HERO

HONDA
A PIONEER IN 2
WHEELER
SEGMENT
 Universal customer expectation

 These three are the universal customer expectation which most of

the consumer have.
 These expectation has been fulfilled by Hero Honda which has
made it number one in two wheeler segment.
 Porter’s model
Threat from
substitutes:
•Low priced 4-wheelers

Supplier power: • Intensified competition

•Low (fragmented and • Huge number of Buyers power:
exclusive) undifferentiated •High
•Further reduced by products making •Price sensitivity
threat of backward advertising important reduced
integration by buyers • Rural market potential

Threat from new

entrants:
•Reduced entry barriers
(FDI)
•Import duty on foreign
bikes
Major players
 Timeline
 1956 -Set up HERO CYCLES to manufacture cycles.
 1961 –Setup ROCKMAN CYCLES for for chains and hubs, today it is the worlds
largest manufacturer of chains and hubs.
 1963 –HERO CYCLES starts exports of cycles
 1975 –HERO CYCLES becomes the largest manufacturer of cycles in India
 1978 –MAJESTIC AUTO set up to manufacture mopeds.
 1984 –HERO HONDA set up.
 1985 –MUNJAL SHOWA set up for manufacture of shock absorbers.
 1987 –SUNBEAM CASTINGS set up.
 1988 –HERO MOTORS set up.
 1998 –HERO HONDA sales cross 500,000 units per year.
 2000 –HERO HONDA sales cross 1,000,000 units per year.
 2004 -HERO GROUP revenues cross US $ 2 billion HERO HONDA sales cross
2,500,000 units per year
FORMATION OF HERO HONDA:
MAJOR REASONS
Engineering capability
Relevance of HERO brand
Distribution network

Low employee turnover Tight focus on

Know-how and financial and raw
experience in handling material processes
large volumes
Commitment to
Cordial Industrial Quality
Relations
 MISSION

To strive for synergy between technology, systems and human resources, to

produce products and services that meet the quality, performance and price
aspirations of its customers. At the same time maintain the highest standards
of ethics and social responsibilities.

VISION

The vision of a mobile and an empowered India, powered by Hero Honda.

Driven by Hero Honda’s commitment to customer, quality and excellence,
and while doing so, maintaining the highest standards of ethics and societal
responsibilities.
 STRENGTHS SWOT
Ability to understand
WEAKNESSES
customer’s needs and
wants
Established brand
name R&D is not close to
Effective advertising the Hero manufacturing
capability plant.
After sale service
Technology Hero is vulnerable in
Maintenance cost. the joint venture because
Resell value is high so much power.
Company’s name is
synonymous with fuel- Brand name of Hero
efficient bikes and itself has no influence in
connectivity the automobile industry.
 OPPORTUNITIES SWOT
THREATS
 Global expansion.  Honda
 Expansion of Motorcycles and
target market Scooters India can
(include women). take away market
 Relatively low share.
rate of interest and  Bajaj Motors is a
the discount of strong competitor.
prices.  FDI announced in
 Large market for Automobiles is
the high 100%.
performance  Petrol price
segment which is increases.
increasing.  Pollution norms.
 Aluminum and
steel price
increase.
 a me
Nc N
PAS
SIO I TI O
MB
N/A
2001-03

DAW
Product development

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1997-2000

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CD cam
1991-94

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1985-89 firs oto
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Product development continued…….

2008- bikes with power start New plant at haridwar

2007- new HUNK launch Upgraded version of

Splendor, passion, CD deluxe

2005-first scooter model

PLEASURE
New model of glamour, achiever

2004-new model
AMBITION,CBZ

TOTAL SALES OF 10 MILLIONS

 Integration
• Bicycle business: integrated backwards to a large extent (various factories
bought and set up).
• The main priority has been sourcing high-quality components for the
Munjal’s business since then.
• Always depends on foreign technologies.
• For motorcycles, HH has 15 key vendors.
– economies of scale
– lower cost per unit for vendor.
– efficient planning and forecasting.
– Higher bargaining power over suppliers.
– long-term relationship with Hero Honda
 Financial Performance
• Sales

