An employee walks past a Hero MotoCorp Ltd. Splendor Pro motorcycle. (Photographer: Kuni Takahashi/Bloomberg)

Here’s Why Shares Of Two-Wheeler Makers Are Falling

Shares of two-wheeler makers have fallen since the second quarter results were announced as higher commodity costs hurt operating margin.

Bajaj Auto Ltd., Hero MotoCorp Ltd. and TVS Motor Company fell between 2 percent and 8 percent since they reported second quarter earnings due to:

  • Cost of goods sold and rising prices of raw materials impacted their operating performance.
  • Margin fell to the lowest in several quarters even as the two- and three-wheeler makers reported healthy volume growth.

Also read: Q2 Results: Bajaj Auto’s Profit Meets Estimates, Margins Contract

Bajaj Auto’s exports rose 32.8 percent year-on-year to 5.34 lakh units in the July-September period. TVS Motor and Bajaj Auto’s highly profitable three-wheeler sales grew 57.4 percent and 32 percent, respectively, in the second quarter.

  • For Bajaj Auto, cost of raw materials as a percentage of sales stood at 67.8 percent in the second quarter against 62.7 percent a year ago.
  • Cost of raw materials for Hero MotoCorp stood at 70.4 percent against 67.3 in the year-ago period.
  • For TVS Motor, cost of raw material was at 74 percent compared with 75.7 percent a year ago.

Yet, the companies’ management remain positive on the demand in the domestic market. Hero MotoCorp and TVS Motor expect the rural market sales to pick up on the back of a normal monsoon and festive season, the management said in analyst calls. Hero MotoCorp and TVS Motor, however, said there has been a slow start to the festive sales. The country’s largest two-wheeler maker expects 10-12 percent sales growth in the festive season.

Also read: Q2 Results: Hero MotoCorp’s Profit Meets Estimates

A confusion among buyers regarding the new insurance regulation and higher cost of upfront insurance cover led to a damp start to festive season purchases, the companies said. Analysts also expect the new safety and emission norms to continue impacting the companies’ margin.

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