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Hero MotoCorp: A disappointing quarter

Parvatha Vardhini C BL Research Bureau | Updated on July 25, 2018

Hero MotoCorp’s marginal drop in profit in the quarter ended June 2018 (over the same period last year) to ₹909 crore is a disappointment.

The company lost out on a few fronts this quarter.

For one, despite being the market leader in the entry bikes segment (75-110cc), it was not able to fully cash in on the strong demand due to stiff competition from Bajaj Auto. Price cuts by Bajaj Auto saw its volumes in this segment grow by a whopping 74 per cent year-on-year in this quarter.

Hero’s volumes, on the other hand, grew by 21 per cent.

Market share

As a result, Bajaj Auto’s market share in the 75-110 cc segment reached 14.6 per cent now, compared to 12.8 per cent last fiscal.

Hero’s market share moved up only marginally by 30 basis points.

Secondly, Hero’s performance in scooters was also below par. It’s scooter sales volumes shrunk by about 10 per cent year-on-year in this quarter, even as industry sales grew by 10 per cent.

Pressures at the operating level, too, took a toll on profits.

Costlier commodities saw raw material cost as a percentage of sales inch up to 69.6 per cent during the quarter, a percentage point higher than in the June 2017 quarter.

Though the company took price increases of up to ₹625 during the quarter to partially offset the increase in input costs, operating margins dropped to 15.6 per cent, in comparison with 16.2 per cent in the June 2017 quarter.

Lower other income and higher taxes due to expiry of excise benefits (CGST) for the Haridwar plant also impacted profits.

Outlook

Going forward, Hero will be strengthening its product mix this fiscal with the launch of two new 200cc bikes 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.

Published on July 25, 2018

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