Hero Honda Motors Limited

“We have been able to improve our profitability in tandem with our increasing market
share. All through the year, we have consistently increased our market share. The financial
numbers reflect the strong focus on the bottom line. Several cost rationalization initiatives
were also taken, which have yielded in the improved bottom line.”

– Mr. Pawan Munjal, Managing Director, Hero Honda

Hero Honda Motors Limited (HHML) has emerged as the world’s largest two wheeler
manufacturer. With a market share of more than 50% in Indian two-wheeler segment, it opened
its third manufacturing plant in Haridwar with an installed capacity of half a million bikes per
year, particularly at a time when the growth in the two-wheeler segment is on a decline.
However, Mr. Pawan Munjal, Managing Director, Hero Honda, believes that the current downturn
is a temporary phenomenon, which would reverse as soon as inflation is under control. His
comments assume significance in the light of analysts’ speculation that Hero Honda may have
over-reached by opening a new factory at Haridwar, which will have the capacity to manufacture
1.5 million motorcycles annually by 2010. Added to this speculation is the fact that the company
has been facing stiff competition from Bajaj Auto especially in premium segment for the past few
years where the company’s market share is just below 8%. (Annexure IV).

The Industry
Indian automobile industry has come a long way since the first car ran on the streets of Bombay in
1898. It contributes around 3.6% to India’s GDP (Refer: (Annexure IV). and has been growing at
a CAGR of 16% from past five years. Today, Indian automobile sector is the second largest
two-wheeler market as well as tractor manufacturer in the world. It is the fourth largest
commercial vehicle and passenger vehicle market, and the eleventh largest passenger car market
in the world. It is the world’s largest three wheeler market.

Rapid growth of Indian automobile industry began during the 1990s, when the government ended
license raj in 1993, and ever since the industry saw rapid growth in volumes as well as in capacity.
Walter Grote, MD, Bosch India, has rightly remarked, “In India, automotive technology represents
a huge area of business, supplying both to the local automotive industry as well as exporting
components around the world.”

The post-1990s era enhanced the prospects of Indian automobile industry and India emerged as
potential vehicle manufacturing base. The industry, which is highly capital intensive and
technology-driven, has been highly successful in attracting global players to set up their
manufacturing base in the country; this is reflected in the presence of world’s auto majors
General Motors, Daimler Chrysler, Daewoo, Ford, Honda, Mitsubishi, Toyota, Fiat and Hyundai
in India and they have made large investments in the Indian auto sector. They have either
formed joint ventures or have technological collaborations. The main reasons for such attraction
towards India are: availability of steel at low cost; availability of manpower at low wages; and
huge untapped market potential as penetration level of vehicles from all segments is low and is
steadily on the rise.
HHML 2008-06

Considering the global scenario of the automobile industry and also looking at India’s place in
automobile industry, the value chain represented in Figure 1 would provide adequate information
for assessing the industry.
Figure 1: Industry Value Chain

Source: Icfai Research Team.

Organized Vs. Unorganized

Automobile industry is a highly capital intensive industry and is 100% organized in nature. On the
other hand, the auto-components industry is largely unorganized with the exception of some big
players or segments like steering. Major companies in auto component segment are Bharat Forge,
Amtek Auto, Sona Koyo, Ric Auto and many others. To have an understanding of the industry, an
idea regarding the relative role of various segments is required.

Segments
Automobile industry is divided into four segments viz., Two Wheelers, Passenger Vehicles,
Commercial Vehicle and Three Wheelers and we would try to analyze the all segments precisely
giving special emphasis on two wheelers.

Two Wheelers
The two-wheeler segment can be classified into three sub-segments viz., motorcycles, scooters,
and mopeds; these can be further subdivided according to their engine capacity. It is a highly
organized segment with Hero Honda, TVS Motors, and Bajaj Auto controlling 93% of the market.
In the last five years, CAGR of two wheeler segment is around 35.48% which is impressive by any
means and in FY 07 this segment grew by 11.63% where motorcycle contributed 12.79%, scooters
3.48% and mopeds 6.95%. However, in FY 08 the growth rate reduced to – 7.92% (Refer:
Annexure VII. According to analysts, the main reason for such sluggish performance is – rise in
inflation and subsequent tightening of monetary policies which led to an increase in interest rates
as the sales in this sector are very much dependent on availability of finance because 60% of the
two wheeler purchases are bank-financed.

