Management Discussion
and Analysis Report

Economic Review

THE EMERGING MARKETS AND DEVELOPING COUNTRIES NOW ACCOUNT FOR OVER 75% OF GLOBAL GROWTH IN OUTPUT AND CONSUMPTION, ALMOST DOUBLE THEIR SHARE SINCE LAST TWO DECADES

7.1%
INDIA’S GDP FOR FY 2016-17

GLOBAL ECONOMY

The global economy seems to be stabilising after a sustained period of volatility. With buoyant financial markets and a long-awaited cyclical improvement in manufacturing and trade under way, global growth is expected to rise from 3.1% in 2016 to 3.5% in 2017 and 3.6% in 2018 [Source: IMF].

During the second half of 2016, US firms grew more confident about future demand and the US economy recorded a lower rate of unemployment even as the new President has made promises to expand domestic investments and production in the country. UK witnessed a rise in domestic demand following Brexit. In addition, there seems to be momentum in the Eurozone economy as robust domestic demand led recovery in the second half of 2016, belying earlier expectations of a slowdown due to geopolitical uncertainties. If these tailwinds continue, the global economy may pick up steam over the medium-term. Going forward, a downside to growth is the rising trend towards protectionism, which may have an impact on global trade.

At the other end of the spectrum are the emerging markets and developing economies, which have grown in importance in the global economy in recent years. They now account for over 75% of global growth in output and consumption, almost double their share in the last two decades. According to the IMF, the significant income gaps in these economies vis-à-vis those in advanced economies suggest further room for catch-up, favouring their prospects of maintaining relatively strong potential growth over the medium term.

During FY 2016-17, the picture for emerging market and developing economies (EMDEs) remained distinctly diverse:

  • Stronger than expected growth in China, supported by continued policy stimulus and consolidation after years of break-neck speed
  • Weaker than expected activity in some Latin American countries (Argentina, Brazil and Colombia) which faced a sharp contraction in tourism revenues
  • Better than expected activity in Russia, in part reflecting firmer oil prices.

Global growth pattern (%)

  2015 2016 2017(P) 2018 (P)
World Output 3.2 3.1 3.4 3.6
Advanced Economies 2.1 1.7 2.0 2.0
United States 2.6 1.6 2.3 2.5
Euro Area 2.0 1.7 1.7 1.6
Japan 1.2 1.0 1.2 0.6
United Kingdom 2.2 1.8 2.0 1.5
Other Advanced Economies* 2.0 2.2 2.3 2.4
Emerging and Developing Economies 4.1 4.1 4.5 4.8
China 6.9 6.7 6.6 6.2
Sub-Saharan Africa 3.4 1.4 2.6 3.5

P: Projections *(Excludes the G7 - Canada, France, Germany, Italy, Japan, United Kingdom, United States and euro area countries) (Source: International Monetary Fund)

Latin America

The economy of Latin America contracted by 0.7% in 2016. However, Brazil’s emergence from a deep and protracted recession and an economic rebound in Argentina is expected to help to lift the regional growth back into positive territory in 2017. Regional growth is expected to be challenging as the largest economies continue to struggle. According to some reliable projections, the region’s GDP growth could pick up to 1.5% in 2017. Next year, the economy of Latin America is expected to expand and grow by 2.5%.

Sub-Saharan Africa

Despite challenges, the economy of Sub-Saharan Africa (SSA) is expected to rebound in 2017; and then gather momentum in 2018. The region’s GDP is expected to expand by 2.6% this year. Going forward, as the global economy gains momentum and many commodity markets rebalance, the regional economic performance is set to improve further next year, with analysts forecasting that SSA’s GDP could grow by as much as 3.5%.

INDIAN ECONOMY

India, one of the fastest growing major economies, has recently emerged as the world’s sixth largest manufacturing country as well. India’s GDP for FY 2016-17 touched 7.1%, demonstrating the fact that India’s economic fundamentals continue to be strong. While emerging urban clusters are driving this growth, rural India is seeing a recovery after around 3-4 years. Such a scenario is likely to generate momentum for India Inc. The country’s economic prospects appear optimistic with policymakers creating enablers for strong and sustainable growth for the medium to long-term.

India’s GDP grow (%)

2013-14 2014-15 2015-16 2016-17
6.9 7.3 7.6 7.1

CATALYSTS FOR GROWTH

Infrastructure resurgence

The government is committed to ensure time-bound creation of world-class infrastructure in the country. It is targeting around ` 25 trillion (US$ 376.53 billion) investment in infrastructure over a period of three years, which will include ` 8 trillion (US$ 120.49 billion) for developing 27 industrial clusters; and an additional ` 5 trillion (US$ 75.30 billion) for roads, railways and port connectivity projects.

Rural demand

The Union Budget for 2017-18 has allocated ` 3,960 billion for rural India. Of this corpus, rural roads alone will get ` 29 billion and the Government intends that by 2018 every village should be electrified and by 2019 each village should have road connectivity

Higher agricultural credit, enhanced allocation for irrigation projects, a crop insurance scheme for farmers and increased allocations for MGNREGA in the Union Budget will also help bolster rural income.

In addition, the implementation of the Seventh Pay Commission Recommendations will also spur demand across semi-urban and rural India.

