Hero motocorp annual report

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Hero motocorp annual report

  1. 1. new dimensionPropelled towards aHer o M otoCorp L td.ANNUAL REPORT2010-11Hum mein hai HeroHero MotoCorp is more than a national brand. Itrepresents the spirit of a multicultural India, which isready to take on the world on the strength of its deeppotential and inherent dynamism.The new brand consolidates our inherent strengths,while enhancing our global focus. At the same time,it demonstrates continuity in quality assurance andmarket leadership for innumerable customers.The red colour of the reinvigorated identity exudesenergy, passion and confidence, while black lends atouch of solidity, superior quality and authority.The symbol H connotes engineering, reflecting ourcommitment to quality and breakthrough innovation.The wordmark Hero represents human warmth and ourfaith in the indomitable human spirit.The unique harmony of advanced engineering andhuman warmth testifies to the true vigour of thisbrand: that celebrates contradictions, challengesconventions and sets new standards of excellence in
  2. 2. innovation and enterprise.What’s InsideCorporate Identity 2Products Portfolio 4Financial Highlights 6Awards and Accolades 82010-11 in Retrospect 10Management Review 12Milestones 14Financial Performance 24Board of Directors 26Corporate Information 28Management Discussion and Analysis 29Directors’ Report 58Corporate Governance Report 63Details of Directors 83Financial Statements 88Hero Honda is now Hero MotoCorpThe successful association of Hero and Honda for27 years created the world’s largest two wheelermanufacturing company. During 2010-11, wedecided to part ways and evolve beyond thispartnership. This is a happy culmination of a long
  3. 3. and fruitful relationship. We now embark on abrand new journey into an exciting future ofenormous possibilities.At Hero MotoCorp, we arenow propelled towards a newdimension of excellence withfar-reaching consequencesfor the organisation,customers and the industry.For the organisation, the new dimension wouldentail enhanced market insight, better operatingefficiencies, deeper customer centricity, greaterfocus on product-process excellence and financialstewardship.For the customers, it would mean a wider choiceof globally-benchmarked products at competitiveprices, greater proximity and higher conveniencefor purchase of products.For the industry, it would signify more alliancesand partnerships and higher maturity andprofessionalism.We will continue to sustain leadership in thedomestic market, leverage existing capabilitiesand build new competencies to expand globally.The Way
  4. 4. AheadNo.1Two wheeler companyin the world for the10thconsecutive year50million+Two wheelers sold54.6%Share in the domesticmotorcycle market44.5%Share in the domestictwo wheeler market5000+Customer touch points100,000+Villages covered; extensivepresence in rural India6New products launchedin 2010-11 (including variants)We believe in
  5. 5. Creating relationship andethics based enterprise Delivering value throughseamless and efficientsupply chain Delivering excellencethrough resourceoptimised manufacturing Creating and sustainingpowerful brands Keeping our promises andensuring customer andshareholder delightHero MotoCorp Ltd. ANNUAL REPORT 2010-112VisionThe story of Hero Honda began with asimple vision – the vision of a mobile and anempowered India, powered by its bikes. HeroMotoCorp Ltd., Company’s new identity, reflectsits commitment towards providing world classmobility solutions with renewed focus on expandingCompany’s footprint in the global arena.MissionHero MotoCorp’s mission is to become a global
  6. 6. enterprise fulfilling its customers’ needs andaspirations for mobility, setting benchmarks intechnology, styling and quality so that it convertsits customers into its brand advocates.The Company will provide anengaging environment for its peopleto perform to their true potential.It will continue its focus on valuecreation and enduring relationshipswith its partners.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS3C ORPORATE I DENTITY100CC125673
  7. 7. 41 Pleasure 2 CD Dawn 3 CD Deluxe 4 Splendor Plus5 Splendor NXG 6 Splendor Pro 7 Passion ProProducts PortfolioHero MotoCorp Ltd. ANNUAL REPORT 2010-114225CC811910131514135CC11 Achiever8 Glamour 9 Super Splendour 10 Glamour FI125CC14 Karizma15 Karizma ZMR12P RODUCTS P ORTFOLIO150CC12 Hunk
  8. 8. 13 CBZ X-tremeCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS53,336,75606—073,337,14207—083,722,00008—094,600,13009—105,402,444
  9. 9. 10—11Number of units12.5%5-year CAGRSALES10,09006—0710,51707—0812,56508—0916,09909—1019,67010
  10. 10. —11Rs. in crores17.3%5-year CAGRTOTALNET INCOME43.006—0748.507—0864.208—09111.809—1096.510
  11. 11. —11Rs.EARNINGSPER SHARE17.006—0719.007—0820.008—09110.009—10105.010—11
  12. 12. Rs.DIVIDENDPER SHARESustained PerformanceHero MotoCorp Ltd. ANNUAL REPORT 2010-1161,24606—071,41007—081,78108—092,83209—102,40510
  13. 13. —11Rs. in crores11.2%5-year CAGRPROFITBEFORE TAX85806—0796807—081,28208—092,23209—101,92810
  14. 14. —11Rs. in crores14.7%5-year CAGRPROFITAFTER TAX51.606—0749.007—0850.908—0976.409—1062.310
  15. 15. —11%RETuRN ONAVERAGEC APITAL E MPLOy ED48506—0757507—0883508—091,72309—101,37610—
  16. 16. 11Rs. in croresECONOMICVALuE ADDEDF INANCIAL H IGHLIGHTSCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS7Prominent awards and accolades received during the year Received the ‘Two-wheeler Manufacturer of the Year’ award by Bike India magazine Received the ‘Bike Manufacturer of the Year’ at the Economic Times ZigWheels Car and BikeAwards Adjudged the ‘Most Preferred Brand of Two-Wheelers’ at the CNBC Awaaz Consumerawards Adjudged at top of the two-wheeler category in the Brand Equity Most TrustedBrands 2010 Survey Ranked No. 3 in the Most Trusted Brand across categories amongst YoungAdult Males. It is the only automobile brand to figure in the top 50 rankingof all brands across categories in the Survey Received the Automotive Sector Gold Award in the 2010 EconomicTimes Frost and Sullivan Manufacturing Excellence Awards
  17. 17. The Gurgaon plant won the National Safety AwardAwards and AccoladesHero MotoCorp Ltd. ANNUAL REPORT 2010-118AWARDS ANDA CCOLADESProminent awards were bestowed uponMr. Brijmohan Lall, Chairman during the year Lifetime Contribution Award by All India Management Association Lifetime Achievement Award by Ernst & Young Lifetime Achievement Award by TERICOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS9Looking Back at 2010-11Hero MotoCorp Ltd. ANNUAL REPORT 2010-1110 Launched six new models including variantsof existing models successfully
  18. 18. Refreshed Glamour and Glamour FI Introduced the New Hunk, Super Splendorand Splendor Pro . Splendor Pro has brought inthe biggest-ever change in Splendor since itslaunch Endorsed the nation-wide Queen’s Batonrelay that was held as a prelude to theCommonwealth Games, Delhi 2010 Introduced Passion Pro CommonwealthGames Limited Edition with theCommonwealth Games Delhi 2010 insignia - tocoincide with the games Hosted Hero Honda Women’s Indian Open2010, enabling our foray into women’s golf inthe country; the Hero Honda Women’s IndianOpen – tri-sanctioned by the Ladies EuropeanTour, the Ladies Asian Golf Tour (LAGT) andWomen’s Golf Association of India (WGAI) –carried a prize purse of US$ 300,000, the highestever for women’s professional golf in India ZMR Cricket Championship: Hero Honda,which is a Global Partner of the ICC, iscurrently hosting the championship across75 cities in India and also in Colombo, SriLanka and Dhaka, Bangladesh, involving
  19. 19. college cricket teams. The 28 final winningteams will get a chance to take a ‘victory lap’during the forthcoming ICC Cricket WorldCup matches, a dream-come-true for them New Karizma comes with an ensembleof new features (new design stripes andcolours, new seat texture and winkers withclear lens). Beyond the exciting appearanceupgrades, there are also operationalupgrades, such as maintenance-free batteryand enhanced position lamp illumination Breached the landmark 5 million cumulativesales in a single year; also posted sales ofmore than 5 lakh units in three monthsof 20112010-11 IN R ETROSPECTCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS11 Pawan Munjal Brijmohan Lall MunjalManagement