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A segmental study for two wheelers shows that the demand for all major two wheeler variants has
fallen from past levels except for motorcycle. However, there is a rise in demand for scooters
especially for un-geared as they are now the preferred choice of ladies, teenagers, and elderly
people. Other variants of two wheelers are now not much favored and the market for them is
shrinking. As per Anang Dev Jena, Business Head and Motor Research Head, Synovate India,
“The gearless scooter segment is fast emerging as the second largest in the two-wheeler market
and could account for 25-30 percent of the overall two-wheeler industry over the next 3-5 years.
Currently, ungeared scooters account for just 12 percent, followed by geared scooters at
5 percent, mopeds at 5 percent and the step-throughs at one percent of total two-wheeler sales. The
growth in sales of gearless scooters had not taken off earlier as the cost of such vehicles was high
and they were less fuel-efficient as compared to motorcycles.” The reason for this turnaround is
the styling, pricing strategy and convenience because it provides convenience of owning and
riding for teenagers, women and older people.
In motorcycle space, the demand is shifting toward premium bikes from executive ones as is
evident from the facts (Refer Annexure IX). Industry experts cite rising income levels as the
reason. Mr. Anil Dua, vice president, (sales and marketing), Hero Honda, says, “With the economy
booming and people moving up the salary bracket, there has been an increase in demand for
distinctive and customized products. As a result, these premium bikes have emerged as the biggest
growth segment for us.” Also, the availability of large number of models spanning across various
engine capacities have boosted the growth in the segment, he opined.
According to industry analysts, huge margins in the segment unlike entry segments where margin
is miniscule have also led major players in the industry to focus on premium bikes in addition to
the growing demand for the same. Nevertheless, hike in interest rates and non-availability of
adequate finance affected the sales of entry-level bikes. However, premium motorcycles have
managed to offset the margin pressure from the companies to a great extent.
There are several reasons that indicate a bright future for two-wheeler industry in India. The
foremost reason being, the penetration level of two-wheeler is 25 per 1000 in urban and 8 per 1000
in rural areas; this is substantially low and indicates a huge growth potential for this segment.
Also, rapid urbanization and infrastructure development ensure a rise in demand for two-wheelers.
Other factors like, changes in the income distribution of households, technological, cost and
manpower advantage, also contribute for the huge potential lying in the two-wheeler segment.
However, fuel-efficient smaller cars and improving public transport infrastructure pose a challenge
for this segment.

Passenger Vehicles
India is the second biggest small car market in the world after Japan and the 11th largest passenger
carmaker in the world. This segment can be broadly divided into:
1. Passenger Car
2. Multi Purpose Vehicles (MPV)
3. Utility Vehicle (UV).
Car sales depend upon the overall growth in income, which is directly related to GDP growth. In
India, the sale of cars is growing at a CAGR of 17.8% and has a potential to grow further because
of low penetration level of cars in India. According to Mr. Anand Rangachary, Managing Director,
South Asia and Middle East, Frost and Sullivan, “India is already moving towards becoming an
export hub for small cars and is the fourth largest car market in Asia. Interestingly, India has the
lowest car penetration rate of 8.5 (per 1,000 population) when compared to select developing
countries such as Malaysia, Mexico, Brazil, Thailand, China, Sri Lanka, Indonesia and the
Philippines, demonstrating high potential that the Indian market has to offer.” A major trend in this
segment is that with rising income levels and availability of easy finance, customers are

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increasingly looking for higher-end models. There is a gradual shift from entry-level models to
higher-end models in each segment. For example, in passenger cars, till recently, the Maruti 800
used to define the entry-level car, and had a predominant market share. However, in the last 3-4
years, the higher-end models like Hyundai’s Santro, Maruti’s Wagon R, Alto and Tata’s Indica
have overtaken the Maruti 800. Another significant development is the blurring dividing line
between utility vehicles and passenger cars with models like Mahindra & Mahindra’s Scorpio
attracting customers from both segments. Upper end Sports Utility Vehicles (SUVs) attract
potential luxury car buyers by offering the same level of comfort in the interiors, coupled with
on-road performance capability.

