In order to revive sagging sales and plummeting operating profit and weather the tough environment, the two-wheeler manufacturer has announced a first of its kind 5-year warranty

Hero MotoCorp has posted a 5% year-on-year (y-o-y) net profit of Rs574.23 crore for the quarter ended 31 March 2013 compared to Rs603.59 crore for the quarter ended 31 March 2012. Total Income has increased barely 1.81%, from Rs6139.90 crore for the quarter ended 31 March 2012 to Rs6250.26 crore for the quarter ended 31 March 2013. The company reported volumes for the quarter ended March 2013 stood at 15,27,351 units, while EBIDTA margin for the quarter stood at 13.83%. The disappointing result was due to a difficult automotive market.
 

Moneylife database reveals that the company has been going through a difficult time in the last one year, especially in the last three quarters. Its average three-quarter y-o-y sales growth rate is -2% as it struggles to sell in a competitive market characterised by high interest rates and higher cost of spare parts. Even though its profit is above the water, its operating profit isn’t. It is abysmal as it degrew by 8% while its three-quarter average growth rate is -16%. The company is quoting with market capitalisation of nearly 10 times operating profit, while return on networth and return on capital employed are high at 49% and 38% respectively.
 

In order to boost sales and get ahead of competition, it did something audacious and different. In a first of its kind, the company announced warranty of five years on all its two-wheelers (five years or 70,000 km on motorcycles, whichever is earlier and five years or 50,000 km on scooters). This could be a game changer as far as warranty is concern and a clear product differentiator for selling products that would be more consumer friendly. It remains to be seen if other competitors take up the same initiative to keep up with competition. If so, it will be a boon for consumers. However, in order to keep margins intact, it has hiked prices of its products, ranging from Rs500 to Rs1,500.
 

Pawan Munjal, managing director & CEO said, “FY13 has been a rough year for the overall Indian auto sector. Weak macro-economic sentiment coupled with subdued consumer confidence adversely impacted the industrial growth and sales volumes. Considering the current environment, these are tough times for the auto sector in India and we remain cautiously optimistic about the growth prospects in the near term. However, having sold over 60 lakh two-wheeler in just 12 months, we have sustained our performance during the period. Being the industry leader, we have planned major initiatives to boost the industry sentiment and accelerate growth in the new financial year, mainly through new launches, campaigns, capacity addition and network expansion. In a significant step working towards our global vision, we have commenced despatches to half a dozen new markets last fiscal and will add a few more to that tally soon.”
 

Check here for more information on result updates.