Unlike Bajaj Auto which saw flat profits, two-wheeler major Hero MotoCorp has managed a 10 per cent year-on-year growth in profits in the first quarter. This has been aided by Hero’s seven per cent volume growth, vis-à-vis the one per cent shrinkage in volumes recorded by Bajaj Auto.
Though this is still lower than the average industry growth of 10 per cent, Hero’s superior performance is due to two reasons. One, Hero’s strong foothold in the 75-125 cc bikes and secondly, its presence in the scooters segment.
LOWER SEGMENT BIKES SELL
Hero has about 73 per cent market share in the 75-110 cc bikes (CD Dawn, CD deluxe, Splendor, Passion) and about 32 per cent share in the 110-125 cc segment bikes (Super Splendor, Glamour , Ignitor). Both these industry segments witnessed better volume growth compared to the >125 cc segment. Bikes in the >125 cc premium segment, in which Bajaj is the market leader, witnessed a nine per cent shrinkage in volumes this quarter. High interest rates and petrol prices which saw customers downtrading to lower segment bikes, has worked in Hero’s favour.
Again, with offerings such as the Pleasure and Maestro, Hero was also able to take advantage of the strong demand for scooters during this period. Bajaj lost out on this front too.
Apart from higher volumes, what has helped profit growth is improved average realisations, thanks to price hikes. A stabilisation in raw material prices and lower advertisement spends during the quarter has helped margin expansion as well. Operating margins came in at 15 per cent, slightly higher than the 14.6 per cent recorded a year ago.
OUTLOOK
Considering the current market sentiment, Hero MotoCorp may continue to outperform, given the tilt in its product mix towards the commuter and mid-segment bikes. What may, however, challenge this growth expectation is the monsoon deficit, which in turn could dampen rural demand.