Commercial Vehicles
India is the fifth largest commercial vehicles producer in the world and registered a growth of 33%
in Financial Year 07; of this, the growth of Light Commercial Vehicles (LCV) is at 33.93%. The
sale of commercial vehicles mainly depends upon industrial production and is led by it. According
to industry experts, other reasons for its growth are: the Supreme Court ban on overloading of
trucks, government emphasis on infrastructure development, and the ongoing Golden Quadrilateral
project.
However, with more roads being constructed and more industries being set up, demand for Heavy
Commercial Vehicles (HCVs) is supposed to grow at a very fast pace. Rapid urbanization of
various cities of the country has increased the demand for heavy commercial vehicles. It is
believed that auto financiers have also played a commendable role in the surging growth in the
domestic sale of the HCVs; however, recent hike in interest rate may slow down this growth
momentum a bit. Heavy commercial vehicle statistics suggest that the export of these vehicles
have also grown considerably in the recent years. The various HCV manufacturers are now eying
to tap the overseas market to enhance their business.
Demand for Light Commercial Vehicles (LCVs) are driven by increasing consumption of
consumer goods and durables in the smaller cities and towns and the restriction on the movement
of large goods carriers in the cities, especially during daytime. The demand for better load
distribution in cities, better fuel economy and ability to travel on highways and expressways
(because of the stability offered by four wheels) have led to strong demand for LCVs despite their
price being higher than that of three-wheelers.
The major risk for the growth of this segment is the growing freight corridor of railways, which
could have a significant impact on the entire segment, as they will reduce transportation costs and
time significantly.

Three Wheelers
The sale of three wheelers has declined significantly as can be seen from Annexure VII, after
registering a positive growth in previous years because of replacement demand due to statutory
mandate to convert them to clean fuel vehicles. Also, infrastructure development and spurt in
export by about 87% has increased the sales of four-wheelers. According to an Industry expert,
“Commercial vehicles below 1-ton have become more popular due to the larger space that they
offer. As a result, more and more transporters are now using these vehicles instead of the
traditional three-wheeler goods carrier and this has pulled down the overall sale in the last one
year.” This is the main reason for the sharp fall in three-wheeler volume. Nowadays, multi-purpose
vehicles like, Maruti Omni, Tata Ace Magic have become the preferred choice as goods carriers
because they offer larger space and are easy to handle. Besides this, PriceWaterhouse partner and
Auto analyst Majeed says that in the last one year, organized retail has gone up significantly with
big players foraying into this segment. This has led to a greater need for transportation of goods
from warehouses to retail stores. As a result, there has been an increase in intra-city as well as
inter-city movements for which these passenger vehicles are more reliable than the traditional
three-wheelers. Along with it, rising interest rates and the unavailability of finance as various
banks pulled out from auto financing to reduce the rate of delinquencies.

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Hero Honda Limited

HHML, a joint venture between Honda Motor Company of Japan and Hero Group in India, has not
only created the world’s largest two-wheeler manufacturer but also the most successful joint
venture. This success is proved by the fact that every second motorcycle running on Indian street is
from the Hero Honda stable. The company is in the business of manufacturing and selling two
wheelers in country and has two plants at Dharuhera and Gurgaon in India with a total installed
capacity of 3.4 million units. The company has a Greenfield project at Haridwar in Uttaranchal to
manufacture more than 1.5 million bikes by the year 2010. In 2007, the opening of Haridwar
added more than 500000 units capacity.
More than 50% of the company’s holding is with promoters i.e., Munjals hold 28.96% and Honda
hold 26% of the entire equity. Among others, FII’s hold the majority holding with 26.64%,
followed by Banks and Financial Institutions with 7.6 % and general public holding 7.49% equity.
Private corporate bodies, NRIs and others hold the remaining 1.42%.
Revenue Model
Being the largest two-wheeler maker, Hero Honda’s main business is to manufacture and sell
two-wheelers. Apart from this, the company took a major initiative to cater to customer
requirements; as a result, it has opened 3000 sales and distribution points across the country to
provide after sales and maintenance services to its customers. The company also generates revenue
through sale of spare parts, and vehicle finance.
Hero Honda Fin lease Limited takes care of vehicle finance while Hero Honda Limited does every
other work. The company generates its major revenue only from the sale of its vehicles; however,
other services also contribute significantly.