  20. 20. CommuniquéHero MotoCorp Ltd. ANNUAL REPORT 2010-1112Constant evolution represents the key fuel thathas powered our organisation since inception.Happily, we are now building on that momentumto conquer unexplored frontiers of marketleadership and corporate excellence.After forging together one of the world’s mostprolific and successful joint ventures for overtwo and a half decades, and becoming ‘Desh kiDhadkan ’ we at Hero are now poised to proveourselves on the global arena.We are pleased to announce that Hero HondaMotors Ltd is now Hero MotoCorp Ltd. The newname reflects of our conviction in ourselves andour focus on mobility and technology.In this endeavour our market insight, domainknowledge, customer-centric approach, world-class manufacturing facilities and processes,committed and skilled personnel, seamlessand integrated supply chain and enduringstakeholder relationships will stand us ingood stead.On the technology front, our existing R&Dfacility is being rapidly upgraded with support,
  21. 21. wherever required, from global experts andtechnology providers.We embark on the new and exciting journey witha singular commitment to delight the customerwith advanced products and to set new industrybenchmarks. We shall develop new andcutting-edge products at a faster pace andaggressively expand our pan-India footprint.A new day beckons and we are prepared for itwith courage and optimism.Your encouragement and support are precious.We treasure it.Brijmohan Lall Munjal Pawan Munjal“What the caterpillar callsthe end the rest of theworld calls a butterfly.”— Lao TzuM ANAGEMENT REVIEWCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS13
  22. 22. 1984Hero Honda Motors Ltd.Incorporated1985First motorcycle ‘CD 100’rolled out1987100,000th motorcycleproduced1989New motorcycle model –‘Sleek’ introduced1983Joint CollaborationAgreement with HondaMotor Co. Ltd. (Japan); signedShareholders Agreement20004,000,000th motorcycleproducedEnvironment ManagementSystem of Gurgaon Plantcertified ISO-14001 by DNVHollandSplendor declared
  23. 23. ‘ World No. 1’ - largest sellingsingle two-wheeler model‘ Hero Honda PassportProgramme’ - CRMProgramme launched2006Hero Honda is the World No. 1for the fifth consecutive yearin a row15 million productionmilestone achieved1992Raman Munjal Vidya Mandir(a school) inaugurated in thememory of founder ManagingDirector, Mr. Raman Kant Munjal1994New motorcycle model –‘Splendor’ introduced1,000,000thmotorcycleproduced1997
  24. 24. New motorcycle model –‘Street’ introducedHero Honda’s secondmanufacturing plant atGurgaon inaugurated19982,000,000th motorcycleproduced1999New motorcycle model – ‘CBZ’introducedEnvironment ManagementSystem of Dharuhera Plantcertified with ISO-14001 byDNV HollandRaman Munjal MemorialHospital inaugurated in thememory of founderManaging Director,Mr. Raman Kant MunjalHow Our Story Unfolded1991New motorcycle model– ‘CD 100 SS’; 500,000th
  25. 25. motorcycle producedHero MotoCorp Ltd. ANNUAL REPORT 2010-11142001Became the world no. 1 twowheeler manufacturer in termsof volumeNew motorcycle model –‘ Passion’ introducedOne million production in onesingle yearNew motorcycle model – ‘ Joy ’introduced5,000,000th motorcycleproduced2002New motorcycle model –‘ Dawn’ introducedNew motorcycle model –‘Ambition’ introducedAppointed Virender Sehwag,Mohammad Kaif, YuvrajSingh, Harbhajan Singhand Zaheer Khan as brandambassadors
  26. 26. 2003Becomes the first Indianorganisation to cross thecumulative seven millionsales markSplendor has emerged as theworld’s largest selling modelfor the third calendar year in arow (2000, 2001, 2002)New motorcycle model – ‘ CDDawn’ introducedNew motorcycle model –‘ Splendor + ’ introducedNew motorcycle model –‘ Passion Plus ’ introducedNew motorcycle model –‘ Karizma ’ introduced2004New motorcycle model -‘Ambition 135’ introducedHero Honda became theWorld No. 1 Company for thethird consecutive yearCrossed sales of over 2 millionunits in a single year, a global
  27. 27. recordSplendor - World’s largestselling motorcycle crossed the5 million markNew motorcycle model - ‘ CBZ ’introducedJoint Technical AgreementrenewedTotal sales crossed a record of10 million motorcycles2005Hero Honda is the World No. 1for the fourth year in a rowNew motorcycle model -‘ Super Splendor’ introducedNew motorcycle model - ‘ CDDeluxe’ introducedNew motorcycle model -‘Glamour ’ introducedNew motorcycle model -‘Achiever ’ introducedFirst Scooter model from HeroHonda - ‘ Pleasure ’ introduced2007Hero Honda is the World No.
  28. 28. 1 for the sixth consecutiveyear in a rowNew ‘Splendor NXG’ launchedNew ‘CD Deluxe ’ launchedNew ‘Passion Plus ’ launchedNew motorcycle model ‘Hunk’launched20 million productionmilestone achieved2008Hero Honda Hardwar PlantinauguratedNew ‘Pleasure ’ launchedSplendor NXG lauched withpower-start featureNew motorcycle model‘ Passion Pro’ launchedNew ‘CBZ Xtreme’ launched25 million productionmilestone achievedCD Deluxe lauched withpower-start featureNew ‘Glamour ’ launchedNew ‘Glamour Fi ’ launched2009
  29. 29. Hero Honda GoodLifeProgramme launchedHunk’ (Limited Edition)launchedSplendor completed 11million production landmarkNew motorcycle model‘ Karizma - ZMR’ launchedSilver jubilee celebration2010New model Splendor ProlaunchedLaunch of new SuperSplendor and New Hunk2011New licensing arrangementsigned between Hero Hondaand HondaLaunch of new upgradedversions of Glamour, GlamourFI, CBZ Xtreme, KarizmaBreached the landmark 5million figure cumulativesales in a single yearM ILESTONES
  30. 30. COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS15The difference between thepossible and the impossibleis most visibly blurred in theworld of sports. It celebratesthe sterling qualities oflife: passion, energy anddetermination to moveforward, notwithstandingchallenges. To face dangerin the eye without a blink....These qualities represent thehallmark of Hero MotoCorp.Sports energise, unite and unleash the hiddenpotential of a multi-cultural and multi-lingualnation like India. We have always been at theforefront of promoting sports and will continueto encourage and promote sporting endeavours.XIX Commonwealth Games
  31. 31. 2010, DelhiWe sponsored the XIX Commonwealth Gamesin Delhi in October 2010; we sought to createexcitement and to ignite the passion for sports.To rally Indians behind the games, a campaignwas woven around the theme, ‘Ab dhadkan ek ho’.Our initiatives during the run-up to theCommonwealth Games comprised the following: The Queen’s Baton passed through 124cities with Hero Honda promotional vehiclemarshalled by Karizma ZMR bikes. There wasmassive branding in all cities along the route.The relay included baton visits at major dealerpoints. We delighted our customers by invitingthem to run with the baton and participate inthe cultural occasions held in each city A massive rural activation campaign‘ Dhadkanon ki rally ’ was also initiated. Here,a replica baton was carried across 22,000villages; the rally touched more than 2 millionpeople directly. This was to ensure that areasand markets not covered by the main Queen’sBaton relay are also covered We conducted interschool athletic meetsin 54 locations; more than 20,000 children
  32. 32. participated We created a 360 degree media blitz in therun-up to the Games through advertisementsin television, press, hoardings, mobile andonline medium. Not only the CommonwealthGames was a resounding success, HeroMotoCorp’s stature as a pioneer of nationalsporting causes was reinforced with thesignoff theme ‘Jeeta Sara Desh, JabDhadkanein Hui Ek ’Accelerating Ahead with Sports CentricityHero MotoCorp Ltd. ANNUAL REPORT 2010-1116Embracing the celebration of lifeCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS17ICC World Cup 2011India’s cricket obsession is known to the
  33. 33. world, and we have been celebrating ourassociation with cricket for over two decades.The ICC World Cup in 2011 provided aperfect platform for this celebration toculminate.Hero Honda Karizma ZMR was the lead brand inthe campaign. An online game called Kricket KaKarizma was developed and heavily promoted ontelevision as well as through ground activation.A cricket tournament was held in several citieswhere winners from a city got a chance to takethe victory lap in one of the World Cup matches.All the winners got a once-in-a-lifetime chance totake a victory lap in the finals of the World Cup.To encourage patriotism, the India Go anthemwas played across channels.With Team India winning the Cup and beingcrowned Heroes, the event was one of the mostwatched in India’s media history. Hero MotoCorpwas one of the most recalled brands during theevent, because of its close association with theWorld Cup.Hero MotoCorp Ltd. ANNUAL REPORT 2010-1118Other events
