Hero MotoCorp, one of the world’s largest two-wheeler manufacturer will be offering support of about Rs 10,000 per motorcycle and Rs 15,000 per scooter to its dealers who sold some of their BS IV inventories to employees and associates through online channels before the end of the stipulated deadline.
Speaking during an investor conference call, the company’s top management said that selling the vehicles during the lockdown was physically not. Hence, the dealers undertook online sales. As per the provisions of the SC directive, those vehicles that have been sold before the March end deadline (but not registered) would be allowed to register once the lockdown opens. Hence, some of the dealers who had excess capacity of BS IV vehicles, tried clearing it by selling it to their staff, associates and relatives. These vehicles then could also possibly be sold off later as used/ second-hand vehicles.
Rating agency ICRA in a research note indicated that with the Supreme Court verdict not going their way, the automobile dealers are now likely to return a few of unsold BS IV inventory to vehicle manufacturers (depending on OEM’s policies). “Further, they may also register these vehicles in the name of associates which will then be sold off later as used or second-hand vehicles” the report clarified.
The apex court had last month allowed 10% of BS IV inventory stock to be liquidated within 10 days after the lockdown restrictions are lifted. The court also allowed for permission to register already sold BS IV vehicles (which are not yet registered) after the lockdown.
According to the Hero MotoCorp leadership, the company stopped BS IV manufacturing by mid-February with its retail growth clocking double digits in March (before the lockdown started) and was expecting to liquidate all its retail inventory by March 23 or 24. The company claims that before the lockdown (March 22), the company was holding inventory close to 1.5 lakh vehicles at the retail level.
Strong liquidity levels
Responding to a query regarding the amount of liquidity the company has in its possession to meet its liabilities in the ongoing lockdown period, Niranjan Gupta, Chief Financial Officer, Hero MotorCorp explained, “So let me start my answer by saying that I am reminded of a quote from one of my previous bosses and the quote goes as follows- Sales is vanity, profit is sanity, but cash is reality.” said Gupta, before emphasising that the company has a strong liquidity over Rs. 4,000 crores.
The monthly recurring cost in this lockdown situation for the company is to the tune of Rs. 200 crores per month, said another top management executive.
Business Continuity Planning
Hero MotoCorp said that its Business Continuity Planning (BCP) team was set up in January when cases of Covid-19 were first identified in China. The BCP team which has many sub-teams within it reported directly to CMD Pawan Munjal. Gupta, pointed out that earlier, the focus was on ensuring supply chain continuity when it got interrupted from China. “Post that, we shifted gears in terms of the lockdown preparation and now we have shifted gears in terms of the restart plan because the restart plan is also going to be a big task in itself, getting the operations, getting the workers, getting materials back, and one thing I want to point out is that earlier we made a plan which was how to insulate against China sourcing but now we have to insulate the plan against the rest of the world sourcing, so that's how dynamic the world is” Gupta explained.
Tackling slumping sales
In March 2020, the auto industry and the entire global economy has been faced with an unprecedented disruption, owing to the novel coronavirus. The Covid-19 has resulted in interrupted supply chains, halted production and lockdown, leading to no retails.
Hero MotoCorp, which has 37.74% of the two-wheeler market share, would like to forget March and FY2020 sales numbers in a hurry. At 334,647 units, last month's sales are a sizable 42% down on year-ago figures (March 2019: 581,279). And considering that the industry slowdown has lasted for over a year and impacted sales of commuter motorcycles, wherein Hero has a throttlehold, the FY2020 numbers are understandably low: 11% down YoY at 64,09,719 units (FY2019: 72,39,460).
Likewise, the company had reported a 19.27 percent decline in total sales at 4,98,242 units in February. In comparison 6,17,215 units were sold in the corresponding month of the previous year.
As per a statement released by Hero MotoCorp, the company proactively suspended production at all its manufacturing facilities – including in India, Colombia, Bangladesh and Global Parts Centre (GPC) at Neemrana, near Delhi beginning March 22.