Product and Services

Considering Hero Honda’s pre-eminent position in the market and in various segments, its product
range is also catering to a wide range of customers as can be seen from the table below.
Table 1: Product and Services
Products Services
CD Dawn
CD Deluxe
Pleasure
Authorized Service Station and Sale
Splendor+
of Spare Parts
Splendor NXG
Super Splendor
Passion Plus
Glamour
Glamour PGM FI
Achiever
Vehicle Finance
CBZ Extreme
Hunk
Karizma
Source: Icfai Research Team.

Company’s Initiatives
Hero Honda has tough competition from Bajaj Motors especially in the premium segment (Refer:
Annexure IV). To strengthen its market position, particularly in this segment as also in view of the
consumer’s progression to premium segment from executive segment, (though this market
constitutes only 14% to 15% of the total motorcycle market in India), the company decided to
launch its new model Hunk.

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The company took a wise decision to enter in to scooter segment with its model Pleasure after
analyzing the demand from females who prefer these vehicles. According to Mr. Dua, senior VP,
Marketing & Sales, Hero Honda Motors, “We were focused on what we wanted to do. With our
gearless scooter pleasure, we wanted to garner 10% share of the overall scooter market by
targeting only women. So, we also have our only-women showrooms and our Lady Rider Club
that help in boosting volumes. Even our ads with Priyanka Chopra are so distinct that it shows that
we are only focused on women.” Other major initiative is the Hero Honda Passport Scheme as a
part of ‘Customer Relationship Management’ under which customers get their motorcycles
serviced at any Hero Honda’s authorized service station. It serves as an additional revenue driver
for the company and also facilitates hassle-free servicing for customers.

Company’s Achievements
Hero Honda has 3000 sales and distribution points across the country. The wide sales and service
network helps the company to spread its products and services faster and ahead of its competitors.
The company’s willingness to penetrate the market as much as they can to increase sales is
reflected in the statement of Mr. Dua, senior VP, Marketing & Sales, Hero Honda Motors: “We
have increased our dealerships from 2,500 to 3,000 this year and are in the process of adding 500
more.”
Hero Honda is adjudged as the seventh top Indian Company by Wall Street Journal Asia and is
ranked No.1 in Customer satisfaction index by CSMM-Business World Loyalty Report; also, it is
voted the TNS “Most Trusted Company” in 2006. These achievements reflect the high quality of
standards the company maintains, and which is vital for the success of a company.
During this financial year prices of steel, nickel, copper and other metals have risen considerably,
which in turn raised input costs in the last few months forcing the company to look inwards for
process efficiencies. The company has invested in Information Technology (IT) as a key
competitive tool to manage business processes, both within and outside the enterprise. Strategic
value drivers of company are now entrenched in the logistics and supply chain pipeline.

Role of Honda
Honda Motors has a dominant role in this joint venture; HHML is entirely dependent on Honda
Motors for technology and manpower training. On exports front also, HHML is not allowed to
export vehicles to those countries where Honda exports its vehicles. Another significant point to
consider is that in 1999, Honda Motors set up its own two-wheeler manufacturing unit in Gurgaon
as Honda Motorcycle & Scooter India (Pvt.) Limited. It has launched many models in the Scooters
and Motorcycles segment and grabbed significant market share in the scooters segment and in
premium motorcycle space (Refer Annexure IV). Industry experts are concerned as they do not
understand why Honda Motors, besides launching bikes in premium segment with HHML, has
come out independently and grabbed a market share of around 12% whereas HHML is still
struggling to make a significant mark in this segment having only 7%-8% market share.
An important thing to note is that Honda previously had such tie ups with Kinetic but later moved
out from the company; Honda’s moving away set the sun of Kinetic down; it never rose again.
At the launch of its 125 cc bike CBF Stunner in the executive segment, Mr. Shinji Aoyama,
President and CEO of HMSI, told Business Line in an interview that “Hero Honda is expanding
and we are also expanding. I don’t think we can catch up with Hero Honda…. There is no way. To
us being number one does not mean scale in business or volumes, but getting recognized as an
admired brand and through our customer satisfaction.” Incidentally, 125 cc bikes are HHML’s
main revenue generators.

