Managerial Economics Assignment

Company Anaylsis

By:

Jimit Shah Sujatha Menon Jenny Parekh Vivek Mehta Ashwin Widge

01 02 03 04 05

Sr. No.

Topics

Company Profile

Marketing & Branding Strategies

Financial Statements

Fundamental Analysis

Future Prospects

Bibliography & Webliography

Companys Profile

Chairman Hero is the brand name used by the Munjal family for their company. The business story of this company started in the year 1956 in Ludhiana where Brijmohan Lall Munjal and his brothers set up a company that provided people with basic transport cycle. Stepping stone to the formation of the flagship company Hero Cycles.

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 MotoCorps 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 relationships with its partners.

By 1975 Hero cycles became largest bicycle manufacturer in India and still continue to be one of the top sellers of cycles.

There was no stopping to this dream, from cycles to two wheelers were a natural step and the Hero Group came into being. In 1983 Hero Group joint Collaboration Agreement with Honda Motor Co. Ltd. Japan and in 1984 Hero Honda Motors Ltd. Incorporated with their Headquarters at New Delhi, India. Their tagline being Dhak Dhak Go

The company offers one of the widest ranges of two- wheelers with over 19 different products across the 100 cc, 125 cc, 150 cc, 225 cc and scooter categories

But in December 2010, the board of directors of the Hero Honda Group has decided to terminate the joint venture between Hero Group of India and Honda of Japan due to the rising difference between the two partners. The detailed reasons would be explained by my colleagues in the future presentation. But what the caterpillar calls the end the rest of the world calls a butterfly the commitment towards its vision and mission of a mobile and an empowered India, Hero group rebuilt their brand with the name change to Hero MotoCorp, and tagline Hum Main Hai Hero

Area of Operations: 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. Marketing and current strategies Hero MotoCorp Chairman Brijmohan Lall formally announced on July 29, 2011 the end of relationship with Honda and soon after that the new logo and corporate identity, with the taglines Hum mein hai Hero, was launched and communicated through different media including the commercial ad. (Source: http://www.youtube.com/watch?v=Yc0CVEuUvRs ) The old tagline of Hero Honda was Desh Ki Dhadkan (Hindi to English translation: Heart of the [Indian] Nation OR Pace of the [Indian] Nation). This was clearly India focused, and it generated a lot of following for the company in its promotional campaigns during events such as the Cricket World Cup and built up strong emotional patriotic associations for it. These associations have just been weakened if not broken by the new Hero MotoCorp as it launched itself internationally in London. It aspires to be seen as a global player. Not just Indian. This strategic change may have a detrimental effect on the companys fortunes in the Indian market. A slot

just opened up for any other Indian motorbike company such as TVS Motor Company to position itself in the minds of people as Indias Biking Pride. Also now is not the best time for global expansion, and one of t he best times for growth with in India. The first priority was given to the TV ads and print media. A 120s TVC and a full page print ad were the branding strategy planned and executed. Later radio channels and online social media were focused. Branding Factors The Logo Change The new logo of Hero MotoCorp is a stylized 3D H using the colours red, black and white. The lettering consists of Hero in red in a much cleaner and simpler font. Red has been a Hero Honda staple color and is strongly associated with it. But they have also used it to depict continuity, change and confidence. Its a simple logo, memorable, and quite classy. Rebranding The word Hero was often used in ad campaigns of Hero Honda prior to demerger. And music was always mainstay of their ads. Music coupled with hero would be used in a manner, which would generate an emotional appeal of 'nationalism' and 'pride in oneself'. Post demerger, the word hero was again used with music to evoke emotional appeal in its viewers. But this time, the emotional appeal was shifted towards generating a feeling of 'pride in oneself' alone. Differentiating factor this time was very touching and hummable music of A R Rehman. This did two important things for Hero Moto Corp. One, it gave viewers same feeling of watching a Hero Honda ad. Two, fabulous Rehman music got viewers hooked on to Hero Moto Corps brand, creating a familiarity with the brand very quickly. Finally what you have in front of audience is Hero Moto Corp in the same light as before. Research Target Group and Sample size Males and females Age group: 20 35 Sample size: 53 Method used: Convenience Sampling

Can Hero now produce higher quality products without Honda?

