Hero to focus on scooter, premium bikes segments to boost growth

Hero MotoCorp reported a lower-than-estimated June quarter performance on lower realisations and higher material costs, which impacted both revenue growth and margins. The firm registered a 10.5 per cent year-on-year growth in revenues, led by volume growth of 13.6 per cent. 

While overall realisations were down, Hero, however, indicated that core realisations were higher by Rs 400 per bike, while revenues from spares and other operating revenues were down year-on-year. Margins of the company at 15.6 per cent were down 60 basis points over the year-ago quarter, dragged down by higher raw material costs that increased by 200 basis points.

The firm indicated the impact on profitability from higher commodity costs was contained on the back of price hikes and cost management measures. 

It is expected to take further price hikes to the end of the quarter to protect margins. Reported net profit was down marginally, given higher tax rates, as tax benefits on the Haridwar plant came to an end.

The company is expected to focus on premium motorcycles and scooters, with upcoming launches in the two fast growing categories. 

The strategy of the two large two-wheeler players Bajaj Auto and Hero MotoCorp are contrary. 

While Bajaj has become aggressive in the entry level bikes with price cuts, Hero MotoCorp is going the other way with a focus on the more premium segments of 125cc scooters and 200cc-plus bikes.

While the sector grew at 13.6 per cent in FY18, Hero expects growth to continue to be in double-digit territory, led by investments in rural infrastructure, higher minimum support prices, monsoons and under penetration in some markets. 

While the company has indicated that it has gained market share in FY18 in entry and executive segments of motorcycles, it feels it will stay its current course on pricing with a focus on brand and distribution network.