This is a joint venture that’s stood the test of time and the Indian market for 26 years. It is still going strong, defying the belief that the recent economic slowdown would spare none. Hero Honda, the joint venture between the Hero Group and Honda Motor Corporation of Japan, is one of the few companies that emerged unscathed from the aftermath of the downturn. Not only that, it has posted a sterling performance during 2009.
The largest two-wheeler manufacturer in the world has banked on innovation, new product roll-outs and a consistent focus on its inherent strengths of marketing and its vast sales and service network that reaches out to
the remotest corners of the country. A red-letter day for the company recently was the roll-out of its 11 millionth Splendor motorcycle on November 11.
Pawan Munjal, the managing director and chief executive officer of Hero Honda Ltd and Autocar Professional’s Man of the Year 2009, says the mantra behind the company’s continued success is an unabashed customer-focused approach and a mission to cater to their specific requirements.
According to industry experts, Hero Honda motorcycles enjoy good overall build quality and very good reliability, thanks to the use of global leader Honda's technology. This means they enjoy a long lifecycle and excellent resale value, which helps to draw in new buyers. The company has also benefitted from the lack of any major competition in the entry level commuter bike segment. Also, it has never wavered from building value-for-money motorcycles that fit its image and deliver on its core promise of excellent fuel economy. Plus, a focus on maintaining operational efficiency across functions has also helped the company to face the downturn in demand that severely affected other two-wheeler companies.
Tapping Honda technology
Reminiscing about the company’s manufacturing operations in its start-up days, Munjal says the Hero Group first began making mopeds in Ludhiana in 1978. A window of opportunity opened up in the early 1980s when the Indian government allowed import of technology for two-wheelers upto 100cc and the Group went shopping.
It chose Japanese two-wheeler giant Honda Motor Company as it had the best technology and also the product range. According to Munjal, Honda chose to associate itself with Hero after seeing the Indian company’s existing businesses’ performance. The timing seemed to be right too, for the Japanese manufacturer had been scouting for two different Indian partners to provide its technology, both for scooters and motorcycles.
Pawan says, “We made two strategic moves then, which took us to where we are now. We chose to make motorcycles at a time when India was predominantly a scooter market, and we also decided to go in for a four-stroke engine.”
It was a bold decision because during the mid-1980s more than 65 percent of the two-wheeler market was dominated by scooters. And, an overwhelming 90 percent of the two-wheeler engines were two-stroke motors. “We felt that the market was looking forward for somebody to introduce fuel-efficient engines, which could be managed better with four-stroke motors. Also, as a family philosophy which focuses on cleaner technologies, we were also thinking about emissions. We had an inkling that over time the government would clamp down on tailpipe emissions. And this could be managed in a four-stroke engine.” The decision was right and the rest is history. To a nation that rode on two-stroke 40kpl scooters, the CD100, powered by a four-stroke engine and an unheard-of 80 kilometres per litre (along with the memorable ‘Fill it. Shut it. Forget it’ ad campaign), powered Hero Honda to a new chapter in the Indian auto industry.
Customer is king
Pawan Munjal is determined to drive the company to newer heights. Passionate about understanding customer requirements and developing new marketing initiatives and strategies, he points out that Hero Honda’s operating profit margin has consistently grown from 15.99 percent in the quarter ended December 2008 to 20.02 percent in the quarter ended September 2009. Net profit margin has also increased from 10.43 percent in the quarter ended December 2008 to 14.71 percent in the quarter ended September 2009. Cumulative sales in fiscal 2009-10 (April-November 2009) have grown 21 percent to 30,37,556 units compared to the corresponding period in 2008-09 and the company is well positioned to cross the original target of four million units much earlier than the close of this fiscal.
What’s more, Hero Honda set a record of sorts by recording cumulative sales of over a million in the first quarter (April-June) and also the second quarter (July-September) of this fiscal. Going by current numbers, it might close the October-December 2009 quarter with another million as it already has sold 735,334 units in the two months of the quarter.
With the second quarter (July-September 2009-10) earnings showing a 94.9 percent growth over the same period last year, Hero Honda continues to set new milestones. The company’s all-time highest quarterly earnings of Rs 597.14 crore in profit after tax represents the second consecutive record quarter of solid and growing revenues and profits. Turnover grew 26.8 percent to Rs 4,059 crore, from Rs 3,202 crore recorded in the corresponding period in the last fiscal.
Commenting on the performance, Munjal says, “We have been continuously reporting a strong balance-sheet and solid cash flow. It is our sustained focus on innovation and operational efficiency across functions that helped drive the sequential growth in our business. Sales in the second quarter have also benefited from our focus on new products during the festive season.”
Munjal says this consistent growth in these key parameters are a culmination of the learnings from the company’s Ludhiana days and the experience of working with Honda. Continually working on containing cost, not only at its plants but through the entire value chain, has paid dividends. Besides, softening of commodity prices and setting up a new plant in Haridwar, Uttarakhand, has helped to a large extent. While other manufacturers have also set up operations in the State, the difference has been the speedy ramping up of Hero Honda production from zero to 4,000 units a day within a year.