Findings The reach of the ad was considerably good Most of the respondents like the concept of the ad But half of them failed to recall the new logo Majority of them knew the purpose behind launching the new ad campaign More than half of them agree that hero can manufacture same quality without Honda Service, Brand, Price and Mileage important while buying

Product basket We offer one of the widest ranges of two- wheelers with over 19 different products across the 100 cc, 125 cc, 150 cc, 225 cc and scooter categories. Operating locations Two of our manufacturing plants are based at Gurgaon and Dharuhera in Haryana (India) and one manufacturing plant is located at Haridwar, Uttarakhand (India). The combined annual installed capacity is approx. 6.90 million units. Enhancing reach We have one of the most extensive customer reaches with 5,800+ panIndia touch points with deepening presence across 1,00,000+ villages.

We are consistently expanding our footprint across Asia, Central & Latin America and Africa. Human capital We have highly motivated and experienced team of over 5,800 people. Hero warranty We are Indias first company to offer a 5-year warranty on all our two-wheelers*. This is also an expression of our confidence in the quality of our products, backed by strong R&D and excellent manufacturing capabilities. This initiative has resulted in strong customer commitment and trust, which will further strengthen our market position.

Product Sales

GOING GREEN (CSR) Hero has proactively restricted the use of mercury and cadmium in painting and rubber compounding processes. All plastic parts at our facilities come in a molded form, which facilitates easy recyclability at the end of a vehicles life cycle. They have also installed a waste heat recovery system to utilize waste heat from its gas generator. This enabled us to save 4,000 Standard Cubic Meter (SCM) of natural gas and thereby, prevent 2,600 tons of CO2 emissions. They also installed a vapor absorption machine, which enabled us to reduce 400 TR (340 KW) of electrical energy, thereby saving 524 tons of CO2 emissions annually. We also recycled paint sludge from itspaint processes, which is 5-10% of the total volumes of paint sludge generated. Heros products once used to rely on asbestos- based parts. However, they have now been replaced with non-asbestos based parts, which include brake liners, gaskets and other assembly parts. Similarly, lead was replaced by lead-free materials. Hazardous chemicals like hexavalent chromium were substituted in the plating process. Hero Terra Quiz aims to inculcate green practices, create awareness and raise environmental consciousness in youth. As a part of this initiative, we reached 2.5 lakh students across 2000 schools, spreading the message of green in the form of green Olympiad examination, workshops, banners and displays. Concept hybrid scooter Heros concept Hybrid Scooter Leap was unveiled in the 2012 Auto Expo in Delhi. The concept of Series Hybrid is fuel productive and eco-friendly. Leap runs primarily on battery in urban conditions and will use range extender gasoline engine for long runs. The product is at the pre-launch stage and will be launched in the near future.

Profit & Loss Statement

There has been decrease in number of units sold in 2012-13 when compared with 2011-12 by 3% in line with downtrend in entire industry. However in value terms there have been a marginal rise of 0.8% when compared to last year. This is because the selling price of the bikes has been increased. There has also been increase in excise duty by 1 % percentage point when compare to march 2012.
Total Expenditure Total Income

Amount Rs. (millions)

24027.06 12655.67 10691.02 16171.69 19742.14 20043.71 16839.99

24259.94 20577.08

13146.39

2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

Financial Year

Total income includes sales revenue and other incomes. The difference between these is called profit after depreciation and interest. The company has seen an increase of 1% in income while it has experience an increase of 3% in expenditure. The main reason for increase in expenditure is 11% increase in employee cost which includes salaries and wages.

Operating profit
5000 4000 3000 2000 1000 0 2008-09 2009-10 2010-11 2011-12 2012-13 Operating profit

-4.07% 54%

37.25%

-7.50%

In 2011-12 the company had seen a good amount of operating profit because of good sales and lower expenses. In 2012-13 comapany has witness a fall in its operating profit by 7.5% due to heavy expenses incurred. This is a bad sign for the company.