Rural India therefore, is witnessing a quiet transformation. Consumption patterns in rural areas are gradually changing owing to better networking among rural consumers; and their tendency to proactively seek information via multiple sources, including mainstream as well as social media.

The wider reach of media and telecommunication services is making rural consumers more well informed. Interestingly, rural consumers are evolving towards a broader notion of value, which involves utility, aesthetics and additional features.

Institutional reforms

The FY 2016-17 was marked by a variety of institutional reforms such as the implementation of the Insolvency and Bankruptcy Code, creation of Monetary Policy Committee, redesigning of the Fiscal Responsibility and Budget Management (FRBM) framework, passage of GST, and finally, the policy thrust towards a less-cash formal economy. In addition, the trend of benign inflation and continued improvement in twin deficits further bolstered the country’s macroeconomic parameters.

BENEFITS OF A LESS-CASH ECONOMY

  • Greater push towards digitisation
  • Recapitalisation of banks, with consequent decline in interest rates on loans
  • Greater transparency and disclosure
  • Wider tax base
  • Increase in tax compliance
  • Greater formalisation of the economy

GST IS A RADICAL STEP FORWARD

  • Provides a uniform tax framework for indirect taxes
  • Unifies fragmented Indian market under uniform taxation
  • Enhances ease of doing business with transparent taxation
  • Removes cascading effects of taxes
  • Saves government’s cost in tax collection
  • Diminishes raw material costs and thus, decreases prices of associated goods
  • Reduces corruption with unified taxation

Outlook

India’s growth momentum is likely to accelerate in the second half of FY 2017-18, amid the rapid pace of ongoing re-monetisation and trickle-down impact of past policy reforms.

The country’s growth rate is likely to touch 7.4% in 2017-18, driven by a rebound in consumption demand. In addition, long-term consumption growth will be driven by major factors: government reforms across all sectors of the economy; low interest rates; benign inflation; favourable demographics (half of the population is below the age of 35), and an expanding addressable market size (India now has 50 large consumption hubs).

We are excited by the opportunities unfolding before us nationally and internationally. We are geared to capitalise on those opportunities through our market reach, brand strength, focus on innovation and appropriate technology leverage.

Two-wheeler Industry Review

THE TWO-WHEELER INDUSTRY CATERS TO INDIA’S NEED FOR LOW-COST, FUEL-EFFICIENT TRANSPORT. A LARGE PROPORTION OF THE COUNTRY’S POPULATION THEREFORE CONTINUES TO PREFER TWO-WHEELERS FOR THEIR DAILY COMMUTING PURPOSE. WHILE THE OVERALL ECONOMIC BUOYANCY WILL GIVE RISE TO DEMAND, THE GOVERNMENT’S FOCUS ON ROADS, RAPID URBANISATION AND IMPROVING PUBLIC TRANSPORT INFRASTRUCTURE INCLUDING IN THE RURAL PARTS OF THE COUNTRY WILL DRIVE GROWTH FURTHER.

5.2%
TWO-WHEELER INDUSTRY GROWTH IN FY 2016-17

INDIAN TWO-WHEELER INDUSTRY

The two-wheeler industry registered a 5.2% growth in FY 2016-17, compared to the previous year. The overall industry (domestic and export) increased from 18.94 million units in FY 2015-16 to 19.92 million units in FY 2016-17.

The performance of India’s two-wheeler industry in FY 2016-17 can be divided into two parts: pre- and post-demonetisation.

  • Pre-demonetisation: The industry witnessed double-digit growth from April to October 2016, highest since FY 2011-12. The demand in this phase was strong in rural markets owing to average monsoons. Moreover, the Seventh Pay Commission pay-outs played a part in pushing demand in urban and semi-urban India.
  • Post-demonetisation: Demonetisation had a short-term impact on the overall automotive sector, as it led to a cash crunch in the market. Consequently, the two-wheeler industry recorded a decline in the post-demonetisation phase (November 2016 to January 2017).
  • In February-March, 2017 the industry partially recovered, although it was hampered by the industry’s migration from BSIII to BSIV emission norms.

TWO-WHEELER INDUSTRY GROWTH TREND

INDIAN TWO-WHEELER GROWTH TREND (DOMESTIC + EXPORTS) (mn)

Motorcycles constitute 66% of the two-wheeler market (Domestic and exports), and grew by 2.1% from 12.91 million units in FY 2015-16 to 13.17 million units in FY 2016-17. The launch of new attractive models at affordable prices for urban and rural consumers, and design innovations (primarily targeting youth) drove this growth.

Scooter sales grew by 10.1%, from 5.30 million units in FY 2015-16 to 5.84 million units in FY 2016-17 owing to rapid urbanisation and its ‘gender-neutral’ image. Moreover, factors like enhanced comfort, versatility, and contemporary features, along with youth connect drove the sales of scooters in India. While scooter growth seems strong, it has been slowing down on a year on year on a larger base.

Moped sales increased significantly by 24.4%, from 0.73 million units in FY 2015-16 to 0.91 million units in FY 2016-17 owing to a slew of new product launches.

DOMESTIC TWO-WHEELER INDUSTRY

INDIAN TWO-WHEELER INDUSTRY (DOMESTIC) (mn)

The domestic two-wheeler industry sales grew by 6.8% from 16.45 million units in FY 2015-16 to 17.58 million units in FY 2016-17.