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Competition
There are several market players in the two-wheeler segments; however, three players viz. HHML,
Bajaj and TVS control the market; of these, in the motorcycle space, the competition is mainly
between HHML and Bajaj. In the executive segment, HHML is the market leader with brands like
Splendor, Passion and Glamour while Bajaj rules the premium segment with brands like Pulsar. To
make a dent in the premium segment, HHML launched models like CBZ, Karizma and Hunk. As
said previously, customers are moving from executive segment to premium segment; hence, it is
utmost important for HHML to capture market in the premium segment for its survival.
However, Mr. Dua opines that the competition for them is easing. In an interview to Economic
Times, he said, “If you look at three years prior to this year, when apparently a lot of action was
happening in the premium segment, it contributed only 10-11% to the overall market and
remained stagnant in its contribution for almost three years. There was no movement at all.
Once again, when we launched CBZ X-treme in October last year and followed it up with
Karizma refresh, Achiever refresh and Hunk, see what happened to the market. The premium
segment now contributes 16-17%. We have more than doubled our volumes in the segment now
and have a robust portfolio to boast about.”
Exports
In the area of exports, HHML’s performance is very dismal. As said previously, HHML cannot
export to those countries where Honda is exporting. This poses a difficult situation for HHML as
this platform can be utilized to de-risk business when the competition and uncertainties in
domestic market rise significantly. However Mr. Dua feels, “The penetration of two-wheelers in
urban India stands at 25%, and 8% in rural areas. When we can do so much here, why should we
go overseas?” But this view of the company management does not match with analysts’ view.
Abdul Majeed, partner, Pricewaterhouse, reasons, “A company cannot depend solely on the
domestic market. The contribution of rural demand for the two-wheeler market was an important
factor in its growth. But this year, the agricultural sector hasn’t done phenomenally well.
Confidence is also very low in these areas because of this. And it reflects on the sales figures too.
So, if you have the right infrastructure in place, why not export to de-risk.” Brokerage house
Motilal Oswal Securities’ report on two-wheelers says that exports, which constituted 16.2% of
Hero Honda sales volume in this financial year, would grow at 22.1% CAGR over FY07-FY10 to
798,984 units, accounting for 24.5% of sales volume. For market number two, Bajaj Auto, exports
already constitute 22% of its two-wheeler volumes and TVS Motor exports 9.5% of its volumes.
These are some serious numbers. Analysts are of the view that to ensure its future success,
HHML should take exports as serious business.
Future Outlook
The automobile industry has deep forward and backward linkages with the economy and stands to
benefit from the economic growth. Rising income levels, higher replacement demand, ban on
overloading of trucks, rising infrastructure spending, strong freight rates, increase in industrial
activity and launch of new models would drive the demand for automobiles in India. Industry
experts expect that the automobile sector will grow at a CAGR of 12-15% over next 3-4 years.
The Government of India has also chalked out a roadmap to attract $40 billion investment in the
auto sector over a period of 10 years. The Auto Mission Plan (AMP – 2006-2016) announced by
Indian Prime Minister Dr. Manmohan Singh on Monday, January 29, 2007 aims at making India
an auto design, manufacturing and exports hub, and envisages a turnover of $145 billion by 2016
in the sector. The current size of the Indian automobile industry is about US$29 billion. A great
thrust is being given to exports with the target to take automobile exports from India to $35 billion
in the next 10 years from the current export turnover of $4.1 billion.

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However, slow down in construction activity, adverse liquidity position, upward movement in
consumer interest rates, and any increase in fuel and input material prices, remain a cause of
concern and would adversely impact industry sales. Further, interest rates growth and tightening of
liquidity would deteriorate this position.
As far as Hero Honda Motors is concerned, the company’s growth is highly leveraged towards
the technological achievement and the relation between the company and Honda Motors. Honda
Motors, besides having a tie-up with Hero Group, has been running an independent company
Honda Motorcycle and Scooters India Pvt. Ltd. and is a powerful player and competitor to Hero
Honda in both scooters segment and motorcycle segment. Whatever technology Hero Honda has
been using or deploying is sourced from its Japanese Honda Motors. In future, the growth in
two-wheeler segment is likely to be driven by executive (75cc-124cc) and premium segment
(124cc-249cc or above) bikes as they are becoming affordable with rising purchasing power. So,
technological breakthrough, launch of new models, and competitive pricing will be the
determinants of Hero Honda’s growth in future.

