A 10 per cent volume growth and a ₹1,500 increase in average realisations helped Hero MotoCorp’s 14 per cent jump in net sales in the June 2014 quarter (over June 2013).
But this growth has not carried through to the bottomline, with net profit growing only by 2.7 per cent to ₹563 crore.
Raw material costs have been stable, accounting for 72 per cent of sales in June 2014 against 73 per cent a year ago.
But the company has witnessed other pain points at the operating level, with staff costs and other expenses moving up by 20-25 per cent.
Although the increase in staff costs has been because of one-time expenses, royalty, spend on advertisements and packaging and forwarding expenses have played spoilsport.
As a result, operating profits have grown only by a weak 3.5 per cent to ₹947 crore. Operating margins shrunk to 13.4 per cent from 14.8 per cent last year.
OutlookThe company sees no slack in rural demand as of now, and expect a double-digit volume growth in the next quarter. But given the not-so-good monsoon, it remains to be seen if the enthusiasm for bikes in the rural markets hold on.
With launches such as the new Xtreme and Karizma and the upcoming Xtreme Sports, the company is trying to consolidate more in the executive and premium segments.