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Informist, Wednesday, Aug 14, 2024

 

--Hero MotoCorp: Seeing uptick in rural demand 

--Hero MotoCorp: Monsoon, festivals, favourable policies to drive sales 

--Hero MotoCorp: Working on scale to bring down electric 2-wheeler cost 

--Hero MotoCorp: Working on localisation to cut electric 2-wheeler cost 

--Hero MotoCorp: Revenue contribution from parts business low Apr-Jun 

--Hero MotoCorp: Saw modest inflation in commodity prices in Apr-Jun 

--Hero MotoCorp: Ramping up Xtreme 125 capacity to 40,000/mo next 2 mos 

--Hero MotoCorp: Expect strong sales growth during festival season 

--Hero MotoCorp: To launch a couple of models in premium segment FY25 

--Hero MotoCorp: Electric 2-wheeler ops weighed on EBITDA margin Apr-Jun 

--Hero MotoCorp: Working on recovering market share in 125cc segment 

--Hero MotoCorp: Situation in Bangladesh short-term setback 

--Hero MotoCorp: Seeing steady progress in exports 

--Hero MotoCorp: To see uptick in R&D spend FY25 

--CONTEXT: Hero MotoCorp spent 2.2% of revenue on R&D in FY24 

--Hero MotoCorp: Planning capex of 10-12 bln rupees in FY25 

--Hero MotoCorp: Electric 2-wheeler ops revenue 1.25 bln rupees Apr-Jun 

 

By Darshan Nakhwa

 

MUMBAI – Hero MotoCorp Ltd is working on hybrid technologies, given the shift of the automobile industry to alternative powertrain technologies to reduce emissions and operating costs, the company's Chief Executive Officer Niranjan Gupta said.

 

"The market will continue to see alternative powertrain technologies. As you know, there is ICE (internal combustion engine), and there's EV (electric vehicles), where industry is doubling down. We are working on flex fuel and ethanol-based fuel technology. In the long term, there are hybrid technologies also being worked on," Gupta said in a conference call held to discuss the company's financial performance in the June quarter.

 

Gupta said this in response to a question about the potential of compressed natural gas two-wheelers in India, and whether the company plans to introduce such products in the medium-term. In July, Bajaj Auto Ltd launched the world's first CNG motorcycle 'Freedom', and Eicher Motors Ltd and TVS Motor Co Ltd are also working on hybrid products.

 

Hero MotoCorp is working on multiple powertrain technologies, as the company believes a few powertrains may work in the long term. "We are working on improving fuel efficiency. Everything is around making the operating cost more efficient or more greener fuel," Gupta said.

 

India's largest two-wheeler maker also plans to expand its premium portfolio further in the ongoing year. "You will see some action on the premium end within this fiscal, where we will have a couple of more models coming in...," Gupta said. Starting in 2023, the company added Harley Davidson X440, Karizma XMR and Mavrick 440 to its premium portfolio.

 

The company also aims to introduce a few scooters in the ongoing year. "The scooter action will be big on both ICE and EV side. On the ICE side, a new Destiny model with full body change will be unveiled very soon. Probably as soon as maybe next month itself. And then it will be followed by the models in Xoom, where we already have a 110cc (cubic centimetre) model. It will be followed by 125cc and 150cc (models) as well," Gupta said.

 

"Coming to electric segment, you will see portfolio expansion into mid and affordable segment within this fiscal year," Gupta said. The company currently sells its electric scooters under the Vida brand in India. It plans to roll out three electric scooters, one each in premium, mainstream, and mass categories in 2024-25 (Apr-Mar). 

 

Even as electric two-wheeler sales continue to grow in India, the upfront cost remains a challenge for customers as well as manufacturers. Hero MotoCorp's Chief Business Officer Swadesh Srivastava said the company is working aggressively on the powertrain side to bring down cost through technological improvements, localisation, and by bringing scale. "You will see that benefit coming out into our further launches. You'll see affordable products coming out later this year, and they will be at the backdrop of these cost reductions," he said.

 

In Apr-Jun, Hero MotoCorp sold over 10,000 electric two-wheelers. Its revenue from this segment was 1.25 bln rupees, but it continued to struggle on the profitability front. "We continue to invest in electric two-wheelers but obviously, when volumes are lower, the percentage impact seems higher (on EBITDA margin)," Gupta said.

 

In the June quarter, Hero MotoCorp saw a sharp recovery in market share in the 125cc segment charged by the new model Xtreme 125cc, and it continued to maintain a formidable market share in the entry and deluxe 100/110cc segment. In anticipation of higher demand for 125cc two-wheelers going forward, the company is expanding the capacity of Xtreme 125R to 40,000 units per month from 25,000 units over the next couple of months.

 

"The demand is definitely there for Xtreme 125R not only in dealerships but also in our networks. As we increase our capacity, we will be able to fulfil the demand. So, the capacity is on the ramp up as the product has received an excellent response," said Ranjivjit Singh, chief business officer, India business.

 

In 2024-25, Hero MotoCorp plans to spend 10-12 bln rupees on capital expenditure. It also expects the research and development spend to increase from the year-ago period. In 2023-24, the company had spent 2.2% of its revenue on research and development. Currently, the company has a centre for innovation and technology in Jaipur, and a technology centre in Germany.

 

On the sales outlook for the rest of 2024-25, the company's management said it expects above-normal monsoon, strong demand during festivals and favourable government policies to drive sales during the year. "We are seeing an uptick in rural sales. It's definitely a more balanced growth...With the kind of economic movements that the government has made with the kind of rainfall that we are seeing, even as we get into the festival season, we see a better outlook from rural... The sentiment is strong across both rural and urban areas," said Singh.

 

In Apr-Jun, Hero MotoCorp also reported strong on-year growth in exports. The company saw a recovery in sales in Nigeria, and despatches to Columbia improved as well. However, there was a setback in Bangladesh but it is expected to be short-term disruption, said Gupta.

 

Hero MotoCorp announced its earnings for the June quarter on Tuesday. It reported strong growth in key earnings metrics driven by higher despatches, richer product mix, higher average selling price, and moderation in commodity prices. However, the company failed to meet the Street's expectations.

 

Today, shares of Hero MotoCorp ended 3.3% lower at 5,072.45 rupees on the National Stock Exchange.  End

 

Edited by Ashish Shirke

 

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