Hero’s volumes grew at only 5.5 per cent in the December quarter over the corresponding period last year. But sales witnessed a healthier growth of 11 .3 per cent, thanks to price increases.

While price hikes ranged from ₹500 to ₹1,500 across models, average realisations moved up to about ₹41,200 a vehicle from ₹39,100 a year ago.

However, this performance failed to carry through to the operating profits, which dropped by 9 per cent to ₹698 crore. Increased raw material and marketing costs have affected the operational performance.

Raw material cost as a percentage of sales moved up to about 73 per cent from 71.5 per cent earlier. The company had indicated in the previous quarter that price escalations in inputs such as steel and copper then, would be passed on with a lag. Other expenses shot up 18 per cent due to increased advertising and marketing spends in the festival season and higher outbound freight costs.

Operating margins dropped to about 10 per cent from 12.5 per cent in the December 2012 quarter.

With its ongoing cost reduction efforts, the company expects to expand operating margins to about 16-17 per cent by FY-17.

But its aggressive plan to increase exports in this period, where they may have to sacrifice on margins initially, might come in the way.

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