PAT (Rs)
25000 22318 20000 15000 12817 10000 5000 0 2008-09 2009-10 2010-11 2011-12 2012-13 PAT (Rs) 19279 23781 21181

A major fall in PAT in 2010-2011 is because of exceptional expenses of Rs 798 Cr which was given to buy 26% of Hondas stake. Due to increase in % expenditure over % income in last two years, PAT has dropped by 11% when compared with last year.

Other Income
Other Income

Amount Rs. (Cr)

3365.5

4135.1

3442.1

4480.3

4918.3

2008-2009

2009-2010

2010-2011 Financial Year

2011-2012

2012-2013

Income that is generated from sources other than a company's normal business operations is known as other income. There has been increase of 10% in other incomes in 2012-13. Main sources of other incomes are interest income from investments , dividend income from investments in other companies and other non operating incomes like sale of assets.

Balance sheet

7000

6000
5000 4000 Current Liabilities 3000 Current Assets

2000
1000 0 2008-09 2009-10 2010-11 2011-12 2012-13

The position of the company with respect to current assets is not healthy. For the last 5 years the current assets are in negative. In 2012-13 the total current assets has been improved when compared with last year.

Fundamental Analysis Market Capitalization: As on date Hero MotoCorp Ltd. has the market capital of Rs. 3, 95,97,03,28,125*. Earnings Per Share: The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a Hero MotoCorp's profitability. Calculated as: Earnings available for Equity shareholders No. of Equity Shares

Earnings Per Sahre

Earnings Per Sahre 150 Rupess 100 50 0 2008-2009 2009-2010 2010-2011 Financial Year 2011-2012 2012-2013 64.2 119.1 96.5 111.8 64.2

Earnings per share are generally considered to be the single most important variable in determining a share's price. Currently Hero MotoCorp Ltd. facilitates Rs. 102. 72 earnings per share. Price Earnings Ratio: A valuation ratio of a Hero MotoCorp's current share price compared to its per-share earnings. Calculated as: Market price per share Earnings Per Share

Price-Earning
Price-Earning 18 16 14 12 2008-2009 2009-2010 2010-2011 Financial Year 2011-2012 2012-2013

According to the stats, Hero MotoCorp Ltd provides their shareholders with 19.30 times earnings per share. Dividend Per Share Dividend per share (DPS) is the total dividends paid out by HMC Ltd. over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. Dividends are a form of profit distribution to the Hero MotoCorp Ltd shareholders. Calculated as: Equity Dividend No. Of Equity Shares

Dividend Per share

Dividend Per share

R u p e e s

110 20 2008-2009 2009-2010

105 45 2010-2011 Financial Year 2011-2012 60

2012-2013

Return on Investment/ Capital Employed: A performance measure used to evaluate the efficiency of an investment in Hero MotoCorp Ltd. or to compare the efficiency of a number of different investments. Calculated as: Earnings Before interest and Tax x 100 Capital Employed

Return on Net Worth/ Equity: Return on equity measures Hero MotoCorp Ltd profitability by revealing how much profit a company generates with the money shareholders have invested. Calculated as: Profit After Tax Shareholders Fund x 100

Return On Net Worth

Return On Net Worth 70 60 50 Per Cent 45.57 40 30 20 10 0 2008-2009 2009-2010 2010-2011 Financial Year 2011-2012 2012-2013 37.77 61.43 60.05 65.64

Debt - Equity Ratio: It indicates what proportion of equity and debt the company is using to finance its assets. Calculated as: Borrowed Funds Shareholders Fund

6000 5000 Amount (Rs.) 4000 3000 2000 1000 0 2008-2009 2009-2010 2010-2011 Financial Year 2011-2012 2012-2013 Equity Debt

Debt - Equity
Debt - Equity 0.6 0.5 0.4 0.3 0.2 0.1 0 2008-2009 2009-2012 2010-2011 Financial year 2011-2012 2012-2013