  34. 34. We also sponsored major events like IndianPremier League, India-South Africa-NewZealand cricket tri-series in June 2010, aswell as India-South Africa cricket series inDecember 2010 We conducted ‘Ride the Fun’ across severalcolleges in various cities to promote our model‘Pleasure’. In this event girls answered variousquestions and also participated in games thatare traditionally played by boys We positioned Splendor NXG as ‘FriendshipBike’ by ground activities in colleges, malls andhangouts, through bike display, wall graffitiand games To bring alive the muscular imagery of Hunk,the ‘Battle of Hunks’ was organised in colleges,where people participated in arm wrestling,push-ups, body-building and got a chance tobecome the Hunk ChampionCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS
  35. 35. 19Accelerating Ahead with Customer CentricityWe believe there is a fine line betweensatisfaction and delight. It is breachedthrough productive relationship building.Our unique Customer RelationshipProgramme, the Goodlife programme,commenced as the ‘Passport’ programmeabout a decade back. At one level, theprogramme has helped build a consolidatedbase of loyal customers. At anotherlevel, Goodlife has virtually created a newdistribution platform for us.Connecting with customersWe respect the diversity and plurality of Indiaand have always believed in connecting withdifferent communities in a manner that best suitsand excites them the most. Whether it is Onam,Akshayatritya, Ugaadi, Baisakhi, Pongal, GaneshChaturthi or Bihu, Hero MotoCorp celebratesregional festivals in its own inimitable way:Dhak Dhak Go!We have also launched an extended warrantyprogramme called ‘Advantage’ for our customers,
  36. 36. where customers can enjoy the benefit ofExtended Warranty options. The maximumwarranty is for five years or 70,000 kms,whichever is earlier. This transferrable, onlineall-India warranty is unique, in that it has thelargest parts coverage and the lowest pricing inthe entire two-wheeler industry. The programmeis also tailored to ensure good customerretention for dealers and SSPs, thus helping themimprove their revenues from the sale of sparesand services.As on May, 2011, we had enrolled over fourmillion customers under the Advantageprogramme. During the past year (on a month-on-month basis) the programme witnesseda conversion rate of 60%, unheard of in thedomestic two-wheeler industry.14%of Hero MotoCorp salescame through referralsgiven by Goodlifemembers in 2010-118.2million +Membership base inthe Goodlife loyalty
  37. 37. programme. It is thelargest customerrelationship programme ofits kind in India.Hero MotoCorp Ltd. ANNUAL REPORT 2010-1120From customersatisfaction to customer delightCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS21Accelerating Ahead with Rural CentricityHero MotoCorp Ltd. ANNUAL REPORT 2010-1122Micro customers represent the vast populaceat the middle and the bottom of the Indiansocial pyramid; and the macro reality is thattheir enhanced income and aspiration levels
  38. 38. will determine the future course of Indianbusiness.decided to celebrate the festival of Diwali in ruralIndia differently. Rural support executives, fromacross dealerships, travelled to various townsand villages, met people at their doorsteps andwished them personally. They also delivereda special message from Hero MotoCorp anddistributed branded box of sweets with diyas. Inthis unique customer connect programme, HeroHonda met over 4,58,000 people, across 56,932villages in just two weeks.Under Saral Finance we made it easier for ruralIndians to own their favourite two wheelersthrough a tie-up with Cooperative andGrameen banks. This ensured best rates, easydocumentation and hassle-free processes. Wealso tied up with one of India’s biggest bank forShwet-Labh , a specially designed loan package forMilk Cooperative members.At Hero MotoCorp, we acknowledge this realityand we started the ‘Har Gaon Har Angan’ initiativewith two distinct objectives. First, it seeks to reachevery Indian home and every Indian village, andin the process, build long-lasting relationships
  39. 39. with people across the country. Second, it aimsto ensure that the purchase and service of twowheelers in India is affordable and convenient.Apart from meeting opinion leaders, rural salesexecutives are also entrusted with organising freecheck-up bike camps, loan melas, test ride camps,conducting Ride Safe Programmes to educatecustomers on Safety and Maintenance. Duringthe year under review, we covered 1,30,000villages across the country, including villageswith a population of up to 2000.A unique initiative of the ‘ Har Gaon Har Aangan’programme was ‘Khushiyan Har Angan’.Celebrating the spirit of caring and sharing, weMicro customers and macro realitiesCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS23PerformanceAcross the Decade
  40. 40. 01—0202—0303—0404—0505—0606—0707—0808—0909
  41. 41. —1010—11SALESNumbers 14,25,302 16,77,537 20,70,147 26,21,400 30,00,751 33,36,756 33,37,142 37,22,000 46,00,13054,02,444Growth (%) 38.4 17.7 23.4 26.6 14.5 11.2 0.01 11.5 23.6 17.45-years CAGR (%) 18.5 14.7 12.4 11.9 12.5TOTALINCOME (NET)(Rs. in crores) 4,539 5,195 5,997 7,559 8,870 10,090 10,517 12,565 1,6099 19,670Growth (%) 42.3 14.4 15.5 26.0 17.4 13.7 4.2 19.5 28.1 22.25-years CAGR (%) 17.3 15.2 15.9 16.3 17.3N ET SALES(Rs. in crores) 4,465 5,102 5,832 7,422 8,714 9,900 10,332 12,319 1,5758 19,245Growth (%) 40.8 14.2 14.3 27.2 17.4 13.6 4.4 19.2 27.9 22.15-years CAGR (%) 17.3 15.2 16.1 16.3 17.2PROFIT BEFORE TAX(Rs. in crores) 694 885 1,072 1,217 1,412 1,246 1,410 1,781 2,832 2,405Growth (%) 84.2 27.4 21.2 13.5 16.0 -11.8 13.2 26.3 59.0 -15.15-years CAGR (%) 12.4 9.8 10.7 18.4 11.2PROFIT AFTER TAX(Rs. in crores) 463 581 728 810 971 858 968 1,282 2,232 1,928Growth (%) 87.5 25.5 25.4 11.3 19.8 -11.7 12.8 32.4 74.1 -13.6
  42. 42. 5-years CAGR (%) 13.1 10.8 12.0 22.5 14.7OPERATINGMARGIN (%)13.9 15.5 15.6 14.6 14.6 10.8 11.8 12.7 16.2 11.4OPBDITMARGIN (%)15.0 16.7 16.8 15.7 16.0 12.2 13.3 14.1 17.4 13.5EARNING PERSHARE (RS.)23.2 29.1 36.5 40.6 48.6 43.0 48.5 64.2 111.8 96.5DIVIDEND PERSHARE (RS.)17.0 18.0 20.0 20.0 20.0 17.0 19.0 20.0 110.0 105.0DIVIDEND (%) 850 900 1,000 1,000 1,000 850 950 1,000 5,500 5,250Hero MotoCorp Ltd. ANNUAL REPORT 2010-1124Economic ValueAdded (EVA) Statement(Rs. in crores)06—0707—08
  43. 43. 08—0909—1010—11AVG CAP EMPLOy ED 2,415 2,877 3,499 3,705 3,989AVG DEBT/AVG CAPITAL (%)1.1 1.1 0.6 0.2 2.2AVG EQ uIT y/AVG CAPITAL (%)98.9 98.9 99.4 99.8 97.8COST OF DEBT(% POST-TAX )0.6 0.9 1.6 1.9 1.4COST OF EQuIT yBETA 0.75 0.59 0.59 0.63 0.64COST OF RISK FREE DEBT (%) 8.15 7.94 6.99 7.50 7.99MARKET PREMIuM (%) 10 10 10 10 10COST OF EQuIT y (%) 15.65 13.83 12.85 13.80 14.39EVA
  44. 44. PROFIT AFTER TAX 857.89 967.88 1,281.76 2,231.83 1,927.90ADD: INTEREST*(1-TAX RATE) 1.02 1.32 1.67 1.39 10.55NOPAT=PAT + INTEREST*(1-T) 859 969 1,283 2,233 1,938COST OF CAPITAL 374 394 448 510 563EVA 485 575 835 1,723 1,376RET uRN ON CAPITALEMPLO y ED (%)35.6 33.7 36.7 60.3 48.6WEIGHTED AVERAGE COST OF CAPITAL (%) 15.5 13.7 12.8 13.8 14.1EVA/CAPITAL EMPLO y ED (%) 20.1 20.0 23.9 46.5 34.5ENTERPRISE VAL u EMARKET CAPITALISATION 13,753 13,869 21,390 38,827 31,739ADD: DEBT 165 132 78 66 1491LESS: FINANCIAL ASSETS 2,010 2,698 3,588 5,833 5,200EV (ENTERPRISE VAL u E) 11,909 11,303 17,880 33,060 28,030EV/ y EAR END CAPITALEMPLO y ED (TIMES)4.5 3.6 4.6 9.4 6.3F INANCIALP ERFORMANCECOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIAL
  45. 45. STATEMENTS25Board of DirectorsMr. Brijmohan Lall MunjalChairmanMr. Sunil Kant MunjalJt. Managing DirectorMr. Pawan MunjalManaging Director & CEOMr. Suman Kant MunjalNon-Executive DirectorMr. Paul EdgerleyNon-Executive DirectorMr. Pradeep DinodiaNon-Executiveand Independent DirectorOutgoing DirectorsMr. Toshiaki NakagawaJt. Managing Director(upto March 22, 2011)Mr. Sumihisa FukudaTechnical Director(upto March 22, 2011)Mr. Yuji Shiga