Motorcycle sales grew by 4.1%, from 10.70 million units in FY 2015-16 to 11.14 million units in FY 2016-17. The scooter sales registered a 10.2% growth, from 5.03 million units in FY 2015-16 to 5.55 million units in FY 2016-17. Moped sales grew significantly by 24.2% from 0.72 million units in FY 2015-16 to 0.89 million units in FY 2016-17

The domestic two-wheeler industry grew steadily owing to new product launches, robust rural demand, and rising urbanisation.

Two-wheeler industry - segmental break-up

Motorcycles continue to dominate the domestic two-wheeler industry with 63.4% share. Within the segment, 100-125cc category motorcycles, where Hero MotoCorp is a formidable leader, continued to dominate the segment with over 76% market share. The 150cc+ category grew significantly by over 20% in the previous financial year, primarily owing to consumer preferences moving towards premiumisation.

Scooter’s share in the overall industry has grown by one percentage point from 30.6% in the FY 2015-16 to 31.5% in the FY 2016-17

Exports in two-wheeler industry

Exports of two-wheelers from India declined by 5.9% from 2.49 million units in FY 2015-16 to 2.34 million in FY 2016-17. The decline was owing to sluggish demand and adverse currency movements in emerging markets and local economic factors. This was the second consecutive year of de-growth for two-wheeler exports from India.

The motorcycle segment witnessed a decline (y-o-y) of 7.9%, while the exports of scooters grew by 8.1% (y-o-y), owing to the favourable introduction of new models. Exports of mopeds (from a very low base) grew significantly by 36.3% (y-o-y).

TWO-WHEELER SEGMENT SHARE (%)

MOTORCYCLE SEGMENT SHARE (mn)

ROBUST OUTLOOK

India’s two-wheeler industry is expected to grow consistently. The catalysts of growth comprise the following:

  • Consistent economic growth with a predominantly youth bulge;
  • Make in India drive;
  • Rising middle-class income and aspirations;
  • Rapid urbanisation;
  • Boost in rural economy

Evolving customer preferences: There has been a significant shift in customer preferences from choosing basic transportation options to demonstrating social standing by owning multiple vehicles. Other factors include a rise in the trend of ‘commuting with leisure’, rise of individualisation and an increased requirement for women to commute.

Going forward, the government’s policies – aided by the measures announced in the Union Budget – is expected to facilitate long-term economic growth. This could help the two-wheeler industry to maintain its positive outlook and consequently, change the face of ‘Bharat’ – the India beyond our cities. We are also hopeful of a successful implementation of the GST in July. With all these factors coming into play, FY 2017-18 may well turn out to be a turning point for the industry as well as the country’s economy.

Evolving Global Two-wheeler Markets

AT HERO MOTOCORP, WE ARE EXPANDING OUR PRESENCE ACROSS THE EMERGING AND DEVELOPING WORLD. GROWING ECONOMIC WELLBEING, INEFFICIENT PUBLIC TRANSPORTATION, HIGH FUEL EFFICIENCY, LOWER EMISSIONS, AND RISING YOUNG POPULATION DRIVE DEMAND ACROSS THESE GROWTH MARKETS.

1. SOUTH ASIA

South Asian markets proved much more resilient than the rest of the world, with Nepal and Bangladesh, demonstrating doubledigit growth. The Sri Lankan market which grew considerably in FY 2015-16 remained flat. Customer preference and regulatory mandates continue to shift the market towards scooters in both Nepal and Sri Lanka. The Bangladesh market should continue to show high growth and dominance of entry level motorcycles, going forward.
Major opportunities exist in all the three markets for Hero MotoCorp. New product launches especially in the scooter category should strengthen our share in Nepal and Sri Lanka in the coming years. With our new manufacturing facility coming up in Bangladesh, we foresee major upside in that market.

2. AFRICA

African markets continue to be besieged by volatile crude oil price and currency devaluation. Rise in inflation has also led to a major corrosion of margins for OEMs in this region. East and Central African markets have been relatively more stable, with consistent pricing from OEMs and lower market contractions.
Going ahead, Africa would continue to be a high volume low margin market for OEMs. The rebound of the African market as a whole may take some time due to overdependence on crude prices. We continue to build on the strong foundations laid in previous years with a focus on improving customer reach, awareness, and advocacy.

3. MIDDLE EAST

Turkey and Iran (two important markets) saw a change in regulation this financial year. Turkey has moved to Euro-4 and Iran has moved to fuel injected bikes for imports. Two-wheeler volumes in both markets are expected to contract owing to higher input cost, as a result of change in regulation, which will lead to a significant price rise in these markets. At Hero MotoCorp, we remain committed to our customers in these markets and would be launching new products soon

4. LATIN AMERICA

The two-wheeler market in Colombia declined by over 12% in FY 2016-17. Other Latin American markets have been flat or witnessed marginal growth during this fiscal. Except for Colombia, markets continue to be geared towards 125-150cc bikes. We expect high upside in markets of Colombia, and Central America and the Caribbean (CAC), owing to strong distribution network and growing customer reach going forward.

