Why Hero MotoCorp Expects Rural Demand To Recover Faster Than Urban
Hero MotoCorp has lowered its capex for FY21 and is focusing on cutting costs and optimising operations, CFO Nilanjan Gupta says.
India’s largest two-wheeler maker expects rural demand to recover faster than urban, aided by improved crop production and the government’s fiscal stimulus, as the economy gradually eases lockdown restrictions.
“One can cue that given agricultural activities like increase in crops, increase in sowing, normal monsoon forecast and the fiscal stimulus more directed towards rural, these economies are likely to do better than urban. We will have to watch out the trend as we move forward,” Niranjan Gupta, chief financial officer at Hero MotoCorp Ltd., said in a post-earnings conference call. But it’s difficult to forecast how demand will pan out in the fiscal ending March 2021, he said.
India’s automakers were facing the worst slump in sales since the Diwali festival season of 2018. The Covid-19 pandemic exacerbated the slowdown as companies halted production and dealers shut showrooms in response to a lockdown to curb the virus.
Hero MotoCorp’s sales tumbled 42% in March and 25% year-on-year during the fourth quarter. That hurt the company’s profit, which fell 15% year-on-year to Rs 620.7 crore in the three-month period.
But as the restrictions ease, the New Delhi-based two-wheeler maker said all its plants, vendors are operational and more than 90% of the dealership outlets have opened up. “Many dealers are reaching 70-80% of the pre-Covid retail levels,” Gupta said, adding the ramp-up will be gradual based on consumer demand.
He said the company is witnessing a robust recovery in retail sales, and that getting volumes back is its priority. The two-wheeler maker, however, is yet to see a positive impact in markets such as Maharashtra and Gujarat—the states worst hit by the pandemic.
For a brief period, Gupta said, retail sales may be chasing production, but it will make up as more manpower starts to come back. “It’s a good problem to have. Over the last two-three years, production has chased retail sales.”
Capex Lowered
Hero MotoCorp will also focus on cutting costs, improving overheads and optimising operations to ensure its medium- to long-term priorities are not harmed.
The company lowered and deferred it capital expenditure for the year to about Rs 600 crore from Rs 1,000 crore. According to Gupta, research and development is an area where the company hasn’t cut investment, and the product development is ongoing.
“Capacity expansion, renovation have been deferred.”