  46. 46. Non-Executive Director(upto April 13, 2011)Ms. Shobhana BhartiaNon-Executive andIndependent Director(upto April 13, 2011)Mr. Takashi NagaiNon-Executive Director(upto August 8, 2011)Mr. Toshiyuki InumaNon-Executive Director(upto August 8, 2011)Audit CommitteeMr. Pradeep DinodiaChairmanGen. (Retd.) V. P.MalikMemberDr. Pritam SinghMemberMr. M. DamodaranMemberShareholders’GrievanceCommittee
  47. 47. Dr. Pritam SinghChairmanMr. Pradeep DinodiaMemberMr. M. DamodaranMemberRemunerationCommitteeGen. (Retd.) V. P. MalikChairmanMr. Pradeep DinodiaMemberMr. Ravi NathMemberHero MotoCorp Ltd. ANNUAL REPORT 2010-1126Gen. (Retd.) V. P. MalikNon-Executiveand Independent DirectorDr. Pritam SinghNon-Executiveand Independent DirectorMr. Analjit SinghNon-Executiveand Independent Director
  48. 48. Mr. M. DamodaranNon-Executiveand Independent DirectorMr. Ravi NathNon-Executiveand Independent DirectorDr. Anand C. BurmanNon-Executiveand Independent DirectorSenior Management TeamRavi SudSr. Vice President & CFOAnil DuaSr. Vice President-Sales & MarketingVikram KasbekarHead-Operations and Supply ChainNeeraj MathurVice President-Strategic Sourcingand Supply ChainDr. Anadi S. PandeVice President-HRM, Corporate Planningand StrategyVijay SethiVice President-Information SystemsCompliance Officer
  49. 49. Ilam C. KambojSr. G.M. - Legal & Company SecretaryB OARD OF D IRECTORSCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTS27Statutory AuditorsA. F. Ferguson & Co.,Chartered Accountants9, Scindia House,Kasturba Gandhi Road,New Delhi – 110 001, IndiaTel : 011-2331 5884/2371 3899Fax : 011-2331 4561Email : affdelhi@bol.net.inPrincipal BankersThe Royal Bank of Scotland NVBank of America NACanara BankCitibank N.A.
  50. 50. HDFC Bank LimitedHong Kong and Shanghai BankingCorporation LimitedICICI Bank LimitedPunjab National BankStandard Chartered BankThe Bank of Tokyo-Mitsubishi UFJ Ltd.Cost AuditorsRamanath Iyer & Co.,Cost Accountants,BL - 4, (Paschmi), Shalimar Bagh,Delhi - 110088, IndiaTel : 011-2748 1904, 4702 8048Fax : 011-2748 1904Email : arrricon@gmail.com,arrricon@rediffmail.comRegistered & Corporate Office34, Community Centre,Basant Lok, Vasant Vihar,New Delhi – 110 057, IndiaTel : 011-4604 4100, 2614 2451Fax : 011-2614 3321, 2614 3198www.heromotocorp.comRegistrar & Share Transfer Agents
  51. 51. Karvy Computershare Pvt. Ltd.Plot No. 17-24, Vittal Rao Nagar,Madhapur, Hyderabad – 500 081, IndiaTel No. : 040-2342 0815-28Fax : 040-2342 0814/2342 0859Email : einward.ris@karvy.comwww.karvycomputershare.comPlant LocationsDharuhera Plant69 K.M. Stone,Delhi-Jaipur Highway,Dharuhera,Distt Rewari - 122 100Haryana, IndiaTel : 01274 264 000Fax : 01274 267 018Gurgaon Plant37 K.M. Stone,Delhi-Jaipur Highway,Sector 33, Gurgaon – 122 001Haryana, IndiaTel : 0124 2894200/2372123Fax : 0124 2373 141/42Haridwar Plant
  52. 52. Plot No. 3, Sector 10,I.I.E., SIDCUL, Roshanabad,Haridwar – 249 403,Uttarakhand, IndiaTel : 01334 238500/239514-16Fax : 01334 239512-13CorporateInformationHero MotoCorp Ltd. ANNUAL REPORT 2010-1128Economic Scenario 30Industry and Segment Insight 34New Product Launches 36Accelerated Performance 40Financial Scorecard 42Network Expansion 44Manufacturing Excellence 46Research and Development Expertise 48Information Systems 50People Approach 52Risk Management 54Green Management 56MANAGEMENT DISCUSSION AND ANALYSIS
  53. 53. T h e year 2010-11turned out to be a yearof moderation, withgrowing trepidationacross the domainsof economics,environment andgeopolitics.Economic ScenarioHero MotoCorp Ltd. ANNUAL REPORT 2010-1130In 2010-11, India followed a deviant growthtrajectory as opposed to last year: the fastestgrowth was notched in the first quarter, and theslowest was reserved for the last. In the previousyear, India began growing at a comparativelyslow pace, but ended with a strong kick. Thissparked off hope that the economy wouldenter the nine percent growth orbit. In fact,economic performance was strong throughoutthe first half of the fiscal, with the manufacturingsector growing in double digits, and the servicesector growing almost as fast. Yet towards thecompletion of the year, the growth rate dwindled
  54. 54. to 7.8%; in the last quarter of 2010-11 it was theslowest in six quarters.Even though the manufacturing sector notched adouble-digit growth during the first two quartersof the year, monetary tightening eventually tookits toll in the remaining quarters: it slowed downthe pace of capital formation and kept growth inthe index of industrial production in single digits.If recovery was the underlying theme for theprevious year, 2010-11’s summative theme wassurely uncertainty, with the massive earthquakein Japan and turmoil in the Middle East and NorthAfrica (MENA) creating insecurity, along withvolatility in crude and commodity prices.In the US, a slew of factors – double-dippinghome prices; a slow recovery in labour marketsand weak wage growth; the fiscal contractionof state and local governments; and underlyingweakness in final demand – suggested that thesubpar, anaemic recovery for the U.S. economymight endure for a while.Barring Germany, European recovery has almostground to a halt. The reasons are not hard toseek: fiscal tightening in UK (a leading economy),political uncertainty in Italy, recession in some
  55. 55. Scandinavian countries and solvency problemsin peripheral EU nations (Greece and Turkey)contributed to the mess. Japan, which hadjust begun to limp back on a path of recovery,plunged back into deflation as the impact of itsnatural disaster fully sank in.To make matters worse, the growth potential inemerging markets like China, Brazil and India,which had demonstrated so much promise inrecent years, showed signs of getting impactedby monetary tightening and high interest rates.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS31Nevertheless, India eventually ended the year with8.5% growth; this was largely on the backof a strong export demand, a resurgent agriculturesector and sustained growth in industries like
  56. 56. hotels, real estate, retail and banking as well ascore industries, such as cement and steel.Of course, the performance of the service andagriculture sector was important for differentreasons: the former now makes up more than 57%of national output, while 2/3 of India depends onthe farm sector for its livelihood.Services and agriculture growth in turn, ensuredstrong demand for both consumer durablesand automobiles. However, there is little doubtthat if high interest rates persist, they will starteating into demand and private consumptionexpenditure in the coming fiscal. In fact, as theyear progressed, there was some early evidence ofthis in March 2011, with consumer durable growthshrinking to 12% from 23% in the previous month.In the previous annual report, fears wereexpressed that inflation could stifle some of India’sgrowth impetus in 2010-11. That is exactly whathappened during the year in review. 2010-11began with double digit food inflation. By thetime it ended, manufacturing inflation becamethe source of concern: it accounted for 30% of theinflation pie in the March-July period, but in theNovember-March period, manufacturing’s share of
  57. 57. the inflation pie was up more than 55%.This forced RBI to tighten monetary policyaggressively throughout 2010-11. The processcontinues, even at the time of writing asheadline inflation remains way above theapex bank’s comfort level.While the near-term outlook for the Indianeconomy looks uncertain, India’s long-termgrowth prospects are stable, given thefavourable demographics and increasingconnectivity between India and Bharat.At one level, there is visible evidence ofsustainable demand emanating fromtraditional rural areas. At the other, growthpoles opportunities are sprouting in newlyurbanised centres across the country.Hero MotoCorp Ltd. ANNUAL REPORT 2010-1132Even in the short term, there is a growingperception that India may soon be on top of itsrate hike and inflation curves; in other words, asfood inflation moderates on the back of anothergood monsoon and as crude prices stabilise, theRBI may loosen its tightening policy towardsthe end of 2011. This would have a stabilising