Munjal, who is responsible for growth and strategic planning for the entire Hero Group, is passionate about manufacturing and selling motorcycles, particularly wanting to know and understand what customers aspire to have in their steeds. A graduate in mechanical engineering, he has been instrumental in bringing about technological and managerial excellence in the company's operations. He has been the chairman of several committees of the Confederation of Indian Industry and is also on the board of the Indian Institute of Management, Lucknow.
During his early days at Hero Honda, Pawan Munjal was responsible for developing two key business associates – the vendors and dealers. His efforts at developing ancillaries and his close networking with the supply chain and dealers are what rivals would like to know about.
“The customer is the be-all and end-all for us when it comes to our marketing and sales strategy. For us, everything rotates around the customer and we conduct elaborate market research to find out the customer’s aspirations and we try to fulfill them to the best possible extent,” he says.
The strategic building-blocks that the company has put in place have been the key to Hero Honda’s consistent growth. The strategy has been driven by innovation in every sphere of activity – building a robust product portfolio as per the market demand, expanding the network and investing in brand building activities. “Our ad campaign is also kept simple and straight forward,” he quips.
Diversified product range
Hero Honda has maintained its world’s largest two-wheeler manufacturer ranking for the past eight years. It currently holds an overwhelming 49 percent share of the domestic motorcycle market and celebrated its 25th year in 2008-09 by crossing the landmark figure of 25 million two-wheelers in cumulative sales. Today, every second motorcycle sold in the country is a Hero Honda and every 30 seconds, someone in India buys the company’s product. In the festive Diwali season gone by, the manufacturer sold half-a-million two-wheelers in a single month, a feat unparalleled in global automotive history.
The product range is diversified and caters to various segments. The Hero Honda Splendor is the largest-selling motorcycle brand in the world. The Splendor Plus, Passion, Passion Pro, Glamour, Super Splendor and Splendor NXG straddle the executive segment and the Glamour FI, Hunk, CBZ X-treme, Karizma and Karizma ZMR lure buyers in the premium segment. There’s also the CD Deluxe and CD Dawn at the entry level. But motorcycles are not the sole success story for the company.
Munjal recognised early that the gearless scooter segment was fast developing and as a result Hero Honda launched the Pleasure, which was aimed at women riders, in early 2006. Currently about 16,000 units are sold every month. Hero Honda products now roll out every day from three manufacturing facilities in Dharuhera, Gurgaon and Haridwar. And the sales and service network now spans close to 4,000 customer touch points comprising of authorised dealerships, service and spare parts outlets and dealer-appointed outlets.
Bigger and better
Despite this success , Munjal believes there is still scope for further and speedier growth. “I still believe that the motorisation level, even in two-wheelers, is very low in the country. Therefore, there is tremendous potential,” he says. While strengthening its presence in urban markets, Hero Honda has implemented several initiatives to expand its presence in semi-urban, upcountry and rural markets.
Munjal believes that the changing demographic profile of India, increasing urbanisation and the empowerment of rural India will add millions of new families to the economic mainstream. And the rising aspirations of rural India will drive two-wheeler ownership.
Hero Honda at present has a negligible presence in the international market. But efforts are underway to address that in association with partner Honda. It will take a call soon whether to aggressively export or set up a plant overseas.
If Hero Honda is today a household name, it’s thanks not only to its products but also due to its continuous investment in brand building activities, which Munjal heartily endorses. They include some innovative marketing initiatives revolving around cricket (Indian Premier League), entertainment (MTV Roadies, Campus Rock Idol, Saregama Pa) and ground-level activities. Celebrating its 25th anniversary, the company carpet-bombed the country with its ‘Dhak-Dhak Go’ advertising campaign.
Beyond work, Pawan Munjal likes reading, listening to music and playing golf. An avid golfer himself, he seizes every opportunity to promote the sport in the country. He has been responsible in raising golf's profile in India for the past 15 years and the annual Hero Honda Indian Open Golf tournament draws international marquee players. Munjal has been chairman of the Asian PGA Tour Board of Directors and the president of Professional Golfers Association of India (PGAI). He has helped launch the Hero Indian Sports Academy (HISA) in collaboration with the Laureus Foundation to provide equal opportunities in sports to various communities and to reward talent in India.
“We are promoting various sports such as cricket, golf and hockey. Besides promoting sports and sportspersons at the highest level, we are committed to the promotion of various sports at the grass root level,” he says. Ace shooter and Athens Olympic silver medallist Lt Col Rajyavardhan Singh Rathore is among Hero Honda's many brand ambassadors along with cricketers like Virender Sehwag, Suresh Raina, Irfan Pathan, Gautam Gambhir, Ishant Sharma and Manoj Tiwary. And the company has just confirmed that it will be the official partner for the 2010 Commonwealth Games to be held in New Delhi. "It is only natural that Hero Honda should partner the Commonwealth Games 2010 in keeping with our very long term commitment for the promotion of sports across various disciplines across India," Munjal signs off. n