Companies

Hero MotoCorp rides on robust volume growth

Parvatha Vardhini C. | Updated on March 12, 2018

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Lower dependence on financed purchases and robust rural incomes have kept two-wheeler sales ticking even as volume growth in other segments have moderated in recent months.

This trend has played out in favour of Hero MotoCorp in its second quarter financials. Thanks to a healthy 20 per cent volume growth coupled with price increases taken in end-July, the company has recorded a strong year on year top-line growth of 28 per cent in this period.

Raw material

A couple of other factors have favoured Hero at the operating level. First is an easing up of raw material prices. From about 75 per cent in the September 2010 quarter, raw material costs as a percentage of sales now stand at about 73.5 per cent.

Royalty factor

The other factor is the changed accounting treatment for royalty since Q4 of last year. Royalty for existing products, which were earlier expensed off is now treated as a licence fee and amortised. These two have had a beneficial impact on the operating margins, which have expanded to 15.7 per cent from 13.3 per cent a year ago.

Consequently, depreciation shows a huge leap to Rs 278.5 crore in July-September 2011, up from Rs 60.7 crore in the second quarter of last year.

Strong Volumes

Going forward, given the ongoing festival season, volumes could continue to grow at a brisk pace. After taking a beating in its market share in its core 125-250 cc segment bikes in the last two years, Hero has already regained some lost ground.

In the first six months of 2011-12, the company has improved its market share to 73 per cent (70 per cent in 2010-11). Volume growth will also be supported by its strong rural foothold. From about 38 per cent in 2008-09, the share of sales from rural areas is now at 45 per cent. But concerns over high marketing (re-branding) and R&D costs limiting margin expansion, remain.

Published on October 18, 2011

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