  58. 58. influence on growth towards the end of 2011-12.While the near-termoutlook for the Indianeconomy looksuncertain, India’slong-term growthprospects are stable,given the favourabledemographics andincreasing connectivitybetween India andBharat.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS33Industry and Segment InsightHero MotoCorp Ltd. ANNUAL REPORT 2010-11
  59. 59. 34A growing number of jobs in the servicesector, favourable demographics, increasingurbanisation across towns and bountiful rainsensured strong demand for two wheelers inIndia during the year in review. In combination,these factors offset continuously rising consumerfinance rates.The domestic two-wheeler market grew arollicking 26%, with sales of 11.8 million units,compared to 9.4 million in the previous year.Two wheeler exports grew 35%, and crossed the1.5 million mark for the first time. Overall, twowheelers sales grew at 27% in 2010-11, with 13.4million units of sales as compared to 10.5 millionunits of sales in the previous year.Each of the three two wheeler segments clockedstrong growth. Motorcycle sales expanded by24% from 8.4 million units to 10.5 million units.Domestic sales made up the bulk of motorcyclesales. The domestic motorcycle market witnesseda growth of 23% in 2010-11, sales of 90,18,945units as compared to sales of 73,41,090 units in2009-10.Continuing with a recent trend, scooter sales
  60. 60. grew the fastest (42%) from 1.5 to 2.2 millionunits. In the domestic market, scooters now makeup close to 18.5% of the two wheeler market. Therevival in the mopeds segment continued as well;sales were up 23% from 5.7 lakh to over 7 lakhunits.India’s motorcycle market comprises threecategories: entry, executive and premium. Duringthe year, the entry segment grew at close to14%. Nevertheless, the entry segment’s overallshare in the two wheeler pie declined from18.7% to 17.3%. The deluxe segment sustainedits steady performance, notching volumes of4.8 million units, and a growth in excess of 15%.This segment accounted for over 62% of overallmotorcycle sales.The show-stealer in the motorcycle category wasthe premium segment. More than 1.85 millionunits were sold during the year, a growth of 66%.The strong showing ensured that the premiumshare in the overall motorcycle pie went up from15.3% to 20.6%.In fact in the domestic industry the premiumsegment outsold the entry segment for the firsttime ever.
  61. 61. TWO WHEELERMARKET10,574,83513,413,3128,444,17310,500,004TWO WHEELER  26.8%2009-10 2010-11MOTORCYCLE 24.3% SCOOTER 41.7% MOPED 23.1%571,489703,7131,559,1732,209,595(Number of units)COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIAL
  62. 62. STATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS35The Company has consistentlyrelied on innovation, technologyand design to sustain excitementamongst customers.This year saw the introduction of several newproduct launches and refreshes. The newproducts launches and refreshes were supportedthroughout the year by impactful, clutter-breaking and engaging communication.The products which were launched are Glamour,Glamour FI, New Hunk, Super Splendor, SplendorPro, New KarizmaNew Product LaunchesHero MotoCorp Ltd. ANNUAL REPORT 2010-1136COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIAL
  63. 63. STATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS37Hero MotoCorp Ltd. ANNUAL REPORT 2010-1138COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS39SEGMENT SHARE(C ATEGORiES Of TWOWHEELER)Despite its significantlyhigher base vis-a-viscompetitors, Company’stwo-wheeler salesimproved by 17%;
  64. 64. from 4.6 to 5.4 millionunits during the year togarner over 40% twowheeler market share.In the domestic twowheeler market, it hada share of 44.5%, withsales of 5.2 million.ENTRY 17.3% 13.7 % *DELUXE 62.1%  15.5 % *PREMIUM 20.6%  65.85%*In the motorcycle segment, the Company soldover five million units. In the domestic market,the Company sold over 4.9 million motorcyclesat a growth of 15%, thereby capturing 54.6%domestic motorcycle market share.In the scooter segment Pleasure, grew awhopping 65% during the year, with sales of3.42 lakh units. This single scooter brand nowaccounts for over 16% market share.Across various motorcycle segments, theCompany bested industry growth in the entrysegment by growing in excess of 17%, andselling more than 1.5 million units.
  65. 65. In the deluxe segment, the Companycaptured 68.9% share. With sales of3.8 million units, the Companyregistered growth in excess of 12%.Accelerated Performance* Growth in 2010-11 over 2009-10Hero MotoCorp Ltd. ANNUAL REPORT 2010-1140In the scootersegment Pleasure,grew a whopping65% during the year,with sales of 3.42lakh units .COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS41
  66. 66. SalesThe Company’s sales grew by 17.44%. It endedthe year with a domestic market share of around45%. The Company clocked a sales volumeof 5,402,444 units in 2010-11, compared to4,600,130 units in 2009-10. In value terms totalsales (net of excise duty) increased by 22.1%to Rs. 19,245 crores from Rs. 15,758 croresin 2009-10.ProfitabilityThe Company’s earnings before interestdepreciation and taxes (EBITDA) marginsdecreased from 17.45% in 2009-10 to 13.49% in2010-11 and the Operating profit (PBT beforeother income) decreased from Rs. 2,575.48 croresin 2009-10 to Rs. 2,214.61 crores in 2010-11.The margin fell despite healthy growth in thesales volume on account of higher prices of rawmaterials and components and additional cost ofmeeting emission normsOther Income, including non-operatingincomeOther income increased by 24.7% from Rs. 341crores in 2009-10 to Rs. 425 crores in 2010-11.Cash flows
  67. 67. The free cash flow from operations during theyear stood at Rs. 2,288.11 crores (previous year2,686.64 crores). The same have been deployedin capital assets, investments and paid out asdividends during the year.Capital expenditureDuring the year, the Company incurred a capitalexpenditure of Rs. 364.12 crores. The funds wentinto capacity expansion and replacements.Raw material costsHardening of metal prices particularly steel,copper, aluminium and nickel during the yearresults in escalation in material costs. Rawmaterial costs as a proportion of total costincreased 68.1% to 73.3% and adversely impactedEBITDA margins.Current asset turnoverThis ratio, which shows sales as a proportionof average current assets, decreased from 17.2to 15.5 times, on account of higher averageinventory and loans and advances.Debt structureHero Honda has been a debt free company forthe last 10 years. The unsecured loan of Rs. 32.71crores from the state government of Haryana on
  68. 68. account of sales tax deferment, is interest freeand has no holding costs. Net interest paymentby the Company has been negative during thelast few years.Financial ScorecardHero MotoCorp Ltd. ANNUAL REPORT 2010-1142Dividend policyOver the years, the Company has consistentlyfollowed a policy of paying high dividends,keeping in mind the cash-generating capacities,the expected capital needs of the business andstrategic considerations. For 2010-11, the Boardhas recommended a dividend of 1750% higherthan 1500% declared in previous year, and hasmaintained a payout ratio of 42.1% vis-a-vis31.3% in the previous year. Further, it has alsodeclared 3500% interim dividend(previous year 4000%).Working capital managementThe Company has always sought to efficientlyuse the various components of working capitalcycle. It has been able to effectively controlthe receivable and inventories, enabling it to
  69. 69. continue to operate on negative working capital.KEY iNDiCATORSOf PRO fi TAB iL i TY (%)2010-11 2009-10Return On Average Capital Employed 62.3 76.4Return On Average Equity 60.0 61.4Profit After Tax / Income From Operations 9.9 14.1Profit Before Tax / Income From Operations 12.8 17.9Profit Before Interest And Tax / Income From Operations 12.8 17.7Operating Profit Before Tax / Income From Operations 11.4 16.2Operating Profit Before Depreciation, Interest And Tax / Income From Operations 13.5 17.4WORKiNG CAPi TAL MANAGEMENT ANDL iquiDi TY RAT iOS2010-11 2009-10Inventory Period 10.3 10.6Operating Cycle 12.4 13.3Cash Cycle (20.0) (17.0)Current Ratio* 0.40 0.45Acid Test Ratio* 0.26 0.26Notes on Working Capital:The average of inventory, receivables and payables has been takenfor the above calculations of inventory period, operating and cashcycle.COMPANYOVERVIEW
