Demand recovery in the rural market after three fiscal years due to two consecutive years of good rain fall and initiatives like farm loan waivers have led to recovery in the volumes of economy or entry segment motorcycles. Hero MotoCorp has been the prime beneficiary of this development since it is the largest player in the segment and almost 55-60% of the total volumes come from the the rural and semi urban market.Volumes in the entry segment offerings by the company have increased 9.82% y-o-y to 13,66,891 units in the April to June quarter which is the highest ever in the last three fiscal year. The volumes of HF Deluxe increased by 30.98% y-o-y to 439,218 units while the same for the Splendour grew by 7.2% y-o-y to 681,616 units. Decline in volumes of another offering Passion were arrested to 10% y-o-y to 246,057 units.
In the first quarter of FY 17 the volumes of the largest selling motorcycles Splendour remained flat while same for Passion decreased by 21.4% y-o-y. Only volumes of HF Deluxe increased by 25% y-o-y during the period. In FY 16 volumes of the economy segment were down as result of the adverse impact of two consecutive years of drought in certain parts of the country. “Management has guided for high single digit volume growth for the industry and they expect Hero to marginally outperform. We are building in a robust volume growth for Hero over the next two years (+10% p.a.),” said analysts of Deutsche Market research in a report.
Volumes were expected to increase in FY 17 but demonetisation led to a decrease in demand in the rural market which further impacted the volumes in the segment. In the first quarter of the current year the volumes in the segment started to grow on the back of the renewed availability of cash in the rural markets. The onset of the marriage season in May and farm loan waivers announced by different state governments further boosted the sentiments in the rural markets. The Delhi-based two wheeler manufacturer reported the highest ever sales in the April to June quarter on the back of the recovery in the economy segment after three years. Volumes during the quarter increased by 6.2% y-o-y to 18.53 lakh units. The company beat Bloomberg estimates and reported a 7.51% y-o-y increase in the revenues to Rs 8612.91 crore and 3.5% y-o-y increase in net profit to Rs 914.04 crore in the first quarter of the fiscal.