certain criteria-
(F.2) Efficiency and Sales Performance
Some analysts argue that Hero MotoCorp holds a slight edge in managing its inventory efficiently. They point to the company’s stellar sales performance as evidence of its prowess. Hero MotoCorp seems to have mastered the art of keeping its supply chain in check, ensuring its products reach consumers with precision.
(F.3) Valuation Debate
On the flip side, there’s another faction of experts who claim there’s little to no significant valuation gap between the two rivals. In fact, some boldly recommend Bajaj Auto over Hero MotoCorp, citing a host of compelling reasons. The valuation game is a complex one, with no clear winner in sight.
(F.4) Parity in P/E Ratios
One key factor favoring both Hero MotoCorp and Bajaj Auto is their similar P/E (Price-to-Earnings) ratios. This parity not only levels the playing field but also underscores their stability and attractiveness in their respective markets.
(F.5) Making the Choice: Is Hero MotoCorp better than Bajaj Motors or not?
Ultimately, the decision between Hero MotoCorp and Bajaj Auto isn’t black and white. It’s a nuanced process that hinges on a multitude of factors – personal preferences, financial metrics, and prevailing market trends.
Each company has its unique strengths, and the “better” choice can vary depending on your individual investment goals and the evolving dynamics of the automotive industry.
So, the debate continues, and the verdict remains a matter of perspective and strategy.
(G) Final Words: What is the future of Hero MotoCorp?
Despite these recent challenges, Hero MotoCorp’s stock has experienced a 14% surge in the last six months. Also, in August 2023, Hero MotoCorp sold a total of 4.89 lakh units of motorcycles and scooters. This sales figure includes both domestic and export sales. Domestically, Hero MotoCorp sold 4.72 lakh units, showing a 4.93% increase compared to August 2022.
This indicates a degree of resilience in the market. Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) have a different view. They suggest that the stock may be in a volatile phase.
In an effort to rebound from this setback, Hero MotoCorp is gearing up for new product launches in the upcoming festive season. Additionally, they plan to introduce attractive finance schemes to stimulate market demand in the coming months.
As Hero MotoCorp navigates through these turbulent waters. It remains to be seen whether its strategies for recovery will steer the company back on the path or not.
Anticipation runs high as we eagerly await its meteoric rise to success!