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ANNEXURE I
Profit & Loss A/C
(Rs. in Million)
Hero Honda Motors Ltd. March 2002 March 2003 March 2004 March 2005 March 2006 March 2007
12 months 12 months 12 months 12 months 12 months 12 months

No. of Vehicle 1425302 1677537 2070147 2621400 3000751 3336756

Average revenue per vehicle 31935.76 31221.61 33401.35 33470.66 34321.47 35420.48
(Sales/No. of Vehicles)

Growth Rate 0.38 0.18 0.23 0.27 0.14 0.11

Income 45518.1 52375.4 69145.7 87740.0 102990.2 118189.5

Sales 44718.7 51077.0 67544.7 86066.2 100971.7 1115534.7

Other income 472.1 232.5 536.0 440.5 758.1 1119.4

Change in stocks –58.1 210.8 –215.9 149.5 149.7 32.0

Non-recurring income 365.4 855.1 1280.9 1083.8 1110.7 1503.4

Expenditure 37735.0 42647.7 57460.7 74501.7 87565.8 104193.1

Energy (power & fuel) 256.1 258.2 297.5 328.8 466.5 524.5

Indirect taxes (excise, etc.) 53.9 97.5 9214.6 11867.6 13890.4 16610.2

Advertising & marketing expenses 937.3 1470.1 1331.2 1595.7 2055.9 2570.4

Distribution expenses 853.9 989.2 1156.2 1571.2 1988.7 2500.6

Others 2524.8 2334.4 2442.2 3546.8 4270.8 5253.7

Less: expenses capitalised 00.0 00.0 01.2 02.8 00.0 00.0

Non-recurring expenses 102.4 163.9 139.5 112.0 66.8 356.9

Profits/ Losses

PBDIT 7783.1 9727.7 11687.4 13243.9 15424.4 13996.4

Financial charges 329.2 248.2 229.5 177.6 155.8 137.6

PBDT 7453.9 9479.5 11457.9 13066.3 15268.6 13858.8

Depreciation 510.1 633.9 733.3 893.8 1146.2 1397.8

PBT 6943.8 8845.6 10724.6 12172.5 14126.2 1397.8

Tax provision 2314.5 3038.0 3441.4 4067.8 4409.0 3382.1

PAT 4629.3 5807.6 7283.2 8104.7 9713.4 8578.9

Appropriation of profits

Dividends 3496.7 4054.9 4505.4 4559.0 4553.9 3971.6

Retained earnings 1132.6 1752.7 2777.8 3545.7 5159.5 4607.3

DPS 175.1 203.1 225.6 228.3 228.1 198.9

Retention Ratio 0.24 0.30 0.38 0.44 0.53 0.54

Pay out ratio 0.76 0.70 0.62 0.56 0.47 0.46

Tax 33% 31% 31%

Dep 89.38 114.62 139.78

Int

No. of shares 199.7 199.7 199.7 199.7 199.7 199.7

EPS 23.18 29.08 36.47 40.59 48.64 42.96

Source: Icfai Research Team.

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ANNEXURE II
Balance Sheet
(Rs. in Million)

Particulars FY02 FY03 FY04 FY05 FY06 FY07

Gross Assets 7147.4 7815.8 9014.5 10747.3 14215.4 17297.6
Accumulated Depreciation 2234.7 2730.1 3303.3 4002.5 4721.7 5642.3
Capital WIP 96.9 91.9 176.9 408.5 441.9 1899.2
Net Fixed Assets 5009.6 5177.6 5888.1 7153.3 9935.6 13554.5
Investments 7262.9 11935.2 15651.0 20266.5 20618.9 19738.7
Current Assets 5258.4 4765.1 5089.9 5545.3 8212.4 9132.7
Cash 1089.6 243.3 371.2 176.0 1587.2 357.8
Inventories 1783.6 2009.2 1882.0 2042.6 2265.5 2755.8
Trade Debtors 997.2 1414.9 473.0 930.6 1621.9 3388.5
Loans and Advances 1388.0 1097.7 2363.7 2396.1 2737.8 2630.6
Current Liabilities 8802.3 11162.1 12600.5 15004.7 15628.0 14791.6
Net Current Assets –4633.5 –6640.3 –7881.8 –9635.4 –9002.8 –6016.7
Excluding Cash
Deferred Tax (Net) –706.6 –762.7 –893.4 –1009.0 –1187.8 –1282.0
Capital Deployed 8022.0 9953.1 13135.1 16951.4 21951.1 26352.3
Total Assets 16824.3 21115.2 25735.6 31956.1 37579.1 41143.9
Non-Current Liabilities
Secured Debt 00.0 00.0 00.0 00.0 00.0 00.0
Unsecured Debt 1164.4 1342.8 1747.0 2017.6 1857.8 1651.7
Total Debt 1164.4 1342.8 1747.0 2017.6 1857.8 1651.7
Contingent Liabilities
Share Capital 399.4 399.4 399.4 399.4 399.4 399.4
Reserves 6458.2 8210.9 10988.7 14534.4 19693.9 24301.2
Total Stockholders Equity 6857.6 8610.3 11388.1 14933.8 20093.3 24700.6
Capital Employed 8022.0 9953.1 13135.1 16951.4 21951.1 26352.3
Total Liabilty 16824.3 21115.2 25735.6 31956.1 37579.1 41143.9
Source: Icfai Research Team.

