Hero MotoCorp logged 10 per cent year-on-year growth in profits in the first quarter of the current fiscal, underlined by a 7 per cent volume growth. Though volume growth was below the 10 per cent average industry growth, Hero’s strong foothold in the 75-125 cc bikes and its presence in the scooters segment helped it beat rivals.

Also working in Hero’s favour was higher fuel costs and interest rates, which pushed consumers to downtrade into lower segment bikes.

Price hikes, stabilisation in raw material prices and lower advertisement spend during the quarter helped Hero to improve its operating margin to 15 per cent. Margins for the year-ago period stood at 14.6 per cent. However, if monsoons are deficit, it could dampen rural demand and affect Hero’s growth in the next quarter.

Reliance Industries rescued by refining

Buoyed by higher profit growth of 27 per cent in the refining segment, Reliance Industries posted a 5.6 per cent growth in its net profits in the June 2012 quarter compared to the March quarter.

The refining segment’s operating margins too improved to 2.5 per cent in the June quarter, from the 2.2 per cent in the previous quarter.

This good performance made up for the poor show put up by the petrochemicals segment.

On a sequential basis, the petrochemicals segment registered a 19 per cent fall in profits. Performance by hit by lower sales volumes across most products; operating margin fell to 8 per cent in the June ’12 quarter from 10.2 per cent in March.

The oil and gas segment also grew sequential profits by 2.2 per cent. Here, despite falling production in the KG-D6, and Panna-Mukta and Tapti fields, operating margin expanded from 36.5 per cent to 38.8 per cent. Lower depletion charges aided the expansion in profits and margin.

‘Other income’ fell 17 per cent sequentially, contributing 35 per cent to profits before taxes in the June quarter, well below the 42 per cent for the March ’12 quarter. Still, this segment remains the second largest contributor to profits after the refining segment.

A sharp 20 per cent dip in tax outgo due to deferred tax credit also helped the company post profit growth at the net level.

Effective utilisation of its huge cash-chest (Rs 70,732 crore) and material progress in the key oil and gas business are important factors that could bring a a turnaround in Reliance’s fortunes.

Mixed bag for Dr Reddy’s

Dr Reddy’s clocked a strong revenue growth of 28 per cent, backed by good performances in India and Russia. US revenues grew at a slow 10 per cent in dollar terms due to severe pricing pressures, besides losses on forex hedging on receivables.

India formulations grew at 19 per cent , on the backs of volume growth across key products.

Also driving growth were ten product launches and better field force productivity.

Net profits grew 13 per cent, though this growth was largely due to lower taxes, (at a rate of 9.8 per cent instead of the effective rate of 18 per cent) on account of unrealised profit on the shipments to the US market.

(This article was published in the Business Line print edition dated July 22, 2012)
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