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Hero MotoCorp’s performance in the quarter ended September 30, 2018 is on the same lines as the previous quarter, where the company recorded a lacklustre performance.
Following a single digit revenue growth, net profits fell by 3.5 per cent to ₹976 crore in the July-September 2018 period owing to cost pressures.
Margins shrink
While volumes for the company grew by 5.5 per cent during the quarter, revenue from operations grew at a higher 8.6 per cent, pointing to higher realisations.
A better product mix from the launch of the Xtreme 200R premium bike in September and higher export realisations due to the depreciation of the rupee could have partly helped the improvement in realisations.
However, this performance could not carry through to the bottom-line.
Soaring input costs, taxes
Raw material cost, as a percentage of sales, inched up from 67.3 per cent in the September quarter of last year to 70.4 per cent now.
As the company took price hikes to pass on this increase only from October 3, operating margin contracted by 220 basis points to 15.2 per cent in the September quarter.
While taxes too inched up by 11 per cent partly due to the expiry of excise benefits (CGST) for the Haridwar plant, it was a 90 per cent increase in other income that prevented the net profits from slipping sharply.
Market share slips
Hero has been facing stiff competition from Bajaj Auto in its core entry bikes (75 -110 cc) segment in the last two quarters.
For the six months ended September, Hero’s volumes in this segment grew only by 15.5 per cent, compared with the 59 per cent growth clocked by Bajaj Auto.
As a result, Hero’s market share in entry bikes for the first half of this fiscal has slipped to 72.6 per cent against 74.2 per cent registered in the same period last year.
Besides, though scooter sales have slowed so far this fiscal, Hero’s has fared worse than the industry, with its scooter sales volumes dropping by 12 per cent so far.
Line-up of launches
Given the rough patch the company is on, the Hero Moto Corp stock has lost 23 per cent so far this fiscal.
The festival season may offer some respite by bringing in higher volumes for the company.
Hero is strengthening its product mix with the planned launch of XPluse 200 as well as refreshes of its existing models in the executive/premium segments.
To regain lost share in scooters, the company will launch the 125 cc version of the Duet and Maestro Edge.
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