Achieving Steady Operational Performance

FOR OVER THREE DECADES, WE HAVE BEEN PROVIDING BEST-IN-CLASS MOBILITY SOLUTIONS TO THE INDIAN CONSUMER. WE ARE CONSISTENTLY ADOPTING WORLD-CLASS TECHNOLOGIES AND KEEPING WITH THE EMERGING TRENDS TO BE ABLE TO STAY AHEAD OF COMPETITION THROUGH OUR PRODUCTS AND SERVICES. THE RESULT IS A BRAND THAT IS TRUSTED FOR RELIABILITY, DURABILITY, AND ENDURING STAKEHOLDER VALUE.

HERO MOTOCORP CONTINUES TO SUSTAIN ITS LEADERSHIP IN THE HYPERCOMPETITIVE TWO-WHEELER INDUSTRY LANDSCAPE. IT HAS REMAINED THE WORLD’S LARGEST MANUFACTURER OF TWO-WHEELERS FOR 16 CONSECUTIVE YEARS.

OPERATIONAL BANDWIDTH

During FY 2016-17, our two-wheeler sales posted a marginal growth of 0.5% to 6.66 million units, compared to 6.63 million units in FY 2015-16. An above- average monsoon and positive consumer sentiments expanded sales. We enjoy a leading market share of 36.9% in the domestic market.

SEGMENTAL REVIEW

Motorcycles

In FY 2016-17, sales in the entry segment grew by 21.5% to 1.41 million units, resulting in a segment share of 55.2%. In the deluxe segment, we captured 70.6% of the segment with sales of 4.17 million units in FY 2016-17. In the premium segment, we registered sales of 0.10 million units and 3.7% segment share in FY 2016-17.

Scooters

With a focus to further strengthen our position in scooters segment, we have rejuvenated our scooters range in 2017 with energy boost models - Maestro Edge, Duet and 10th anniversary edition of Pleasure.

Commissioned our Vadodara plant

We commissioned our greenfield plant in Vadodara, Gujarat – our sixth plant. We produced the Vadodara plant’s first product (Splendor Pro), and presented it to the Somnath Temple in Gujarat. The first phase capacity of Vadodara plant is 12 lakh units per annum, while overall production capacity planned is 18 lakh units

GLOBAL BUSINESS

Hero MotoCorp is steadily growing its global presence across Asia, Africa, the Middle East, and Central Americas. We are now present in 35 international markets

During FY 2016-17, we exported 0.182 million units, compared to 0.21 million units in FY 2015-16. In the motorcycle segment (export), the Company’s sales stood at 0.14 million units in FY 2016-17 from 0.133 million units in FY 2015-16.

FIGHT FAKE, STAY SAFE

We initiated the ‘Fight Fake, Stay Safe’ campaign as a part of the ongoing initiative to curb the menace of spurious parts. We launched stringent action against the manufacturers and traders of spurious parts and counterfeit products under this initiative. The objective of the initiative is to ensure the safety of the vehicle and those riding it. Usage of genuine parts also goes a long way in curbing environmental pollution. This initiative thus, safeguards the interests of customers and ensures that they have access to Hero genuine parts.

TOTAL SEIZED PARTS

25,000 FAKE PARTS

2 LAKH LABELS

  • 226
    AUTHORISED REPRESENTATIVE OF PARTS DISTRIBUTOR (ARPDS) OUTLETS
  • 20,450
    RETAIL POINTS WHERE HERO GENUINE PARTS ARE SOLD

AS ON MARCH 31, 2017

Global Parts Centre (GPC) at Neemrana

The GPC at Neemrana ensured stability and efficiency in operations in delivering genuine parts of Hero MotoCorp to a widespread nationwide network. The infrastructure at GPC helped in effectively servicing large quantities of parts and will play a crucial role to manage the ever-expanding complex business of parts. Currently, it delivers and services 22,000 different parts; and the number is expected to rise with every new model launched by the Company.

Process level improvements were done in the areas of serviceability, supply chain and logistics, strategic marketing, Parts Distributor Operational Excellence Programme (PDOEP) and channel management.

Influencer Management

We launched the ‘Asli Hero’ programme for Parts Distributors (PDs) in India to establish relationship with key influencers (open market technicians) in the parts business. The programme has been successful in registering 32,400 technicians, of which 26,600 technicians are actively transacting and procuring our parts.

Unique Product Identifier (UPI) Authentication Campaign

Role of UPI to identify Hero genuine parts was further strengthened with a nation-wide campaign. The campaign was rolled out using multiple mediums – radio and on-ground activation to create awareness.

Brand Building for Hero Genuine Parts

For greater visibility and visual uniformity of our genuine parts, a standard design for boards was placed at all open market retail outlets. We leveraged our social media presence to educate our customers about the importance of genuine parts.

Accessory Launch

The role of a two-wheeler has evolved over the years. It has transformed from a mere mode of transport to a style statement. To enhance customer delight, we launched an exclusive range of Hero Genuine Accessories (HGA) across four categories: helmets, seat covers, grip covers and floor mats. Our accessories combine the highest level of quality, aesthetics, and design. We are committed to deliver an enhanced driving experience and the pride of owning a Hero to our customers.

GLOBAL PARTS CENTRE (GPC) DELIVERS AND SERVICES 22,000 DIFFERENT PARTS; AND THE NUMBER IS EXPECTED TO RISE WITH EVERY NEW MODEL LAUNCHED BY THE COMPANY.

