Hero MotoCorp expects single-digit growth in FY14

April 30, 2013: In an interaction with investors and analysts to discuss its four quarter FY13 results, the country’s largest two-wheeler manufactuer Hero MotoCorp expects demand, which is currently flagging, to recover in FY14, with growth recovering to high single- digit levels.

While the manufacturer has broadly maintained its share in motorcycles at 53 percent in FY13 (Q4: 54%), it has gained in the fast-growing scooter segment with the help of its 109cc Maestro. The company says its retail sales in April have been strong; this translates into dealer inventory coming down to 4.5 weeks from 5.5 weeks as of March 2013. The new five-year warranty scheme on its entire product portfolio (5 years/70,000km on motorcycles and 5 years/50,000km on scooters) is drawing buyers. The total number of dealer touch-points now stands increased to 5,500 which includes 800 4S dealers. The company says its management remains focused on 7-8 new product/variant/refresh launches in the medium term.

On the margins front, Q4 margins have been aided by depreciation of the Yen, a better product mix and small correction in commodity prices. A 25-member cross-functional team has been set up to identify areas of cost savings which should help aid margins over the next 2-8 quarters. Hero MotoCorp says its R&D expenses stood at 0.4 percent of sales in FY13 – expect this to inch up to 1-1.25 percent going ahead. Also, the recent price hike of around 1 percent on its products will offset the higher warranty and transportation cost (from higher diesel prices).

Total capital expenditure in FY13 was Rs 450 crore. This figure is expected to rise substantially over the next three years, given that Hero MotoCorp will be looking to commission the Neemrana plant by Q4FY14 thereby augmenting total capacity to 7.7 million, gradual progress at the greenfield plant in Gujarat, global parts centre and R&D centre. Export-wise, growth remains challenging due to a poor demand environment. As a result, the company is going slow on its international plans. It has initiated despatches to Latin America/Africa and expects to enter newer markets in FY14 which should gradually improve volumes.