News Analysis

Hero MotoCorp: Smooth sailing on better inventory management

Parvatha Vardhini C | Updated on January 11, 2018

Even as Bajaj Auto remains on a sticky wicket, Hero MotoCorp has put up a good show in the quarter ended June 2017.

While offtake remained lacklustre until April this year after the demonetisation last November, a bounce back in demand in the two months that followed helped the company record an overall volume growth (year-on-year) of 6.2 per cent during the quarter.

The growth in volumes was helped partially by better inventory management ahead of the GST implementation on July 1 as well. Unlike Bajaj Auto, the company did not see a sharp dip in volumes in June in the run-up to the GST. As against a 34 per cent fall in domestic volumes recorded by Bajaj Auto in June 2017, Hero MotoCorp’s June volumes rose by 13 per cent.

Price hikes of ₹500-₹2,200 taken from May 1 to partially offset increase in input prices helped revenues grow faster than volumes. For the three months ended June 2017, revenues from operations grew by 7.5 per cent to ₹8,613 crore. Average realisations improved by 1.3 per cent to ₹46,465 per vehicle.

However, with the cost increases not fully passed on, the company faced pressures at the operating level.

Raw material cost as a percentage of sales stood at 63.5 per cent against 62.8 per cent a year ago.

Rural demand

Hence, operating margins came in at 15 per cent against 15.4 per cent in the three months ended June 2016. Net profit grew by 3.5 per cent to ₹914 crore.

Hero’s numbers indicate that rural demand has made a comeback.

The entry-bikes segment (75 -110cc) which predominantly caters to the rural markets saw 7.5 per cent growth in volumes during the quarter.

The company’s market share in this segment has improved to 75.8 per cent now over 72 per cent in the June 2016 quarter.

Given the measures taken in Budget 2017 to improve rural incomes and the good monsoons, this demand is likely to sustain and grow in the next few months. The price cuts undertaken to pass on benefits of GST will also do its bit.

Though benefits may vary from State to State, price on mass models have seen a drop of ₹400 to ₹1,800 since July 1. Some of the premium segment models have also seen a reduction of up to ₹4,000 in certain markets.

Published on July 25, 2017

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