Company Profile: Hero Honda

Company Profile

Hero Honda is India’s largest 2W manufacturer, with strong brand value and dealer network. Over the years, it has generated higher than industry growth rates in the segment. Hero Honda has the most widespread network, and has good rural reach as well. Among all the players, it has the highest rural reach, one of the reasons why it was insulated in the crisis (not much financing based sales in rural areas, mostly cash sales).

It’s a joint venture between Honda Corp Japan and Munjal Family (each of them owning 26%) that began in 1984. It has 3 production sites – Gurgaon, Dharuhera and Haridwar, and together they have a capacity of 5.2 million vehicles per year.

Segmentation

Hero Honda has a tight grip over the deluxe (middle) segment of the market. Its 3 largest selling motorcycle are Splendor, Passion and CD Deluxe. Exports are still a small proportion of overall sales – with company exporting 100k vehicles last year. This compares with the overall sales figure of 4 million.

Financials

Industry long term volume growth rate has been 12-14%, whereas the same for Hero Honda has been 15-16%. Industry growth rate is expected to spike up in future, and expected to be in 18-19% range over the next few years.

On an average Hero Honda has been selling more than a million vehicles per quarter. On a per month basis, it has been exceeding 400k mark for a few months now. EBITDA margins are 15-18% for the company, and bulk of the cost is input raw materials cost. PAT margin is 12-14%.

EPS for 2010 is INR 110, and company has a good dividend yield of 2%. And company doesn’t have any debt on the books, with good free cash flows.