Helped by higher volumes and improving margins, India’s largest two-wheeler maker Hero MotoCorp has reported its best ever quarterly profit in the three months ended June 30, 2016. The Company hiked prices of products in April this year.
Net profit for the quarter rose to Rs 883 crore against Rs 747 crore in the corresponding period last year, showing an increase of 18.2 per cent. Reacting to the strong performance, the company’s stock price hit a fresh high of Rs 3,553 on the BSE. It, however, made some gains to close at Rs 3,456.80 a share on Monday, up 0.66 per cent from the previous close.
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Income from operations rose 7.7 per cent to Rs 7,901 crore in the quarter against Rs 7,336 crore in the same period last year. Cost of raw materials saw a marginal increase of 3.3 per cent to Rs 5,033 crore in the quarter. The earnings before interest, depreciation, taxes and amortisation (Ebitda) margin surged to its highest level of 16.63 per cent compared to 15.09 per cent in the corresponding quarter of FY16.
During the quarter under review, the company sold a record 1.74 million units of two-wheelers (including exports of 38,945 units), compared to 1.64 million units sold in the year-ago period. Improving sentiments in the rural markets on forecast of a good rainfall helped the company grow its volumes. Almost half the company’s sales come from rural markets. The real impact of improved rural sentiments will be seen in the second half of the financial year once kharif crop is harvested and festive demand kicks in. The implementation of the Seventh Pay Commission salaries for government employees is another positive trigger.
“The sales growth is reflected in the positive financial results for the quarter, and has given us the momentum to carry forward as we prepare for the upcoming festive season. With the above-average monsoon so far and the implementation of the 7th Pay Commission recommendations, we remain cautiously optimistic about the remaining months of FY17,” said Pawan Munjal, chairman, managing director and chief executive officer at Hero MotoCorp.
Arun Agarwal, associate vice-president (research) at Kotak Securities, said: “Due to strong operating performance, net profits came in better than expected.”
Going ahead, good monsoons are expected to boost motorcycle demand in rural areas and Hero will likely benefit due to its high presence in rural India. Furthermore, the Seventh Pay Commission payout will provide additional boost to the overall two-wheeler demand.”