Financial Performance

FINANCIAL HIGHLIGHTS

During the financial year under review, your Company Sales of 66,64,240 units brought a revenue of ` 30,328.83 crores, depicting an increase of 0.23% over the previous financial year when 66,32,322 units sales brought a revenue of ` 30,258.96 crores.

Revenue from operations of your Company increased by 0.47%, from ` 30,700.88 crores in FY 2015-16 to ` 30,846.12 crores in FY 2016-17.

Profit before tax (PBT) has shown an increase of 5.04% from ` 4,434.87 crores in FY 2015-16 to ` 4,658.46 crores in FY 2016-17. Your Company’s Profit after Tax (PAT) increased by 6.86% from ` 3,160.19 crores in FY 2015-16 to ` 3,377.12 crores in FY 2016-17

Earnings before Interest, Depreciation and Taxes (EBIDTA) margins stood at 15.03% in FY 2016-17 as compared to 14.51% in FY 2015-16.

There was no exceptional expense during the year, the Company’s marketing and publicity spend was 0.12% higher than the previous year. Hero MotoCorp is going global on a large scale, with plans of entering 50 markets by 2020.

DIVIDEND

Continuing with its payout policy, your Directors are pleased to recommend for your approval a Final Dividend of 1500% i.e. ` 30 per equity share of the face value of ` 2 each, in addition to an interim dividend of 2750% i.e. ` 55 per equity share of the face value of ` 2 each, paid in the month of March 2017, aggregating to a total dividend payout of 4250% amounting to ` 1,697.42 crores (exclusive of tax on dividend) during the financial year ended March 31, 2017. In the previous financial year, total dividend payout of 3600% i.e. ` 72 per Equity Share of the face value of ` 2 each has been made. Final dividend, if approved at the ensuing Annual General Meeting, shall be paid to the eligible members well within the stipulated time.

WORKING CAPITAL MANAGEMENT

Hero MotoCorp has always sought to efficiently use the various components of its working capital cycle. It has also effectively controlled the receivables and inventories, enabling us to operate on a negative working capital.

PROFIT AFTER TAX OF YOUR COMPANY INCREASED BY 6.86% FROM ` 3,160.19 CRORES IN FY 2015-16 TO ` 3,372.12 CRORES IN FY 2016-17

Key profitability metrics FY 2016-17 FY 2015-16
Return On Average Capital Employed 49.18 54.78
Return On Average Equity 35.65 39.03
Profit after Tax / Income from Operations 10.95 10.29
Profit before Tax/ Income from Operations 15.10 14.45
Operating Profit before Interest and Tax / Income from Operations 15.03 14.51
Operating Profit before Tax / Income from Operations 13.43 13.09
Ratios FY 2016-17 FY 2015-16
Inventory Period (in days) 9.26 10.35
Inventory and Receivable Conversion Period (in days) 26.04 26.15
Cash Cycle (29.97) (22.78)
Current Ratio 0.71 0.78
Acid Test Ratio 0.55 0.58
1500%
FINAL DIVIDEND PAYOUT FOR FY 2016-17
15.03%
EBITDA MARGIN FOR FY 2016-17

Crafting a Customer-facing Approach

Hero Joyride Programme

We launched a Smart Card based annual maintenance package, named Hero Joyride Programme, with benefits of upto 30% saving to consumers. Within three months of the launch of the Programme, close to two lakh customers have enrolled in the programme. The facility is available at more than 2000 authorised service centres across the country and over one-lakh customers have already availed the Joyride services.

Customer Outreach activities

More than 100 mega service camps were conducted nationally, primarily covering small towns with more than 800 Hero consumer visits per camp, on average. During the year, nearly three lakh Hero two-wheelers benefitted from our ‘Service Har Jagah’ initiative in villages.

RURAL MARKETING

Under the aegis of our ‘Har Gaaon Har Aangan’ umbrella rural initiative, we further strengthened Hero brand value across rural markets, by offering best-in-class sales and after-sales experience. We established Hero as not just a mobility provider but as a source of economic and social upliftment in rural India.

To touch the lives of people in vast rural landscape of India, we participated in local fairs and festivals, which enabled us to engage with and create brand awareness among people from various regions of the country.

Common Services Centre (CSC)

We are the first two-wheeler company to tie-up with Common Services Centres (CSCs), under the Ministry of Information Technology. We have more than 3,50,000 CSCs operational across India including 1,00,000 centres in rural areas. We also engaged with and conducted trainings for influencers and opinion leaders in regional centres to further cultivate our brand association.

Chalo Sakhi Pleasure Seekhein

We continued our drive to empower rural women, by teaching them to ride two-wheelers. By leveraging government’s social and physical infrastructure, we engaged with over 1,500 women in rural India this year. And in process made them our loyal customers and brand ambassadors.

Kushiyan Har Angan

This year again we strengthened our relationship with over 20,000 opinion leaders and customer-focus groups. We engaged the opinion leaders as our brand ambassadors in rural areas by educating them about our products and services.

Bharat Shreshth 2017

This is an innovative practice to identify and utilise new sales channels and improve penetration to strengthen our brand’s presence. We united Rural Support Executives (RSEs) under a standard operating procedure (SOP) to generate maximum results. We engaged with customers through opinion leader meetings and loan and exchange melas and focused on scooters in rural markets for referral sales through our existing customer base. We recognised and rewarded top performing RSEs of Bharat Shreshth campaign.

