OEM Analysis: Hero MotoCorp

Hero MotoCorp opens FY 2012-13 with best ever-monthly sales, forecasts growth of 9-10 percent

Autocar Pro News DeskBy Autocar Pro News Desk calendar 17 May 2012 Views icon19558 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Having despatched 5,51,557 two-wheelers in April 2012 (as compared to 5,17,099 units in April 2011), Hero MotoCorp Ltd (HMCL) has opened the new fiscal year 2012-13 with its best-ever monthly sales. April sales have surpassed the company’s previous highest monthly sales of 5,49,625 units (in September 2011).

Commenting on the April sales, Anil Dua, senior vice-president (marketing and sales), Hero MotoCorp, said: “We have made a good beginning and are pleased with the continuing trend of over half-a-million unit sales every month for the past nine months. Our recently launched Impulse and Maestro products have started contributing towards these numbers. We are positive about further augmenting our sales volumes with more new launches.”

Meanwhile, HMCL has reported record results for 2011-12. Fuelled by its sales of over 62,35,205 units in 2011-12, it registered a total turnover of Rs 23,579 crore, as compared to Rs 19,397 crore for 2010-11, an increase of 22 percent. Its profit after tax (PAT) was Rs 2378.13 crore and the operating margin was 10.69 percent, in the fiscal.

Chairman BrijmohanLall said, “2011-12 has been a phenomenal and exciting year for us. This was our first full year since we began our solo journey and we have created a record by selling more than six million two-wheelers during this period.”

The company has recently come under input cost pressures due to forex fluctuation and higher steel prices in the fourth quarter of 2011-12 and has announced a price increase effective May 2012. This increase, however, is unlikely to dent sales. According to Chirag Jain, analyst at equity research firm Batlivala and Karani Securities, demand for Hero MotoCorp products continues to remain healthy with retail sales matching the wholesale dispatches over the past few months. Inventory levels are currently in line with the industry norm of three weeks and most models are available off-the shelf with no major waiting period or shortages.

The road ahead

The HMCL management has forecast growth of 9-10 percent for FY13 with volumes of 6.8 million units. Manufacturing capacity is to be increased from 6.6 million units (March 2012) to 7.0 million units (by 2Q FY13). An announcement regarding the fourth plant is expected soon.

The two-wheeler manufacturer is charting its own path, since it went solo over a year-and-a-half ago. While it will continue to make royalty payments to Honda Japan for new products like the 149cc Impulse motorcycle and 109cc Maestro scooter, royalty amortisation (on existing products) stood at Rs 200 crore for the fourth quarter of 2011-12.

Importantly, HMCL is building its own R&D development capability and has increased its R&D staff to nearly 300 employees. While the current R&D spend stands at 0.3 percent of net revenues, the management expects this to gradually touch the one percent mark. A couple of months ago, the company forged alliances with the US-based Erik Buell Racing and Austria-based AVL to enhance its in-house R&D capabilities and also gain access to new technologies.

There is also a plan to begin exports in the first half of 2012-13 — HMCL has targeted export volumes of 10 lakh units by FY17. On the product front, HMCL aims to launch at least 7-8 new products including facelifts every year.

Meanwhile, HMCL has begun the process of rebranding its products (with the Hero brand) from April, with the flagship Splendor and Passion brands the first to be rebranded. The entire exercise is expected to be completed within 2012-13.
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