  70. 70. BOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS43Over the last five years,more than 2000customer touch pointshave been added to theCompany’s network.iNCREASiNG NETWORKOf CuSTOMER TOuCHPOiNTS3,4304,2025,0064,75907—0808—
  71. 71. 0909—1010—11Network ExpansionHero MotoCorp Ltd. ANNUAL REPORT 2010-1144COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS45India’s two wheelerindustry continuesto benefit froman expanding
  72. 72. economy. A revival inagriculture, growingjob opportunities inthe service sector andexpanding urbanisationensured a healthydemand for twowheelersThese factors continued to create a significantdemand for the Company’s two wheelers.Meeting this demand was a key concern duringthe year gone by. The challenge was surmountedby optimising plant capacities and installingbalancing equipment not only internally butacross the supply chain. The team work wasexceptional in overcoming this challenge.High speed and flexible machines wereintroduced to debottleneck the critical shops andlines. This was done to meet not just demandsurges, but also variability in the product mix,which decelerates the throughput. Concurrently,production of less value-added parts wasoutsourced. This created space, allowed machinesto be used for critical operations, and alsoaccommodated new models and variants that were
  73. 73. introduced by the Company.These initiatives helped in different ways. By theend of the year, overall production capacity wentup and the Company was able to ramp up from 4.6million units to 5.4 million units. Over the last threeyears, production capacity has been augmented byover 2 million units.As a part of the journey towards operationalexcellence, shopfloor management programmeslike Kanban and Kaizen were strengthenedto improve efficiency, throughput times anddebottlenecking critical operations. At thesame time, TPM (Total Productive Maintenance)initiatives were beefed up across each of the threeplants. This significantly improved the reliability ofdelivery by increasing equipment uptime.A significant enhancement in production,innovation and quality control represented thekey focus areas during the year. The result isappreciable reduction in customer complaints.Over time, the Company has learnt the valuablelesson that productivity improvements at theshopfloor would lose much of their impact ifconcurrent ramp-ups were not made at thevendor’s end.
  74. 74. During the year, therefore, extensive attention waspaid to production planning. There is a growingrealisation about the importance of accurate androbust long-term forecasting models, so thatvendors are in a position to plan capacity well inadvance.Manufacturing ExcellenceHero MotoCorp Ltd. ANNUAL REPORT 2010-1146At the same time, the Supply Chain teamimpressed upon vendors the need to build incertain flexibilities into their component supplyoperations, so that they could scale in eitherdirection during business cycles.The Company also invested considerable timeand effort in making the direct online system(an ERP system which manages production andsupply of components across the productionchain) more effective.The control of in-plant manufacturing costs wasanother focus area. Various steps were adoptedin this direction. Gas-based generators and heatrecovery units were introduced to cut emissionsand reduce electricity generation costs.
  75. 75. By the end of the year,overall productioncapacity went up andthe Company rampedup from 4.6 millionunits to 5.4 millionunits.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS47Research and Development ExpertiseHero MotoCorp Ltd. ANNUAL REPORT 2010-1148For 25 years, the Company’s research anddevelopment functioned and evolvedunobtrusively, but efficiently and effectively.
  76. 76. Over the years, the department has developedrequisite infrastructure and expertise to develop,test and approve products in-house in line withinternational standards. The domain knowledge,acquired through the interaction with HondaR&D, made it possible to increase the level ofcustomisation at the design stage itself. In turn,this has helped in launching multi-models inshort interval with high levels of localisation.At another level, the Company’s R&D activelyparticipates in the country’s environmentalecosystem. R&D members involve themselves inthe regulatory process at the outset. This ensuresthat all new regulation notifications are compliedwell on time (Hero’s R&D had successfullycomplied with BS-III norms within the specifiedtime). In fact, in some cases, for example, in thecase of reduction of hazardous waste, the R&D iswell ahead of the regulatory curve.In December 2010, when the Company’sBoard approved a New Licensing Arrangementbetween the two joint venture partners, it wasa watershed event. A single pen stroke changedthe Company’s future and its R&D function. WithHero Honda now re-emerging in a new avatar,
  77. 77. Hero MotoCorp Ltd., the organisation’s R&D isalso being revamped.The facilities are being upgraded ahead of timefor adoption of new technologies. To ensurethat Hero MotoCorp is able to face a new worldwithout the presence of Honda, capabilities arebeing enhanced across levels. Skilled manpoweris being augmented significantly, and designand validation infrastructure is being beefed upsignificantly.The Company has implemented PLM (ProductLifecycle Management) and is in processof upgrading it. At a strategic level, HeroMotoCorp’s R&D is also exploring the newtechnical alliances to cater to the latestrequirements of new products, segments andgeographies.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION AND
  78. 78. ANALYSIS49Hero MotoCorp’s robusttechnology heritage wasstrengthened furtherduring the year underreview. IT initiativeswere embarked uponat multiple levels.There was a strongfocus on supply chainintegration, processefficiency and accurateand prompt decision-making.Besides, since the time the Company hadcommenced its journey towards becoming a localenterprise, there was considerable emphasis inthe areas of governance and compliance.Hero MotoCorp Connect (a Dealer ManagementSystem) aimed at automating our supply chain,enhancing information availability as well astransparency. It has completed a successful year.By the end of the financial year, the Company hadsuccessfully deployed the system at more than530 dealers outlets. Crossing this milestone was
  79. 79. no mean achievement, considering the scopeand magnitude of the project. As part of theproject, important enhancements were madein the dealers’ portal, which helped boost theirintegration with the organisation’s supply chain.The Company also used IT infrastructure toaccelerate its decision-making. Key initiativesincluded developing customised reports, usingBusiness Intelligence (BI). An application forCost Modelling and Analysis (CMA) was alsodeveloped during the year.Information security and risk management wasanother focus area. To protect the Company’sdrawings data and prevent leakage in any form toany unauthorised entity, its R&D processes weremigrated from a mostly manual working systemto a software application called Product LifecycleManagement. The PLM software will help provideaccess control of critical information.At a larger level, in order to reduce risksassociated with unauthorised system access, asolution for Governance, Risk and Compliancewas implemented. At the same time, to help theCompany keep track of all necessary statutoryrequirements and legal compliances, Hero
  80. 80. MotoCorp became one of the first companies toimplement an E-compliance application tool.During the year, the Company also accrediteditself with ISO 27001 certification for InformationSecurity. In order to establish the credibility of itsrobust security processes and procedures.Business sustainability is gaining significantimportance in recent years. To de-risk businessoperations the Company has commencedDisaster Recovery (DR) for all critical applications.So far, disaster recovery has been set up forInformation SystemsHero MotoCorp Ltd. ANNUAL REPORT 2010-1150R&D, GoodLife and the dealer managementapplications. Work on the SAP module and e-mailis in progress.Meanwhile, to keep pace with changingtechnologies globally, the Company hasalso introduced solutions like mobile-basedapplications as well as web-based interfaces forenterprise applications. For example, workflowsand approvals are now possible on mobilephones.
