Despite seeing a slower volume growth in the first half of current fiscal, the two-wheeler maker Hero Motocorp expects its margins to further improve in FY14, mainly on weakness in yen and lower commodity prices, the company said in a post earnings concall today.
The company's operating margins in January-March improved to 13.83 percent from 12.6 percent in previous quarter mainly due to depreciation in Japanese currency yen, as the company imports several spare parts for bikes from Japan. Lower material cost by 100 bps also contributed to better margin.
Hero Motocorp's net profit declined 4.9 percent on year to Rs 574.23 crore, beating street estimate of Rs 493 crore.
Post splitting from Japanese partner Honda Motor, Hero Motocorp has been struggling to hold its ground by investing more on design and technology. Despite its attempts Hero Motocorp has been losing market share; according to analysts it lost 3 percent market share in FY13 and is seen losing further 3 percent in current fiscal.
However, Hero MotoCorp management sounded optimistic about current fiscal in conference call conducted in the morning. Management emphasized that although the company is not seeing any major improvement in volumes, its several cost cutting measure will help improve margins going forward in current fiscal.
The company does not hope to see double digit volume growth anytime soon and expects volumes to grow in single digits till September. The company held average 53 percent market share in domestic motorcycle market in last fiscal, however its scooter market share improved to more than 20 percent due to launch of new product Maestro.
Chief Financial Officer Ravi Sud said that the company had taken three-four initiatives to protect margins at current level. One of the measures includes a formation of cross functional team of 25 people whose prime job would be to control marketing, employee and logistics costs and there by improving margins. The company hopes to see margin improvement by third quarter. On Friday, the company also announced a price hike of Rs 500-1500 across all models with immediate effect.
This price hike will also help company to further boost its margins in current quarter. The maker of Splendor, Passion motorcycles and Pleasure, Maestro scooters hopes that softness commodity prices will help to keep margins stable in first quarter.
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