Hero MotoCorp Ltd—the country’s largest motorcycle maker—posted a 0.5% year on-year decline in net profit to 909.1 crore for the quarter ending 30 June, due to rising input costs especially of commodities and the end of tax benefits at its Haridwar factory. The net profit in the corresponding period was 914 crore.

In volume terms, the Delhi-based company fared well in the first quarter as the sales of products increased by 13.6% to more than 2.1 million units – the highest-ever on the back of increased demand for entry-level motorcycles amid recovery in rural demand.

Net sales grew 11% on-year to 8809.8 crore.

Profit lagged Bloomberg’s estimate of 24 analysts of 1009.9 crore.

Hero saw 12% increase in raw material costs during the quarter, while employee benefit expenses jumped 10.5%.

As a result, the earnings before the interest, tax, depreciation and amortisation (EBITDA) increased by just 6.2% on-year to 1,377 crore. Operating margins also contracted by 60 basis points to 15.6%.

“Despite these challenges, the industry will maintain the growth momentum during the rest of the fiscal, with consumption expected to remain high on the back of a normal monsoon and the upcoming festive season. At Hero MotoCorp, we are geared up to ride the positive momentum with new premium motorcycles and scooters, lined up for launch in the coming months," said Pawan Munjal , chairman and managing director, Hero Moto Corp.

The company also received board approval to further invest 130 core to Bangalore-based startup Ather Energy which makes electric scooters.

Hero will launch its premium motorcycle and two new scooters in the current fiscal year which may help reduce its dependence of entry segment motorcycles. Almost 50-55% of the total sales of the company come from rural markets.

“EBITDA margin was impacted by commodity costs, although offset to a large extent by pricing and continuing cost management. The impact on the PAT in the Quarter has been on account of the tax benefits coming to an end in Q4 FY’18 at the company’s manufacturing facility at Haridwar," the company said in a press release.

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