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ANNEXURE III
Cash Flow Statement
(Rs. in Million)
Particulars FY 02 FY 03 FY 04 FY 05 FY 06 FY 07

Cash Flow from Operating Activities

PBT 6943.8 8845.6 10724.6 12172.5 14122.4 12461.0

Depreciation 510.1 633.9 733.3 893.8 1146.2 1397.8

Other Non-Cash Charges –475.0 –608.9 –1412.3 –1127.0 –1305.6 –1582.8

Operating Profit before WC Changes 6978.9 8870.6 10045.6 11939.3 13963.0 12276.0

Changes in Current Assets –826.1 –344.3 –165.2 –740.8 –959.9 –1938.6

Changes in Current Liabilities 2589.3 647.2 3157.0 199.4 598.1 –284.9

Changes in WC 1763.2 302.9 2991.8 –541.4 –361.8 –2223.5

Cash Generated from Operations 8742.1 9173.5 13037.4 11397.9 13601.2 10052.5

Direct Taxes Paid –2351.4 –2966.0 –4024.4 –4190.5 –4800.5 –4362.1

Others –00.5 00.0 00.0 00.0 00.0 00.0

Net Cash Generated from Operations 6390.7 6207.5 9013.0 7207.4 8800.7 5690.4

Cash Flow from Investing Activities

CAPEX –886.2 –934.1 –1461.5 –2175.5 –3936.6 –5151.6

Investments –4085.9 –3944.2 –2571.8 –3585.9 412.2 1949.0

Interest Received 26.6 27.5 89.5 137.6 185.4 351.7

Dividend Received 280.0 04.1 180.0 –04.7 104.1 119.6

Net Cash Used in Investing Activities –4665.5 –4846.7 –3763.8 –5628.5 –3234.9 –2731.3

Cash Flow from Financing Activities

Change in Debt 499.6 178.4 403.3 270.6 –159.8 –206.1

Change in Equity 00.0 –00.2 00.0 00.0 00.0 00.0

Dividends Paid –1570.9 –2367.3 –5506.0 –2025.5 –3963.2 –3961.1

Interest Paid –15.2 –17.4 –17.3 –19.3 –29.2 –16.1

Others –00.4 –00.3 –01.3 00.1 –02.4 –05.2

Net Cash used in Financing Activities –1086.9 –2206.8 –5121.3 –1774.1 –4154.6 –4188.5

Net Increase in Cash and Cash Equivalents 638.3 –846.0 127.9 –195.2 1411.2 –1229.4

Cash and Cash Equivalents at the End 1089.2 243.2 371.1 175.9 1587.1 357.7

Source: Icfai Research Team.

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ANNEXURE IV
Market Share in Percent
Bajaj L M L Kinetic TVS Honda Kinetic Maje- Hero Electroth Yamaha Total
Auto Ltd. Motor Motor Motorcycle Engine stic Honda erm Motor
Ltd. Co. Co. & Scooter ering Auto Motors (India) India Pvt.
Ltd. Ltd. India (Pvt.) Ltd. Ltd. Ltd. Ltd. Ltd.
Ltd.