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Sales ( Nos) 761623 1029510 1425303 1677537 2070147 2621400 3000751 3336756 3337142 3722000 4600130
Growth in sales (%) 43.6 35.2 38.4 17.7 23.4 26.6 14.5 11.2 0.01 11.53 23.59

Sales ( Nos)

5000000
4500000
4000000
3500000
3000000
2500000 Sales ( Nos)
2000000
1500000
1000000
500000
0
1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009-
00 01 02 03 04 05 06 07 08 09 10
• Profitability
– Improvements in the margins yoy
• Better control over material cost, marketing cost
and sharp focus on operational efficiencies
PAT & Profitabilty Ratios
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Total Income(in crores) 2269 3191 4539 5195 5997 7563 8870 10090 10517 12565 16099
growth in total income(%) 50.7 40.7 42.3 14.4 15.5 26.1 17.4 13.7 4.2 19.5 28.1
PBT(crores) 285 377 694 885 1072 1217 1412 1246 1410 1781 2832
PAT(crores) 192 247 463 581 728 810 971 858 968 1282 2232
PAT/Income from operations(%) 8.5 7.7 10.2 11.2 12.1 10.7 11.1 8.6 9.3 10.4 14.1
Return on Cap employed(%) 66.1 64.9 94.5 98.9 92.8 80.9 72.3 51.6 49 50.9 76.4
EPS(Rs) 9.6 12.4 23.2 29.1 36.5 40.6 48.6 43 48.5 64.2 111.8
Return on Equity(%) 52.2 46.9 72.1 75.6 72.9 61.6 55.5 38.3 35.5 37.8 61.4

EPS

120

100

80

60 EPS

40

20

0
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
• Cash Flows
– Growth in sales turnover, better efficiencies in the
working capital management improved cash flows
from operations.

Net Cash from operations

3000

2500

2000
Net Cash from operations
1500

1000

500

0
99-00 00-01 2001-02 2002-03 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10
 • Working Capital Management
– Efficient use of the various components of working capital cycle.
– Effective control the receivable and inventories enabling it to
continue to operate on negative working capital
Working Cap and liquidity ratios
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Inventory Period 16.1 14.4 11.3 10.5 10.4 11.9 11 10.6
Operating Cycle 23.2 19.2 14 14.9 17.9 21.2 16.8 13.3
Cash Cycle -16.3 -28.3 -33 -23.9 -12.2 -10.6 -13.1 -17
Current Ratio 0.7 0.51 0.53 0.74 0.84 0.68 0.51 0.45

• Dividend Policy
- Company has followed a policy of paying high dividends, keeping in
mind cash generating capacities, the expected capital needs of the
business and strategic considerations.

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Div Payout(%) 26.7 75.5 69.8 61.9 56.3 46.88 46.29 45.86 36.45 31.3
 • Debt Structure
– Very minimal amount of debt- debt free company

Capital Structure
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
total debt(in crores) 51 66 116 134 175 202 186 165 132 78
Share Cap(in crores) 39.94 39.94 39.94 39.94 39.94 39.94 39.94 39.94 39.94 39.94
Reserves & Surplus (in crores) 408 696 802 995 1314 1453 1969 2430 2946 3761
Long Term Debt/ Equity 0 0 0 0 0 0 0 0 0 0
The Road Ahead

• The PE Ratio likely to be lower due to limited upside opportunity for

Hero Honda

• BAL and TVS are expected to report relatively higher growth in earnings
and market shares in FY11E due to a strong comeback in 100 CC
segment and high expected growth.
 Value proposition of hero Honda
• Thorough understanding of:-
New market segments
Market dynamics post slowdown
product opportunities through customer
interaction & feedback
• Superior service orientation
• Investments in Technology up gradation
• Using Foreign collaboration to assist in new design
and production processes
• Focus on “Quality”
• Productivity and Profitability
Growth matrix

1 2

4 3
BASIC DRIVERS
THANKS