  81. 81. COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS51The emphasis has alwaysbeen on buildinga talent pipeline takinginto account a medium-to-long-term perspective.The Company has triedto attract the righttalent, build capabilitiesand facilitate careerdevelopment to driveorganisational objectives.People ApproachHero MotoCorp Ltd. ANNUAL REPORT 2010-1152During the year, the SAP-ELS Module for Talent
  82. 82. Development was initiated. The module will golive next year, and will give the new Companya contemporary and cutting-edge talentdevelopment system.The Company augmented its young talent byinducting a fresh batch of management traineesand GETs like every year. The ET programmehas been re-engineered. Our five-monthlong induction is based on a ‘Job FunctionCriteria’ that recognise strengths and facilitateappropriate job alignment. Besides, to widen theincumbent’s learning horizon, On-the-Job Project(OTJP) and Job Simulation were introduced forthe first time.For mid-and junior-level management, selectiveeducation courses were introduced to fosterleadership and teamwork. As in previous years,the Company’s mandate of ’Achieving Excellencethrough teamwork’ was executed in various ways.Across levels and locations, programmes focusingon Strategic Thinking, People Development,Interface Management, Business Etiquetteand Positive Attitude were held. Several newprogrammes for grooming young talent were alsoorganised.
  83. 83. Simultaneously, entry-level induction for workersat the plant level was strengthened during theyear. Technical Training facilities in the Gurukul(Company’s dedicated training facility) wereupgraded; new machines were brought in anda mini assembly line was set up to provide newinductees with hands-on experience in vehicleassembly.At another level, a new programme wasintroduced for plant employees to fulfil theirspiritual needs. The programme (Sadbhavna)has been commenced at the ’Om Shanti RetreatCentre in association with Brahma Kumaris, awell-known spiritual organisation. Close to 900operators were covered under the programmeduring the year.During the year, the Code of Conduct waslaunched to embed and codify the ethical tenetsof the Company.On its part, the Top Management teamunderwent the Harvard Business SchoolProgramme on “Building a Global Enterprise inIndia”.Employee and industrial relations scenario at allthree plants remained smooth during the year
  84. 84. under review. At Dharuhera, union elections wereheld peacefully, and a new Union came into force.To track and manage the performance of thecontractors (who provide manpower) efficiently,a Performance Matrix was introduced for thefirst time in the contract agreements. The matrixwas directly linked to the service charges of thecontractors. During the year, biometric cardsfor the Gurgaon region were issued by the ESIauthorities.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS53Risk ManagementHero MotoCorp Ltd. ANNUAL REPORT 2010-1154Inflation and input prices
  85. 85. India’s core inflation has gone up significantlyover the past year, and is unlikely to moderatesignificantly in the coming months. This is anarea of considerable concern as the bulk of theCompany’s production costs comprise materialcosts. However, the Company continues toproactively focus on cost optimisation to offsetthe spiralling rise in material prices.Interest ratesSustained inflation forced India’s apex bankto tighten monetary policy throughout theyear in review, and this process continues intothe current year. While the Company has notbeen significantly affected by higher interestbecause of its strong balance sheet and healthycash flows, some of its smaller vendors of theCompany could face expansion constraints ifthe cost of finance continue to remain high. TheCompany is now pursuing an aggressive policy ofmultiple sourcing to counter this challenge.Global uncertaintyGlobal uncertainty didn’t significantly affectpast performance as the Company’s operationswere mostly concentrated in domestic markets.With widening transcontinental footprint,
  86. 86. the susceptibility to geo-political events canescalate significantly. However, considering theCompany’s product profile, and planned focuson emerging and nascent markets similar toIndia, the management believes the challenge ofuncertainty can be overcome.Transition challengesUndergoing major transformation followingthe change in ownership, the Company is in theprocess of acquiring a new identity for itself andits products. Although the Company can use theHero Honda brand till 2014, it is aware that ithas to eventually create a new brand associationamong customers without Honda. Moreover, itwill have to contend with strong competitionfrom its erstwhile joint venture partner acrossall major segments. Admittedly, there will bechallenges in the near term, yet the Companybelieves it is suitably positioned to capitalise onthe market reputation created over a period of26 years. To succeed in the new dispensation, theR&D function has witnessed a major overhaulwith a focus on new product development. Newalliances and technology tie-ups are also beingfinalised. In addition, new export markets are
  87. 87. being explored.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS55The Company’senvironmentalconsciousness –embedded in the credo“we care’’ – continued tobe a key area of focus.Since inception, the Company has investedsubstantially in clean and green technologies: afluidised bed (for paint hanger burning), an advancedincinerator (for paint and sludge), solid landfill (forthe disposal of solid, hazardous and non-hazardouswaste), effluent and sewage treatment plants, rainwater harvesting sites (reference sites), Green Roof(at Hardwar plant) and others.
  88. 88. The Green Vendor Development Programme hasstruck deep roots since its commencement in 2007.This collaborative programme calls for partnercompanies to demonstrate their commitment towardsimproved environmental performance and striving forcontinual improvement.Green ManagementHero MotoCorp Ltd. ANNUAL REPORT 2010-1156Six pillars have been assigned under theprogramme, covering various aspects, such asenergy management, water management, wasteminimisation, pollution prevention, substitutionof hazardous chemicals and environmentalcompliance management. Partner vendors aregiven specific training on all six pillars. Processmapping is conducted to identify differentnon-compliances and projects are undertakenfor implementation. This programme is gainingincreasing acceptability among vendors. In thefirst year, projects were undertaken with around30 vendors; by the end of the financial year morethan 90 vendors were enrolled.COMPANY
  89. 89. OVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSMANAGEMENTDISCUSSION ANDANALYSIS57Dear Members,We, the Directors of Hero MotoCorp Ltd., are delighted to present the 28thAnnual Report for the financial year 2010-11. The reportis being presented along with the Audited Statement of Accounts for the financial year ended March 31,2011 .FINANCIAL RESULTS(Rs. in crores)Particulars For the year endedMarch 31, 2011 March 31, 2010Gross Sales 20,662.39 16,780.62Net Sales and other Income 19,669.90 16,098.79Profit before Interest and Depreciation 2,805.29 3,002.58Less: Interest (Net) (1.85) (20.62)- Depreciation 402.38 191.47Profit before tax (PBT) 2,404.76 2,831.73Less: Provision for tax
  90. 90. - Current 475.76 591.58- Deferred 94.02 8.32- Minimum Alternate Tax Credit (92.92) -Profit after tax (PAT) 1,927.90 2,231.83Add: Balance of profit brought forward 2,146.55 2,707.28Balance available for appropriation 4,074.45 4,939.11AppropriationsDividend- Interim 1,397.81 1,597.50- Proposed Final698.91 599.06Corporate Dividend Tax 340.14 371.00Transfer to General Reserve 192.79 225.00Balance carried to Balance Sheet 1,444.80 2,146.55Dividend (%) 5,250 5,500Basic and Diluted Earnings Per Share (EPS) (Rs.)- Before exceptional items 100.53 111.77- After exceptional items 96.54 111.77DIRECTORS’REPORTHero MotoCorp Ltd. ANNUAL REPORT 2010-1158BUSINESS PERFORMANCEDuring the year your Company notched 17.44% growth in sales,with volumes of 54,02,444 units compared to 46,00,130 units in
  91. 91. 2009-10. In value terms total sales (net of excise duty) increasedby 22.13% to Rs. 19,245.03 crores in 2010-11 from Rs. 15,758.18crores in 2009-10.Your Company continued to lead the domestic motor cyclemarket with 54.6% market share. The Company successfullylaunched six new models including variants during the yearunder review.Total income of the Company grew by 22.18%, fromRs. 16,098.79 crores to Rs. 19,669.90 crores in 2010-11. TheCompany’s Profit After Tax (PAT) declined by 13.62% toRs. 1,927.90 crores from Rs. 2,231.83 crores in the previous fiscal.The Company’s Earnings Before Interest Depreciation andTaxes (EBITDA) margins decreased from 17.45% in 2009-10 to13.49% in 2010-11. Operating profit (PBT before other income)decreased from Rs. 2,575.48 crores in 2009-10 to Rs. 2,214.61crores in 2010-11. The margin fell despite a healthy growth inthe sales volume on account of higher prices of raw materials& components.During the year, the Company also retained, for the tenth year ina row, its position as the World’s No. 1 Two Wheeler Company.A detailed discussion on the business performance and futureoutlook has been given in the Management Discussion &Analysis.DIVIDENDGiven the strong financial position, your Company declared
  92. 92. and paid an Interim Dividend of 3500% i.e. Rs. 70 per EquityShare of the face value of Rs. 2 each, totaling Rs. 1,397.81 crores(exclusive of tax on Dividend).Your Directors are pleased to recommend a Final Dividendof 1750% i.e. Rs. 35 per Equity Share of the face value of Rs. 2per share, aggregating to Rs. 698.91 crores (exclusive of tax onDividend), for the financial year ended March 31, 2011 for yourapproval. The final dividend, if approved will be paid to theeligible members well within the stipulated period.TRANSFER TO GENERAL RESERVEReaffirming the financial strength of the Company, a sum ofRs. 192.79 crores has been transferred to the General Reserve ofthe Company for the financial year 2010-11.MATERIAL CHANGES AND COMMITMENTSNo material changes and commitments affecting the financialposition of the Company have occurred between April 1, 2011and the date on which this Report has been signed.PROMOTER GROUP REALIGNMENT ANDIMPLICATIONSDuring the year, the Indian Promoter Group of the Company,which comprised of Hero Investments Private Limited (“HIPL”),Bahadur Chand Investment Private Limited (“BCIPL”) and HeroCycles Limited (“Hero Cycles”), re-aligned the shareholding inthe Company, following a family agreement. As a result, HeroCycles transferred its shareholding in the Company to HIPL on
  93. 93. May 28, 2010.As a result of these transactions, the Indian Promoter Groupof the Company now comprises of HIPL and BCIPL ownedand controlled entirely by the Munjal Family headed byMr. Brijmohan Lall Munjal, Chairman of the Company.Also, during the year, the Indian Promoter Group and HondaMotor Co. Ltd., Japan (“Honda”) entered into a Share TransferAgreement (“the Agreement”) on January 22, 2011. As perthe terms of the Agreement, Honda had agreed to transferits entire shareholding of 26% in the Company to the IndianPromoter Group, bringing an end to the joint venture betweenthe two promoter groups of the Company. The acquisition wascompleted on March 22, 2011 and the shares held by Hondawere transferred to the Indian Joint Venture partner.In addition to the Agreement, the Indian Promoter Group andHonda also entered into a License Agreement on January 1, 2011.As per this Agreement, Honda has given to the Company, theright and license to manufacture, assemble, sell and distributecertain products and their service parts under their IntellectualProperty Rights. 17.44%During the year your Company notched17.44% growth in sales, with volumes of54,02,444 units compared to 46,00,130units in 2009-10.
