Risk aversion by banks remains a key concern

Written by Yogima Seth | Updated: Aug 1 2009, 03:50am hrs
Hero Honda Motors, the countrys largest two-wheeler company, which on Wednesday reported its best-ever quarterly results, is cautiously optimistic about the future as the credit situation remains the same, says the companys CFO Ravi Sud in an interview with Fes Yogima Seth. Excerpts

Hero Honda has reported its best-ever quarterly results in the first quarter of 2009-10. What do you attribute this to

Our operating margins in the quarter rose to 17% due to the 4% drop in input costs and the increase in the companys average realisation per motorcycle sale apart from continuous cost rationalisation and operating efficiencies. The consistent robust top line performance has been driven by constant product refreshes, volume growth across segments and markets, aggressive brand building initiatives and rapid network expansion, reflecting the strong brands and continued expansion of new markets. Cost rationalisation across the board, softening of commodity prices, and tax benefits also contributed to the bottomline and have helped to garner over 59% market-share in the domestic market .

What has been the growth strategy at Hero Honda and how do we see the next three quarters for the company vis-a-vis the industry performance

The Hero Honda value proposition stems from the companys deep understanding of the industry and the local market. The company has been successful in creating an efficient and customer-focused business that will continue to win in the marketplace and add value for all stakeholders.

We are driven by innovation in every sphere of activity and we will build on this path to keep up the growth momentum in the new financial year as well.

So, does it mean that the two-wheeler industry is out of any slowdown blues

We continue to remain cautiously optimistic. There have been no changes in the overall credit situation; there is uncertainty over the monsoon and over the interest rates and the sluggish economic environment. Going forward, a lot will depend on changes in all these trends.

What is your sales target for 2009-10

We are confident of meeting the sales target of 4 million units, which we had set in mid March 2009 .

Have you managed to improve margins by full utilisation of tax benefits available for the Haridwar plant

We have been able to stick to our plan and have been gradually scaling up the production at our Haridwar plant. Currently, the daily output is a little more than 4,000 units per day. During the FY09, we produced 6,22,000 units at the Haridwar plant and this year we plan take the number up to 1.22 million units. Currently, all our three plants are working at full capacity to meet the growing demand for our products.

What are companys capex plans for FY10 and how do you plan to fund this

We plan to spend about Rs 350 crore during the year as capital expenditure and it will be funded from internal sources. While Rs 100 crore will be spent in expanding the capacity at Haridwar, Rs 100 crore in will be pumped in existing plants for replacement/ balancing equipment, Rs 50 crore on energy generation and Rs 60 crore on major IT projects.

How do you foresee the demand for Hero Honda bikes in overseas markets

Exports constitute very little of our overall sales.

What is the contribution of rural markets in quarterly sales and what is the current share of urban to rural sales vis-a-vis same quarter last year

We have an equally strong presence in both urban as well as rural markets and our focus will continue on further expanding our presence in both these markets. We have always had innovative rural programmes, which have now been brought under a single umbrellaHar Gaon Har Aangan. Currently 40% of our sales come from rural markets.

What is the current finance scenario for two-wheelers Has there been any improvement and can you quantify it.

From the two-wheeler industry perspective, our concern has always been that banks are not really extending loans to the customers. We strongly feel that the risk aversion by banks remains a major concern. In an environment dogged by income freezes, salary cuts and job losses; banks are unlikely to go on a lending spree for loan seekers especially in the lower category.

The company has been mulling to set up its own finance arm.

There is nothing concrete at this stage.