A term paper on Hero MotoCorp

8 August 2016

Hero MotoCorp Limited was incorporated in the year 1984 with the name Hero Honda Motors Ltd. The company was established as a joint venture company between Honda Motor Company of Japan and Hero 1983; they signed a joint collaboration agreement and formed the company. The joint venture between India’s Hero Group and Honda Motor Company, Japan, has not only created the world’s single largest two wheeler company but also one of the most successful joint ventures worldwide.

In the year 1985, the company commenced their commercial production at Dharuhera plant in Haryana and introduced their first motorcycle, CD 100 in the market. In the year 1997, the company inaugurated their second manufacturing facility at Gurgaon in Haryana. In the year 2004, they introduced new models, Ambition 135 and CBZ in the market. During the year, they renewed the joint technical agreement with Honda Motors Company, Japan In the year 2006, the company plundered into scooter segment and launched 100cc gearless Scooter, Pleasure in the market.

A term paper on Hero MotoCorp Essay Example

During the year 2007-08, the company commissioned their third plant at Haridwar in Uttarakhand with an initial installed capacity of 500,000 units. 5 This plant had lean manufacturing and practices that ensured efficiency. During the year 2008-09 & 2009-10, the company increased the installed capacity of Motorized 2 wheelers up to 350cc engine by 1800000 nos. to 5400000 nos. The company launched the new upgraded versions of CBZ Xtreme and Karizma in 2010-11. Also, they breached the landmark 5 million figure cumulative sales in a single year.

During the year, the Indian Promoter Group of the company, which comprised of Hero Investments Pvt Ltd (HIPL), Bahadur Chand Investment Pvt Ltd (BCIPL) and Hero Cycles Limited (Hero Cycles) realigned the shareholding in the company, following a family agreement. As a result, Hero Cycles transferred its shareholding in the company to HIPL on May 28, 2010. As a result of these transactions, the Indian Promoter Group of the company now comprises of HIPL and BCIPL owned and controlled entirely by the Munjal Family headed by Brijmohan Lall Munjal.

Also, during the year, the Indian Promoter Group and Honda Motor Co Ltd, Japan (Honda) entered into a Share Transfer Agreement (the Agreement) on January 22, 2011. As per the terms of the Agreement, Honda had agreed to transfer its entire shareholding of 26% in the Company to the Indian Promoter Group, bringing an end to the joint venture between the two promoter groups of the company. The acquisition was completed on March 22, 2011 and the shares held by Honda were transferred to the Indian joint venture partner. In addition to the Agreement, the Indian Promoter Group and Honda also entered into a License Agreement on January 1, 2011.

As per this agreement, Honda has given to the company, the right and license to manufacture, assemble, sell and distribute certain products and their service parts under their Intellectual Property Rights. In July 2011, the company changed their name from Hero Honda Motors Ltd to Hero MotoCorp Ltd. In February 2012, the company entered into a strategic partnership with Erik Buell Racing (EBR) Of USA for contemporary technology and design inputs to enable the company to launch high end bikes for the domestic and international markets. 6 Vision

The story of Hero Honda began with a simple vision – the vision of a mobile and an empowered India, powered by its two wheelers. Hero MotoCorp Ltd. , company’s new identity, reflects its commitment towards providing world class mobility solutions with renewed focus on expanding company’s footprint in the global arena. Mission Hero MotoCorp’s mission is to become a global enterprise fulfilling its customers’ needs and aspirations for mobility, setting benchmarks in technology, styling and quality so that it converts Its customers into its brand advocates

The company will provide an engaging environment for its people to perform to their true potential. It will continue its focus on value creation and enduring relationship with its partners. Strategy Hero MotoCorp’s key strategies are to build a robust product portfolio across categories, explore growth opportunities globally, continuously improve its operational efficiency, aggressively expand its reach to customers, continue to invest in brand building activities and ensure customer and shareholder delight. Brand The new Hero is rising and is poised to shine on the global arena. Company’s new identity “Hero MotoCorp Ltd.

