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Hero Motor Corp

E I C Analysis
8/19/12

Neeraj Mishra 25A

Agenda
Industry Competition Economic Impact Industry valuation Policy Implications

Introduction Econom y

Industry Compan y Company Finances & Returns Management Analysis Expansion Strategies Future projection

Economy GDP Analysis Taxation Economy Indicators 8/19/12Future outlook

Economic Analysis
Investments & Economy Projections Parameters: FDI 2011-12: GDP: $ 1.847 $24.6 b trillion Net FII Inflow: $7 GDP Growth: 5.3% b Fiscal Deficit: Highest FDI inflow 5.8% in Services sector Trade Deficit: with Telecom being the second largest 4.5% Tax free Economy in investment under Stagflation situation risk with GAAR with low growth and After a promising start to the decade in 2010-11, the fiscal year provisions high inflation the Indian Economy with decreasing inflows andhas been challenging to EU crisis a major making policy continued monetary tightening dampening factor High fiscal deficit, lack of foreign investment, tax and changes difficult 8/19/12 for this the Indian manufacturing reforms are some of the hindrances plaguing year Inflation Rate:

Economic Analysis
Central bank Rates:

Current repo rate: 8.50% Bank Rate: 9.50% Rev Repo Rate: 7.50% CRR: 4.75% SLR: 23.00

India Trade:
Current export at $225.3 billion whereas imports stand at $263.9 billion leading to a deficit of $38.6 billion Increased demand of crude and industrial goods increasing imports leading to higher deficits

Source: World Bank

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Courtesy: PTI

Impact on Auto Industry: Both direct and indirect consequences of economic crisis on the industry Reduced working time, lower production and deferred investment plans High interest rates are also a concern for the industry Increasing costs in components industry is reducing the industry profitability lean and efficient manufacturing is the new mantra of success

Industry Analysis
Automotive Sector
1.

Implication of Economic movements

2.

Policy Impact:

By 2016 the size of the Indian automobile industry is expected to grow by 13%, to reach a mark of US$ 120-159 billion. Decrease in GDP reduces overall purchase power leading to reduced demands Oil price movements also have significant impact on net sales of the industry Current exports are on a slide as major exports directed towards EU and US De-licensing in 1991 has put the Indian automobile industry on a new growth track Foreign investment friendly environment has helped major players such as Honda, Suzuki and Yamaha Lifting of JV requirement for foreign companies

3.

Implication of International Agreements:

Reduced tariffs on imports of parts has helped the industry in cutting costs WTO NAMA is seen as favorable change

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Industry Analysis
Automotive Sector
1.

Industry Constituents:

Major domestic players are Hero, Bajaj and TVS International brands such as Yamaha, Harley, Honda etc have made their presence felt in recent times Yamaha planning to invest Rs. 1500 Cr. Highly fragmented market in rural areas Low tech, low price domination Focus on cost effectiveness and high mileage Premium section growing at double digits

Customers: This industry is mainly driven by

customers sentiments which is driven by income and oil prices Suppliers: Low negotiation power due to the presence of large number of suppliers, high quality goods from Chinese sources giving tough competition to domestic suppliers New Entry: Already saturated with many domestic and international players with high volume of sales and penetration in urban and domestic markets. Also difficult entry policies by government makes it hard for new players Substitutes: They can range from cheap cars such as

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Company Analysis
Hero MotoCorp
1.

Company Facts:

2006 Forbes 200 most reputed companies Formed as a result of dissolution of JV with Honda Founded in 19th Jan 1984 Products: Motorcycles, Scooters, and spare parts Revenue: USD 4.27 Billion with an operating income of USD 470 Million Cash Flow Analysis: Net cash flow of the company was Rs. -5.59 Cr in 2011-12 Ratio Analysis: a) Dividend per share: 105 b) Operating Profit per Share: 130.06 c) Debt Equity Ratio: 0.5 d) Asset turnover Ratio: 3.7 e) Cash Earning Per Share: 96.55 Plans of construction of a new plant in Neemara, Rajasthan with a cost of Rs. 4000 Cr adding an annual capacity of 750,000 units New State of the art R&D centre with a cost of 400 Cr Capacity expansion at existing plants

2.

Finance Analysis:

3.

Growth Prospects:

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