Despite a seven per cent drop in sales volumes, Hero MotoCorp’s net sales dipped only by 1.7 per cent in the quarter ended September 2015, over the same quarter in 2014.
A 5.6 per cent rise in average realisations from ₹40,552 a year ago to ₹42,830 now has helped contain the fall in top-line. Lower raw material costs have also come to the aid of the company.
Raw material costs as a percentage of sales declined from 73 per cent a year ago to 69 per cent. Thanks to these factors, operating margins expanded from 13.5 per cent a year ago to 15.8 per cent.
However, it has not been able to carry these gains through to the bottom- line. Net profits grew by a muted 1.2 per cent to ₹772 crore. A halving of other income in the current quarter compared to the year ago period and a 45 per cent rise in depreciation are among the major reasons for the poor show on the bottom-line.
Sale of entry-level bikes (up to 110 cc) in the rural markets, which is Hero MotoCorp’s bread and butter business, is in no hurry to recover. But the company’s increasing market share in the executive bike segment (110-125 cc), reflected in the growing average realisations, may help the company sail through this downturn.
This apart, new launches/refreshments in the ongoing festival season such as the Splendor Pro may also help volume growth. The company is also targeting scooter users with its new Maestro Edge (launched last week) and Duet (to be launched shortly).