” is truly reflective of its vision to strengthen focus on mobility and technology and creating global footprint. Building and promoting new brand identity will be central to all its initiatives, utilizing every opportunity and leveraging its strong presence across sports, entertainment, and ground-level activation. Manufacturing Hero MotoCorp two wheelers are manufactured across 3 globally benchmarked manufacturing facilities. Two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in northern India. The third and the latest manufacturing plant is based at Haridwar, in the hill state of

Uttrakhand. 7 Distribution The Company’s growth in the two wheeler market in India is the result of an intrinsic ability to increase reach in new geographies and growth markets. Hero MotoCorp’s extensive sales and service network now spans over to 6000 customer touch points. These comprise a mix of authorized dealerships, service & spare parts outlets, and dealer-appointed outlets across the country. Products of Hero Motocorp ? Sleek ? Street ? Achiever ? Ambition 133, Ambition 135 ? CBZ, CBZ Star, CBZ Xtreme, Hero Xtreme ? CD 100, CD 100 SS ? Hero Honda Joy, CD Dawn ?

CD Deluxe, CD Deluxe (Self Start) ? HF Dawn, HF Deluxe ? Glamour, Glamour F. I ? Hunk ? Karizma, Karizma R, Karizma ZMR FI ? Passion, Passion Plus ? Passion Pro, Passion XPro ? Pleasure ? Splendor, Splendor+, Splendor+ (Limited Edition), ? Super Splendor, Splendor NXG, Splendor PRO ? Splendor iSmart ? Hero impulse ? Hero Ignitor ? Maestro 8 PEST STUDY Political factors ? Land acquisition ? Imposition of taxes Economic factors ? Changing lifestyles & high quality ? Deluxe segment (category) 100-125cc grew up by 15% 125-250cc category grew at 9% ? 4% excise cut & 1% reduction in CST(Central Sales Tax)

? Higher interest rate & fuel prices Social factors ? Green Technology ? Safe Manufacturing ? Rain Water Harvesting ? The Green Supply Chain ? Vocational Training Camp ? Safe Rider Program Technological factors ? Largest investment of over Rs. 2500 Cr. to build an integrated R&D center in Rajasthan. Internal factors The internal environment which affecting the Hero motocorp are as follows ? Workers unrest at hero’s Haridwar unit ? Suppliers strike for the hike of the prices ? Heavy investment in infrastructure 9 ? Lack of workers commitment to the new technology and the development of new products

? Lack of management concentration we can take the example of demerger with Honda. SWOT Analysis Strength ? Huge brand equity and one of the biggest players in the two wheelers Indian market ? Excellent R&D and wide variety of products in every segment. ? Excellent distribution, over 3000 dealerships and service centers. ? Good advertising and excellent rebranding from Hero Honda to Hero Moto Corp. ? Ability to understand customer needs & wants. ? Recognized & established brand name. ? Due to the large range of products that are available, almost the entire customer base is covered. Weakness

? Absence in the premium bike segment. ? High imports for its spare parts i. e. over 30% imports. ? Most of the products have similar features and low on design and innovation. ? R & D is not close to the Hero manufacturing plant. ? Recently the joint venture of Hero & Honda has been broken. ? People are not familiar with new logo of Hero. 10 Opportunity ? Two-wheeler segment is one of the most growing industries. ? Export of bikes is limited i. e. untapped international markets. ? Global expansion into the Caribbean & Central America. ? Expansion of target market (including woman).

? To become India’s leader in the scooter market. ? Hero Moto corp can capitalize on its superior distribution channel to facilitate the selling of more bikes. Threats ? Strong competition from Indian as well as international brands. ? Dependence on government policies and rising fuel prices. ? Better public transport will affect two-wheeler sales. ? Bajaj motor, TVS motors are strong competitors. ? Honda can also big threat for Hero. ? Bajaj auto has found popularity with both its low-end & premium offering, which have helped chip away at Hero Moto Corp’s dominance. 11 Strategic Analysis

Strategies ? Cost leadership by managing component inventory in the system ? Hero Bharat, a new brand especially focusing on rural India. ? Company’s plants made leaner by outsourcing non critical process and operations ? For the niche market of gearless scooter segment, a new product, 110 cc Maestro was launched. ? Identified a new segment called off-road in-road category in Indian two wheeler market and launched a product for this segment called Impulse hence transitioning itself as a leader. BCG Matrix 12 GE NINE cell matrix Market attractiveness Factors Weight Rating (1-5) Value

(weight*growth) Resource availability 0. 2 4 0. 8 Overall market size 0. 15 3 0. 45 Annual market growth rate 0. 10 2 0. 2 Profitability 0. 15 3 0. 45 Competitive intensity 0. 20 2. 5 0. 5 Technological requirement 0. 20 3 0. 6 Total 1 3. 00 Business strength Factors Weight Rating (1-5) Value (weight*growth) Market share 0. 15 4 0. 6 New product development 0. 1 2 0. 2 Brand image 0. 1 4 0. 4 Sales force 0. 15 4 0. 6 Pricing 0. 15 4 0. 6 Distribution capacity 0. 1 4 0. 4 Product quality 0. 1 4. 5 0. 45 R&D performance 0. 15 3 0. 45 Total 1 3. 70 13 GE NINE CELL MATRIX Business strength High

