News Analysis

Hero MotoCorp: The smooth ride continues

Paravatha Vardhini C BL Research Bureau | Updated on January 09, 2018 Published on November 01, 2017

Hero MotoCorp has continued the good run of the June 2017 quarter in the September quarter as well.

While off-takes remained lacklustre until April after the demonetisation last November, a bounce back in demand in the two months that followed helped the company record an overall volume growth of 6.2 per cent in the April- June 2017 period (over the same period in 2016).

The onset of the festival season during the July-September period as also the price cuts initiated by GST helped volumes grow in double digits — at 11 per cent — in the three-months ended September 2017. Sales growth kept pace with volume growth, with the company recording an adjusted (for GST accounting changes) net sales growth of 11.5 per cent to ₹8,362 crore in the reporting quarter. Even as raw material costs as a percentage of sales inched up by about two percentage points, cost control efforts cushioned the operating margins. It came in at 17.4 per cent, a tad below 17.5 per cent achieved in the year ago period. Lower other income and higher taxes however, kept profit growth in check. Profits grew by just 0.6 per cent to ₹1010.5 crore.

Outlook

Strong rural demand following good monsoon, the Seventh Pay Commission payouts and lower borrowing costs will continue to aid volumes for Hero MotoCorp. Even as executive/premium bikes have been getting more popular with customers, Hero’s market share in entry bikes in the last five years moved up steadily from 66 per cent to 75 per cent. Strong brands such as Dawn, Deluxe, Splendor and Passion and their wide footprint in the more price-sensitive rural markets have helped the company do well.

Hero is also strengthening its presence in the fast growing scooter and higher segment bikes. Three new scooters are expected to be launched over this fiscal and next. While the refreshed Achiever, a bike in the 150cc segment was launched last year, a new 200cc bike is on the cards too.

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