Segments Two Wheelers Market Share

Motor Cycles 522.2 – – – – 477.8 – – – – 1666

(Lessthan 75 cc)

Motor Cycles (75 – 124 cc) 257.3 11.8 – 134.7 – 01.0 – 559.7 – 35.4 5618337

Motor Cycles (125 – 249 cc) 635.5 00.2 – 116.2 115.1 – – 74.7 – 58.3 1464761

Mopeds 90.8 – – 801.9 – 46.6 60.6 – – 00.2 429700

Electric – – – – – – – – 10.00 – 7341

Scooters (Lessthan 75 cc) 24.58 0.07 67.1 686.4 – – – – – – 23236

Scooters (75 – 124 cc) 20.1 – 61.2 321.6 595.5 – 00.2 01.4 – – 755659

Scooters (125 – 250 cc) 36.7 287.9 – – 675.4 – – – – – 143355

Source: CMIE.

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ANNEXURE V
Automobile Exports Trends Growth in Percentage
Category 2003-04 2004-05 2005-06 2006-07 2007-08

Passenger Vehicles 79.56 28.70 5.51 13.03 10.06

Commercial Vehicles 42.24 71.75 35.60 22.01 19.10

Three Wheelers 57.14 –1.98 15.10 87.17 –1.85

Two Wheelers 47.51 38.24 40.05 20.75 32.31

Source: SIAM.

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ANNEXURE VI
Snapshot-Automobile Industry
Industry Market Cap US$40bn

Industry ROE 22%

Size Estimate Rs.1147bn (FY 06)

Industry/GDP 3.6%

Source: Lehman Brothers Report, India Everything to Play for, October 07.

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ANNEXURE VII

Automobile Sales Trends Growth in Percentage

Category 2003-04 2004-05 2005-06 2006-07 2007-08

Passenger Vehicles 27.56 17.68 7.68 20.73 12.17

Commercial Vehicles 36.41 22.42 10.24 33.25 04.07

Three Wheelers 22.70 08.37 16.91 12.22 –9.71

Two Wheelers 11.47 15.76 13.57 11.63 –7.92

Source: SIAM.

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ANNEXURE VIII
Prodution and Exports
No of Vehicles Exports as a % Production

Bajaj Auto Hero Honda Kinetic L M L Ltd. T V S Motor Yamaha Motor Majestic
Ltd. Motors Ltd. Engineering Ltd. Co. Ltd. India Pvt. Ltd. Auto Ltd.

Production 1419438 3136101 5031 65899 763821 208941 4435

Exports 181716 93692 1782 8581 61376 40578 300

Exports as a % Production 12.80 2.99 35.42 13.02 8.04 19.42 6.76

Source: Icfai Research.

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ANNEXURE IX
Number of Vehicles

Vehicles 2006-07 2007-08

Motor Cycles (Lessthan 75 cc) 05.16 6.73

Motor Cycles 75-124 cc 75.20 68.27

Motor Cycles 125-249 cc 19.63 24.99

Source: SIAM.

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ANNEXURE X
Shareholding Pattern of Hero Honda Motors Ltd. (Q3 2007)

Source: Hero Honda Annual Report.

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ANNEXURE XI
Share Price of Hero Honda along with BSE-500
Date Hero Honda Share Price in Rs. BSE-500
Oct-05 706.85 3,198.69
Nov-05 832.05 3,568.37
Dec-05 859.70 3,795.96
Jan-06 856.15 4,004.96
Feb-06 886.75 4,130.07
Mar-06 888.30 4,516.73
Apr-06 844.90 4,829.73
May-06 770.80 4,157.93
Jun-06 791.50 4,029.97
Jul-06 705.20 4,029.43
Aug-06 720.30 4,423.88
Sep-06 774.55 4,739.67
Oct-06 756.15 4,957.37
Nov-06 742.65 5,227.73
Dec-06 762.35 5,270.76
Jan-07 717.70 5,408.71
Feb-07 675.60 4,938.08
Mar-07 685.15 4,955.39
Apr-07 683.60 5,311.03
May-07 732.35 5,646.90
Jun-07 688.90 5,781.37
Jul-07 673.65 6,063.20
Aug-07 648.60 5,950.11
Sep-07 744.80 6,773.54
Oct-07 726.85 7,785.22
Nov-07 722.70 7,865.98
Dec-07 697.65 8,592.43
Jan-08 676.95 7,160.03
Feb-08 764.45 7,108.12

Source: www.bseindia.com.

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References
1. www.pharmabiz.com
2. www.cipla.com
3. CMIE
4. www.bseindia.com
5. www.pharmaceutical-drug-manufacturers.com
6. www.equitymaster.com
7. www.nseindia.com
8. www.ranbaxy.com
9. www.businessline.in
10. www.economitimes.com

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