Market Medium Low High attractiveness Medium low Financial analysis Balance Sheet of Hero Motocorp ——————- in Rs. Cr. ——————Mar ’13 Mar ’12 Mar ’11 Mar ’10 Mar ’09 Total Share Capital 39. 94 39. 94 39. 94 39. 94 39. 94 Equity Share Capital 39. 94 39. 94 39. 94 39. 94 39. 94 Share Application Money 0. 00 0. 00 0. 00 0. 00 0. 00 Preference Share Capital 0. 00 0. 00 0. 00 0. 00 0. 00 Reserves 4,966. 3 4,249. 89 2,916. 12 3,425. 08 3,760. 81 Networth 5,006. 2 4,289. 83 2,956. 06 3,465. 02 3,800. 75 Secured Loans 302. 16 994. 85 1,458. 45 0. 00 0. 00 0. 00 0. 00 32. 71 66.

03 78. 49 Total Debt 302. 16 994. 85 1,491. 16 66. 03 78. 49 Total Liabilities 5,308. 4 5,284. 68 4,447. 22 3,531. 05 3,879. 24 Mar ’13 Mar ’12 Mar ’11 Mar ’10 Mar ’09 Sources Of Funds Unsecured Loans Application Of Funds 14 Gross Block 4,427. 2 6,308. 26 5,538. 46 2,750. 98 2,516. 27 Less: Accum. Depreciation 1,356. 3 2,522. 75 1,458. 18 1,092. 20 942. 56 Net Block 3,070. 9 3,785. 51 4,080. 28 1,658. 78 1,573. 71 62. 09 193. 95 125. 14 48. 14 120. 54 Investments 3,623. 8 3,964. 26 5,128. 75 3,925. 71 3,368. 75 Inventories 636. 76 675. 57 524. 93 436. 40 326. 83 Sundry Debtors 665. 00 272. 31

130. 59 108. 39 149. 94 Cash and Bank Balance 181. 04 56. 10 47. 75 1,863. 48 217. 49 Total Current Assets 1,482. 8 1,003. 98 703. 27 2,408. 27 694. 26 Loans and Advances 1,401. 9 926. 99 783. 48 438. 46 325. 80 0. 00 20. 72 23. 77 43. 73 2. 08 Total CA, Loans & Advances 2,884. 7 1,951. 69 1,510. 52 2,890. 46 1,022. 14 Current Liabilities 2,893. 9 3,520. 66 5,316. 40 3,965. 69 1,678. 93 Provisions 1,439. 8 1,090. 07 1,081. 07 1,026. 35 526. 97 Capital Work in Progress Fixed Deposits 6 Total CL & Provisions 4,333. 2 4,610. 73 6,397. 47 4,992. 04 2,205. 90 Net Current Assets -1448. 5 -2,659.

04 -4,886. 95 -2,101. 58 -1,183. 76 Total Assets 5,308. 4 5,284. 68 4,447. 22 3,531. 05 3,879. 24 Contingent Liabilities 502. 00 252. 62 131. 90 73. 04 100. 54 Book Value (Rs) 250. 70 214. 83 148. 03 173. 52 190. 33 The total current assets of the company is increasing year by year after demerger with the Honda also the company is holding a very good current assets with that current liabilities also decreasing from year to year during 2011 it was very high but during 2012 onwards its keep on reducing its current liabilities. 15 Ratio analysis Financial Ratios of Hero Motocorp Mar ’13 Mar ’12

Mar ’11 Mar ’10 Mar ’09 Face Value 2. 00 2. 00 2. 00 2. 00 2. 00 Dividend Per Share 60. 00 45. 00 105. 00 110. 00 20. 00 Operating Profit Per Share (Rs) 166. 36 182. 69 130. 06 137. 40 87. 79 Net Operating Profit Per Share (Rs) 1,190. 27 1,181. 19 969. 86 793. 22 617. 23 13. 97 15. 46 13. 40 17. 32 14. 22 10. 77 11. 26 16. 01 12. 64 Investment Valuation Ratios Profitability Ratios Operating Profit Margin (%) Profit Before Interest And Tax Margin 9. 02 (%) Gross Profit Margin (%) 9. 17 10. 81 11. 33 16. 11 12. 75 Return On Capital Employed (%) 48. 57 49. 83 52. 13 75. 07 43. 33 Current Ratio

