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New launches, exposure to rural segment to drive Hero MotoCorp's gains

Shift to personal mobility helped improve firm's market share

Hero MotoCorp
The robust outlook by the management should keep sentiment favourable for the stock
Ram Prasad Sahu
2 min read Last Updated : Aug 15 2020 | 1:06 AM IST
While Hero MotoCorp's June quarter (Q1) performance was a weak one, it still beat estimates, especially on the margins front. Given the lockdown and supply disruption in the first half of the quarter, the company’s volumes were down nearly 70 per cent from the year-ago level. Higher realisations because of a better product mix and an increased share of BS VI vehicles helped limit the revenue decline to 63 per cent year-on-year (YoY). 

Though the Street was expecting the firm to post a loss at the operating level or a marginal gain, it reported a profit of Rs 108 crore. Cost management helped it register margins of 3.6 per cent, even though utilisation levels were at a fourth of the total capacity. Margins adjusted for fixed costs during the lockdown period would have been 12 per cent, according to the management. Year-ago margins were 14.4 per cent. 
The robust outlook by the management should keep sentiment favourable for the stock. The firm highlighted that it has gained 500-basis-point retail market share in the quarter. This came on the back of the firm's high exposure among two-wheeler makers to rural and semi-urban markets, where demand is stronger than in larger cities. 

 

 
The Hero management indicated that rural demand indicators — be it fertiliser sales in July, tractor registration figures, monsoon, or crop planting — are at healthy levels. This, coupled with a preference for personal mobility, drove demand. What has helped the company take share from rivals was the faster ramp-up after the lockdown, good demand for BS VI vehicles, including refreshes, and the new launch in its premium segment, the Hero Xtreme 160R. The company is looking at expanding its presence in this segment and hopes to improve its market share. 

While the scooter segment is lagging behind, given the lockdown in urban areas, the company is hopeful of a revival as the lockdown is eased across the country. While overall sales in July are at 90 per cent of pre-Covid levels, the company expects good traction led by festive demand. 

Given the market share gains in the quarter, new launches and exposure to the rural segment, which is well-placed on the demand front, most brokerages are positive on Hero’s growth prospects. 

Topics :Hero MotoCorp

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