Building a Robust Supply Chain

OUR INVENTORY MANAGEMENT CONTINUES TO IMPROVE, DESPITE GROWING PRODUCT COMPLEXITY AND THE INTRODUCTION OF NEW MODELS. WE HAVE ENSURED THAT OUR PRODUCT DISTRIBUTION SYSTEM CATERES TO THE EVOLVING MARKET DEMANDS.

ENHANCED EFFICIENCIES AND ROBUSTNESS OF SUPPLY CHAIN

To improve our inbound supply chain functionalities, we have outsourced logistics services to external service providers. This allowed us to develop and implement a returnable packing for transportation to Gujarat, which brought about a 25% reduction in inbound logistics cost for Vadodara Plant.

OPTIMISED UTILISATION OF INBOUND VEHICLE

We increased the truck capacity by increasing the use of two-and three-tier trucks, enabling better turnaround time, reduced manpower costs and enhanced material movement.

Additionally, an efficient logistics system reduces road congestion and environmental pollution.

BROAD-BASED SUPPLY CHAIN

Our portfolio of supplier base was enhanced with the integration of local and global suppliers. We formed strategic partnerships with key suppliers of critical engine and emission controls parts. We also partnered with global best-in-class suppliers, to gear-up for upcoming emissions (BSVI) and safety (ABS/ CSB) regulations.

SUPPLIER INITIATIVES

  • Supplier certification: We rolled out numerous quality initiatives such as Supplier Certification of Part Excellence (SCOPE) for better productivity and outcome.
  • Total Productive Maintenance (TPM): TPM drive continued with participation of 26 suppliers. They were meticulously reviewed, periodically, to enhance the impact of the TPM methodology
  • Supplier Operation Excellence programme: This was put into place to enhancing productivity and quality of supply chain partners. These projects have had significant impact on reducing raw material consumption and waste generation at the supplier end.

STRATEGIC COLLABORATIONS

To abide by evolving regulatory requirements globally and developing future-ready technology, our supply chain partners have collaborated with top technology players for Fuel Injection (FI) system, to build advanced solutions for engine control.

GREEN INITIATIVES IN VENDOR DEVELOPMENT

We continue to review and monitor our suppliers under the Green Vendor Development Programme, encouraging them to use green practices.

LEAP (a cost optimisation initiative)

Our LEAP initiative completed four years in FY 2016-17. In this financial year, LEAP has contributed over ` 0.27 billion to our bottom line. LEAP continues to build team competencies and drive initiatives to challenge the status quo, enabling higher efficiency.

VADODARA PLANT

Globally competitive suppliers have been identified and on-boarding processes have been initiated. Our focus remains on cost-efficient transportation model and highly efficient inventory control. Also, the implementation of e-material flow is in the pipeline.

BANGLADESH PLANT

We plan to develop a local supply base. Moreover, existing suppliers have been roped in to provide technology and product support. A five-year supply chain investment outlook has been prepared to source majority of the parts locally to improve the value chain.

WAY FORWARD

  • Consolidate our procedures to achieve best-in-class logistics, enabling best turnaround time in the industry
  • Focus on digitisation across processes in supply chain
  • Identification and implementation of automation in the key business areas
` 0.27BN
CONTRIBUTION FROM LEAP INITIATIVE IN FY 2016-17
26
SUPPLIERS PARTICIPATED IN TPM DRIVE

OUR PORTFOLIO OF SUPPLIER BASE WAS ENHANCED WITH THE INTEGRATION OF LOCAL AND GLOBAL SUPPLIERS. WE FORMED STRATEGIC PARTNERSHIPS WITH KEY SUPPLIERS OF CRITICAL ENGINE AND EMISSION CONTROLS PARTS.

Adapting Industry-next Technology

To streamline our organisational processes, the following initiatives were undertaken:

  • Digitisation of our manufacturing process, a step towards Industry 4.0. We implemented a ‘Digital Twin’, a system that simulates manufacturing operations before setting them up physically. This ensures zero disruptions at the live stage and expedites manufacturing process
  • Several mobile apps for employees were launched to enhance productivity
  • Integration of product manuals resulted in customers not having to maintain physical copies of their documents
  • Digitised ‘Free Service Coupons’ (FSCs) were launched to eliminate the need of maintaining physical coupons
  • Created an app for road safety to address any kind of on-road emergencies
  • Commenced using predictive analytics to assess demand and production trends of our products
  • Organised hackathons for devising solutions to business problems. We also conducted internal contests for employees to think without boundaries and share their ideas

DURING FY 2016-17, WE ADOPTED ADVANCED TECHNOLOGIES TO STREAMLINE OUR ENTIRE OPERATIONS ECOSYSTEM. BEST-IN-CLASS MANUFACTURING FACILITIES, COUPLED WITH THE MOST ADVANCED BUSINESS PROCESSES HAVE HELPED US BUILD A PRUDENT GROWTH MODEL.