0. 67 0. 42 0. 24 0. 58 0. 46 Quick Ratio 0. 52 0. 28 0. 15 0. 49 0. 31 Debt Equity Ratio 0. 06 0. 23 0. 50 0. 02 0. 02 Long Term Debt Equity Ratio 0. 06 0. 23 0. 50 0. 02 0. 02 Fixed Assets Turnover Ratio 7. 32 4. 05 3. 70 6. 29 5. 34 Total Assets Turnover Ratio 5. 76 4. 91 4. 68 4. 80 3. 36 Dividend Payout Ratio Net Profit 66. 17 43. 91 126. 39 115. 04 36. 45 Dividend Payout Ratio Cash Profit 42. 99 30. 04 104. 57 105. 95 31. 95 Earning Retention Ratio 34. 98 50. 59 -34. 38 -25. 86 60. 01 Cash Earning Retention Ratio 57. 49 67. 48 -9. 98 -15. 06 65. 36 Adjusted Cash Flow Times 0. 09 0.

31 0. 67 0. 03 0. 06 Earnings Per Share 106. 07 119. 09 96. 55 111. 77 64. 19 Book Value 250. 70 214. 83 148. 03 173. 52 190. 33 Liquidity And Solvency Ratios Management Efficiency Ratios Cash Flow Indicator Ratios 16 Competitor analysis – BAJAJ AUTO LIMITED We have analyzed the company’s financial position with respect to its competitors taking into consideration the important parameters as per industrial practices . The main objective of a business is to maximize the owner’s economy welfare. This objective can be achieved by: ? P r o f i t /EPS maximization ? W e a l t h maximization.

Profit /EPS maximization: Profit /EPS earning is the main aim of every economic activity. A business being an economic institution must earn profit to cover its costs and provide funds for growth. SWOT analysis of BAJAJ AUTO LIMITED Strength ? Excellent brand presence and marketing in India ? Extensive research and development focus and highly experienced player in the motorcycle segment ? Widespread distribution network across India ? Wide product range in terms of price, quality and categories ? Featured in the Forbes Global brands list Weakness ? Not a global brand despite high volume production

? Lack of performance bikes like major international brands and sports bikes & cruisers Opportunities ? Bajaj Auto says its $2,500 car, which it is building with Renault and Nissan Motor, will aim at a fuel-efficiency of 30 km per liter ? Cheaper variants for tapping more in the rural segment ? Premium sports bikes for urban areas ? Constant growth in the two-wheeler segment Threats ? Cheaper imports from countries like China ? Entry of international brands 17 Comparisons with the Bajaj auto limited Current ratio-This ration measure the company’s ability to satisfy its current liability with its current assets hero motocorp

bajaj auto motors 1. 32 0. 88 0. 84 0. 8 0. 69 0. 58 0. 67 0. 46 0. 42 0. 24 2013 2012 2011 2010 2009 We can see from the graph Bajaj Auto able to maintain current ratio to 1. 32 which is much higher than Hero MotoCorp’s. So Bajaj can easily generate cash for to meet its need and can go for aggressive investment comfortably. Earnings per Share hero motocorp bajaj auto motors 119. 09 106. 07 105. 18 115. 42 103. 81 117. 69 111. 77 96. 55 64. 19 45. 37 2013 2012 2011 2010 2009 EPS of both the companies is approximately the same but salient point is for year 2011-12, EPS has increased by almost by 18% after demerger.

Hero has proven in the market that even without Honda it has very good growth potential. 18 Findings ? Hero motocorp is the market leader which is having highest sales when compared to its competitors ? The Hero motocorp is not so successful in premium segment bikes ? There is a high growth opportunity in the two wheeler segment ? A good and established brand name can be used to get the new customers. ? Reduced current liabilities from 2011 ? Increasing current assets from year to year even after the demerger ? No 1 in the market most of the people prefer the brand first

Conclusion Financially and operationally, Bajaj Auto Ltd has revived its competitive advantage. Hero MotoCorp, an already established company, nonetheless, is facing stiff competition from Bajaj and other such companies like Honda and TVS. To maintain its position as the leader, it should Leverage on its brand equity and customer loyalty. After de-merging from Honda, it should build upon its R&D facility and innovate products to sustain in the competitive environment. To increase the revenue, it should concentrate on premium bike segment with competitive pricing.

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