Like most of the auto companies in India, Hero Moto has also been under strain due to weak demand and a willingness to postpone purchases in the light of rising oil prices. That has already hit the prices in the last year and we are now seeing the impact on profits too.

How Hero Moto performed in the fourth quarter March 2019?

For the March quarter, Hero Moto faced pressure on the top line and the bottom line. The revenue from operations for Hero Moto fell by 7.92% to Rs.7885 crore while the net profits in the fourth quarter fell by 25% to Rs.730 crore. Even if one were to look at the number of units sold in the March quarter, it was sharply down from 20 lakh units to just 17.81 lakh units. There is clearly volume pressure on the auto market and that is also showing in the form of rising inventories of dealers. The operating profit margin of Hero Moto fell from 16% to 13.5%, and even on a full year basis the company reported a fall in profits.

Is it worth buying Hero Moto at current valuations?

That could be a tricky question as it could involve a long waiting period for investors. At the current market price of Rs.2,598, Hero Moto is trading close to its yearly lows and prices have already factored in a fall in revenues and profits. In terms of P/E ratio, the stock is quoting at less than 15X P/E on rolling earnings but the challenge is the growth numbers going ahead. The company has also guided for pressure on auto demand in the coming quarters but does expect some traction in the festival season. The only good thing is that the company is offering a dividend yield of 4% and that should ensure that price rises from these levels should be limited. One can play for the dividend yield story; not such much for a growth story. Upside potential is limited on the stock.