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Hero MotoCorp has reported a decline of 4.51 percent in its net profit for the third quarter of the Financial Year 2018-19. According to the two-wheeler manufacturer, its profits after deduction of taxes dropped from Rs 805.43 crore in Q2, to Rs 769.10 crore in Q3.
Adding to Hero MotoCorp's woes is a pileup of inventory at dealerships of nearly eight weeks. Going with these figures, it is obvious that Hero MotoCorp's products are not selling too well. The company's chief financial officer, Niranjan Gupta confirmed to the media that a poor rural demand and a low-selling festive season is the reason for the inventory pileup.
Rural markets have always been more of a stronghold for Hero MotoCorp and people in rural areas are almost Hero's brand loyalists. This quarter though, most of India's rural areas have not been doing too well in terms of finances.
Hero MotoCorp's chairman Pawan Munjal was quoted as saying, "There have been temporary setbacks in the third quarter of the current fiscal on account of multiple factors, leading to higher than normal inventory levels at dealerships. However, the fourth quarter has historically been positive and we look forward to an improved market situation in the coming months."
All eyes are fixed on the upcoming union budget to help turn around. If the budget is in favour of the agricultural segment, it would lead to profits and in turn people coming back to buy two-wheelers. In terms of revenue from operations, Hero MotoCorp saw an increase of 7.5 percent. In terms of sales, Hero MotoCorp saw an increase of 5.3 percent.
Thoughts On Hero MotoCorp's Decrease In Net Profit
There is one more factor adding to those discussed above, that is affecting Hero MotoCorp, and this factor is purely from the point-of-view of the automotive industry. The two-wheeler market in India has seen unprecedented growth, and there seems to be no slowdown in sight.
The major reason for Hero MotoCorp to have a huge inventory pileup and a decrease in net profits is stiff competition. Hero MotoCorp is strong in the commuter motorcycle segment and hence the reliance on rural markets.
In urban markets though, premium motorcycles, performance motorcycles and scooters are the best-selling segments, and Hero does not have many products to offer in those segments. The recently launched Hero Destini Scooter is selling well. The premium motorcycle segment though needs something more radical than the Xtreme 200R from Hero MotoCorp.