Debt Service Coverage Ratio: It is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments. Calculated as: Earnings Available for Debt Debt installments Earnings available for debt = net profit after tax + non-cash expenses (depreciation) +/- non operating expenses/incomes + interest on long term debt Debt installments = interest on long term debt + long term installments repayable Future Vision Export Potential in International Waters Hero Motor Corp is now completely free from all the export restrictions that it was facing in the earlier days which we remember to be the days of Hero Honda from its ex promoter from Japan Honda. Indias largest two wheeler maker Hero Motor Corp has announced that it aims to sell as much as ten lakh units in the overseas markets in the next

5-6 years. The company has also prepared a list of markets which it has decided to enter and later to dominate. Hero Motor Corp is looking at an exponential increase in export numbers. Hero Motor Corp is currently eying new markets in Africa, Southeast Asia and of course the Latin America, and expects to generate nearly 10 per cent of the companys total revenue from exports in the next five years. Estimated Turnover To mention its plans for the domestic front, HMC is looking forward to invest a whooping sum of INR 1,000 crore to set up two new manufacturing facilities besides expanding the output of three of its existing plants. Also, the companys production capacity will cross more than 6.5 million units per annum from its three plants, which merely stood at 6.15 million units in the month of April 2010. Hero Motor Corp also plans to enter 50 new markets by 2020 with a target of 20 manufacturing facilities across the globe and an overall annual turnover of Rs 60,000 crore. By the year 2020, Hero Motor Corp will have annual production of 12 million motorcycles and scooters every year. This will come from 20 assembly lines inside the country and outside the country. Hero Motor Corp is infusing substantial investments of ` 500 crore at their existing facilities at Dharuhera, Gurgaon and Haridwar in order to expand our capacities. The company plans to launch twelve new models in the next two quarters, starting September. Nemrana Plant (4th Plant) Hero Motor Corp has planned to construct a fourth plant at Neemrana, Rajasthan, with an initial ` 400-crore investment. The plant will provide direct employment to 1,000-plus people, and will have an annual installed capacity of 750,000 units.

Hero Motor Corp endeavours to build the brand equity globally by sponsoring international motor sports. Research & Development Centre (Diversification) A plan to set up one of Indias largest Auto Industr y Technology & Integrated R&D Centre is being executed. This new facility, which is coming up at Jaipur, will have all the requisite infrastructure facilities including labs for components, engine and complete vehicle testing. This will also have a design studio with the most up-to-date software for design and simulation. The facility will have a wide variety of test tracks, emulating the actual road conditions prevailing in India and other parts of the world. A large number of designers and engineers across specialist domains have been inducted into R&D over the past year. Hero Motor Corp is setting up a new state-of-the-art integrated R&D centre at Kukas, Rajasthan, with an initial investment of 400 crore. Built over an area of 250 acres, this will be the largest two-wheeler R&D centre in India and will employ 500-plus engineers. Tie Up With Avl, Austria Hero has also tied up with AVL, Austria, a global leader in engine design and development, to develop different categories of engines. Our engineers are also gaining deeper insights and knowledge on product design and engine development capabilities from the US motor biking firm, EBR. State Support Agreement. Hero Motor Corp has signed a State Support Agreement (SSA) with the Gujarat government to set up their fifth plant in the state. With an investment of ` 1,100 crore, the plant will possess an annual installed capacity of 1.2 million in the initial phase, which will grow to 1.8 million in the next phase. The plant aims to provide direct employment to 2,000-plus people.

GREEN VENDOR DEVELOPMENT PROGRAM (GVDP) In an effort to expand the horizons of its environmental practices, Hero Motor Corp is launching a Green Vendor Development Program (GVDP) in collaboration with its business partners. The Company is keen that vendors undertake the following actions and demonstrate continual improvement in their environmental performance: Establish an environmental footprint of their operations Develop green management policies to promote conservation of natural resources Institutionalize an effective Compliance Management Tool within the business strategy

Bibliography Websites www.heromotocorp.com www.moneycontrol.com www.monolithwebmarketing.com www.mediapanther.co.in www.wikipedia.com www.google.com www.youtube.com www.mint.com www.rediff.com Others Economic times Business Today Forbes India AutoCar India Bike India Overdrive