Some of the other initiatives are:

  • Integration of HR processes with IT systems and move to Cloud based systems
  • Digitised our collaboration with Channel Partners to strengthen our daily operations
  • Strengthened social media presence and engagement with our customers. We also deployed tools to capture customer voice on the Internet and imbibe the feedback internally
  • Launched an employee platform for discussion on new trends in the two-wheeler industry, helping propagate a knowledgesharing among employees
  • Enhanced operational efficiency in Colombia through multiple initiatives. Also created a futuristic and robust technology landscape for the manufacturing plant
  • Prepared for the rollout of the Goods and Service Tax (GST). All the groundwork for GST adoption has been completed with the multiple internal and external stakeholders
  • Extended autoDX (B2B Electronic Data Interchange) to more suppliers during the year
  • Extended e-Material Flow to multiple manufacturing facilities

Celebrating Heroes of Hero

INTERNATIONAL WOMEN’S DAY CELEBRATIONS #BEBOLDFORCHANGE

WE TREASURE OUR TALENTED EMPLOYEE POOL AND CELEBRATE THEIR ACHIEVEMENTS. OUR DIVERSE, MULTI-CULTURAL WORKFORCE DRIVES THE BRAND GLOBALLY. OUR APPROACH OF ‘ONE HERO’ IS A KEY CATALYST IN CREATING A WELL-KNIT ORGANISATION, WHICH IS EFFECTIVELY IMPROVING PERFORMANCE AND SIMULTANEOUSLY RAISING THE COMPANY’S COMPETITIVE EDGE.

‘ONE HERO’ APPROACH

At Hero MotoCorp, we are working towards the human resource strategy of ‘One Hero’. This is a philosophy aimed at standardisation, agility, transparency, and fairness in all our initiatives. Our thrust areas are:

  • Creating a diverse and inclusive culture that represents and engages our workforce consisting of different nationalities, educational backgrounds, skills & capabilities, gender and age.
  • Skilling our people and building world-class capabilities within the organisation for our employees to deliver our aspirational business objectives and while doing so, also achieve their personal career milestones.
  • Building a strong leadership and talent pipeline to fuel a rapidly growing organisation across different geographies and competing with the best in the world.

Automating and digitising HR processes, enhancing quality of all HR processes and services, ensuring positive employee relations to build a strong foundation for the organisation

HR DIGITISATION

We launched the ‘mySuccess’ platform, an integrated talent management suite. The suite is live with features such as Employee profile, Goals module, Performance management module, Learning module and Recruitment on-boarding module. Additionally, a Contingent Workforce Management System (CWMS) has been made functional. This will provide a single platform for all our off-roll employees and give real-time data visibility on contingent workforce, engaged in our business activities, in addition to handling all compliance activities seamlessly.

SECURING THE FUTURE: SUCCESSION AND LEADERSHIP DEVELOPMENT

During the year, we further strengthened our Leadership Talent management and succession planning processes. We conducted Talent reviews at functional level, and identified critical positions, succession depth and high potential talent in each function. Using this as foundation, and the identified gaps in succession, we filled these leadership positions with highly competent talent from across the globe. We now have several nationalities working for us under one roof helping build high quality, technology infused products for our customers.

We continued to deploy leadership development initiatives to build succession for key roles. We partnered leading business schools for both strategic leadership, technical and operations management. A variety of technical and behavioural training, job rotation programs are conducted throughout the year, to provide holistic development for our employees.

In a unique intervention – Inspire to Imagine (i2!), we engaged a cross section of the high potential talent in a journey to Harvard Business School & MIT Labs to explore the latest and most advanced developments in the area of automobiles, AI, robotics.

COMMUNICATING EFFECTIVELY

The leadership communication efforts continued in FY 17 with the Chairman addressing the organisation on the theme of SOAR - Strengths, Opportunities, Aspirations and Results and outlining organisational goals and objectives. Our anonymous employee engagement app Hyphen enabled employees to make their voices heard discreetly without the fear of retaliation. The tool is meant for engaging our employees in providing constructive feedback that has led to several changes in the policies such as Team Celebrations, Leave etc.

We continued to demonstrate our commitment to improve the work-life balance, focused on employee health and wellbeing. For the purpose, we conducted regular preventive health check-ups, yoga camps, sports competitions (like the Hero Premier League). More than 300 employees of Hero participated in the Airtel Delhi Half Marathon – leading the way towards healthy lifestyle.

HERO CAMPUS CHALLENGE 2.0

FY 2016-17 was the second year of ‘The Hero Campus Challenge’, based on scenario planning exercises designed exclusively for B-school campuses. A total of 533 teams from Indian B-schools participated in it; and the participation was 40% higher vis-à-vis the previous year

533
TEAMS FROM INDIAN B-SCHOOLS PARTICIPATED HERO CAMPUS CHALLENGE 2.0
150+
WOMEN ASSOCIATES IN OUR THREE FACILITIES AT NEEMRANA PLANT, GLOBAL PARTS CENTRE AND HARIDWAR PLANT

DIVERSITY AND INCLUSION

Breaking the barriers of gender diversity on manufacturing shop floors, we successfully implemented Project Tejaswini - to introduce ‘Women Associates at Hero Shop Floor’ for the first time in our history. These bold changes called for shifting mind-sets towards affirmation and build an eco-system for women associates to work and thrive. Today, at Hero, we have more than 150 women associates in our three facilities at Neemrana Plant, Global Parts Centre and Haridwar Plant.

This was a bold step towards becoming an employer of choice and a Great Place to Work!

WOMEN WARRIORS

We continued to identify champions within our women employees through the Women in Leadership (WIL) Programme, in collaboration with BML Munjal University and Imperial College of London. This programme is designed specifically to provide critical inputs on leadership development that enable women employees to take leadership roles in the future.

We also started an Alternate Career Programme (ACP) for women, which create unique opportunities for female professionals looking for work after a hiatus. We revamped and introduced several policies aimed at improving work-life balance of our female employees. Restructuring our maternity leave policy at an industry best of 30 weeks, flexi-work policy post maternity leave, introduction of a paternity leave and adoption leave are some of them.

Our International Women’s Day celebrations was themed around #BeBoldforChange where employees reiterated their commitment to the promise of diversity and inclusion.

WOMEN ASSOCIATES WORKING ON THE SHOP FLOOR

Reinforcing Risk-management Architecture

WITH THE VOLATILE, UNCERTAIN AND COMPLEX ENVIRONMENT; ONLY COMPANIES THAT MANAGE THEIR RISKS EFFECTIVELY WILL GROW SUSTAINABLY. ORGANISATIONS NEED TO CREATE AND FOSTER A SYMBIOTIC RELATIONSHIP BETWEEN RISK MANAGEMENT AND STRATEGIC PLANNING. RISK MANAGEMENT IS INCREASINGLY BEING RECOGNISED AS A ‘GUIDANCE PROVIDER’ ON THE PATH AHEAD. A ROBUST ENTERPRISE RISK MANAGEMENT (ERM) FRAMEWORK MUST PROVIDE RELEVANT RISK INFORMATION TO THE DECISION MAKERS AND ALSO SERVE AS A STRATEGIC GROWTH ENABLER.

At HMCL, the functions of risk management and strategic planning are intertwined. Risks to achieving business objectives are key inputs to the formulation and development of strategy and business planning. Our ERM framework encompasses practices relating to:

The landscape of the framework includes strategic, external, financial, regulatory and operational risks to achieve our key business objectives. Key strategic initiatives are identified to mitigate specific risks. ERM at Hero MotoCorp seeks to minimise the adverse impact of these risks; thereby enabling us to leverage market opportunities effectively and enhance its long-term competitive advantage.

COMPETITIVE LANDSCAPE

The two-wheeler market is driven by the motorcycle segment and the market leader is one who maintains the lead in that segment. However, the complexion of India’s two-wheeler industry is changing due to two main reasons:

  1. Change in segment contribution to the overall market - scooters continued to have a larger share of the overall industry. Also, the revival of mopeds and growth in premium motorcycle segment.
  2. Competition intensification with new, global players entering and/or raising their competitive intensity.

Moreover, domestic and global players alike have expanded their product portfolio in not just the above-mentioned segments; but also in entry and deluxe segments of the market.

Except for the 2nd half of the calendar, FY 2016-17 witnessed a significant traction in each of the segments including:

  • Entry motorcycles- with the launch of lower priced products
  • Premium motorcycles- as both global and domestic players
  • Scooters
  • Mopeds

Hero has been the market leader for 16 consecutive years now, including the six years of its solo journey; amidst increasing competition across segments. Not only have we scaled up our in-house R&D capabilities, we have also invested in strengthening our processes and systems appropriately. We will continue to set new benchmarks in product introductions, innovations, global expansion and customer orientation in the years to come.

EVOLVING CUSTOMER PREFERENCES, DRIVING STRUCTURAL INDUSTRY SHIFTS

Evolving customers’ preferences, higher disposable incomes, increasing urbanisation and infrastructure turnaround may lead to structural and segmental shifts in the two-wheeler industry. The increase in Scooter contribution and the growth of Premium motorcycles in the industry are led by the emergence of women buyers and millennials. Hero MotoCorp is addressing these structural shifts with its new product pipeline. We are also making our processes, capacities and plans agile and lean to adapt to the changing scenario with swiftness, through closer inter departmental collaboration.

REGULATORY CHANGES DRIVING TECHNOLOGY AND COST IMPLICATIONS

Regulatory changes, especially in vehicular emissions, have grown significantly in recent times. The big impact of the changeover from Bharat Stage III to Bharat Stage IV (BSIII to BSIV) emission norms was visible in FY 2016-17. While the upcoming regulatory changes will enhance technology standards and hence may have cost implications, it is imperative all manufacturers, not just work on preparedness but also consider the possible cost of compliance.

MACRO TRENDS

Hero MotoCorp has worked towards diversifying its products and expanding into new markets to neutralise the impact of unforeseen trends in specific markets.

CYBER SECURITY THREATS

The Company’s IT systems along with its third-party service providers and vendors’ systems are vulnerable to the continually evolving cyber security risks. A Cyber Security breach may adversely affect the Company’s reputation, revenue and earnings. We continue to strengthen our Information technology controls to prevent ourselves from emerging cyber security threats

DECLINE IN COMPANY’S MARKET SHARE OR FAILURE TO ACHIEVE GROWTH

A decline in the market share in domestic markets or failure in growth in exports could have an adverse impact on a Company’s growth plans. These could be due to capacity constraints, competitive pressures or other factors.

We aim to maintain competitive economies of scale and grow market share in domestic and export markets.