  94. 94. 22.13%In value terms total sales (net of exciseduty) increased by 22.13% toRs. 19,245.03 crores in 2010-11 fromRs. 15,758.18 crores in 2009-10 22.18%Total income of the Company grew by22.18% , from Rs. 16,098.79 crores toRs. 19,669.90 crores in 2010-11.COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSDIRECTORS’ REPORT59The amount to be paid by the Company for licenses involve:Rs. 1,928.37 crores for manufacture, assembly, selling anddistribution and Rs. 550.96 crores for exports. The amounts havebeen capitalised as Intangible Assets (along with applicable cessand duty), based on the probability that the future economicbenefits attributable to these assets will flow to the Company.This is because w.e.f. January 1, 2011 the Company’s liability topay ongoing royalty for all existing/modified products/parts
  95. 95. would cease.These Intangible Assets have been amortised over a period of42 months up to June 30, 2014. Accordingly, liability payable upto March 31, 2011 has been included under current liabilitiesand the balance has been disclosed as Defer payment credits.CHANGE OF NAMEDuring the current financial year, in view of the separationof the joint venture partners, your Company had startedthe process of change of name of the Company from “HeroHonda Motors Limited” to “Hero MotoCorp Limited”. The newname was approved by the members of the Company in theirExtra-ordinary General Meeting held on June 17, 2011 andsubsequently fresh certificate of incorporation consequent tochange of name dated July 28, 2011 has been received by theCompany. Also, the new Corporate Identity (new CorporateLogo) was adopted by the Board of Directors of the Company onAugust 17, 2011 for all future practical purposes.BOARD OF DIRECTORSAppointment/re-appointmentD uring the year under review, Mr. Toshiaki Nakagawa wasre-appointed as the Jt. Managing Director w.e.f. February 1,2011 for a further period of 6 (six) months.Also, Mr. Paul Edgerley was appointed as Non-ExecutiveDirector of the Company w.e.f. May 4, 2011. The Board extendsits warm welcome to Mr. Edgerley on the Board and wishes him
  96. 96. a successful tenure with the Company.In terms of the provisions of the Companies Act, 1956 &the Articles of Association of the Company, Mr. PradeepDinodia, Gen. (Retd.) V.P. Malik, Mr. Brijmohan Lall Munjal andMr. Sunil Kant Munjal will retire by rotation at the ensuingAnnual General Meeting and being eligible, offer themselves forre-appointment.The present term of appointment of Mr. Brijmohan Lall Munjal,Chairman and Director in the Whole-time employment of theCompany has expired on August 2, 2011. Further the term ofthe appointment of Mr. Pawan Munjal, Managing Director &CEO will come to an end on September 30, 2011. The Boardhas, on the recommendation of Remuneration Committee andsubject to your approval in the general meeting and such otherapprovals, if any, has re-appointed them for a further period of5 (five) years respectively .The Board has also appointed Mr. Sunil Kant Munjal as theJt. Managing Director of the Company for a term of 5 (five) yearseffective August 17, 2011.Brief resume/details of the Directors, who are to be appointed/re-appointed as mentioned herein above have been furnishedalongwith the Explanatory Statement to the Notice of theensuing Annual General Meeting.The Board recommends their re-appointment/appointment atthe ensuing Annual General Meeting.
  97. 97. ResignationsMr. Om Prakash Munjal resigned from the Board w.e.f July 29,2010 and Mr. Toshiaki Nakagawa and Mr. Sumihisa Fukudaresigned from the Company w.e.f. March 22, 2011 in view of theabovestated changes in the promoter group.Further, Mr. Yuji Shiga and Ms. Shobhana Bhartia resignedfrom the Board of the Company w.e.f. April 13, 2011. ThereafterMr. Toshiyuki Inuma, who was appointed as a Non-ExecutiveDirector of the Company w.e.f. April 13, 2011 and Mr. TakashiNagai resigned from the Board of the Company w.e.f.August 8, 2011.The Board appreciates and expresses gratitude for the valuablecontribution made by all the outgoing Directors during theirfruitful tenure as the Directors of the Company.DIRECTORS’ RESPONSIBILITY STATEMENTTo the best of our knowledge and belief and according to theinformation and explanations obtained by us, your Directorsmake the following statement in terms of Section 217(2AA) ofthe Companies Act, 1956:1. that in the preparation of the annual accounts for the yearended March 31, 2011, the applicable accounting standardshave been followed;2. that appropriate accounting policies have been selectedand applied consistently and judgements and estimatesthat are reasonable and prudent have been made so as to
  98. 98. give a true and fair view of the state of affairs as at March 31,2011 and of the profit of the Company for the financial yearended March 31, 2011;3. that proper and sufficient care has been taken for themaintenance of adequate accounting records in accordancewith the provisions of the Companies Act, 1956 forsafeguarding the assets of the Company and for preventingand detecting fraud and other irregularities; and4. that the annual accounts for the year ended March 31, 2011have been prepared on a going concern basis.Hero MotoCorp Ltd. ANNUAL REPORT 2010-1160MANAGEMENT DISCUSSION & ANALYSISREPORTA detailed chapter on, ‘Management Discussion and Analysis’(MDA), pursuant to Clause 49 of the Listing Agreement isannexed and forms part of this Annual Report.CORPORATE SOCIAL RESPONSIBILITYCorporate Social Responsibility (CSR) is an integral part ofthe Company ethos. The Company supports the Raman KantMunjal Foundation, which in turn runs a school and a hospital.The Foundation also conducts various outreach programs inthe villages around the Company’s factories. These programsare conducted in partnership with leading NGOs, and over theyears, there have been significant spinoffs.
  99. 99. CORPORATE GOVERNANCEAt Hero MotoCorp, it is our firm belief that the essence ofCorporate Governance lies in the phrase ‘Your Company’. It is‘Your’ Company because it belongs to you – the shareholders.The Chairman and Directors are ‘Your’ fiduciaries and trustees.Their objective is to take the business forward in such a waythat it maximises ‘Your’ long-term value.Your Company is committed to benchmarking itself withglobal standards for providing good Corporate Governance.It has put in place an effective Corporate Governance Systemwhich ensures that the provisions of Clause 49 of the ListingAgreement are duly complied with.The Board has also evolved and adopted a Code of Conductbased on the principles of Good Corporate Governanceand best management practices being followed globally.The Code is available on the website of the Companywww.heromotocorp.com. A Report on Corporate Governancealong with the Auditors’ Certificate on its compliance is annexedhereto as Annexure - I.INTERNAL CONTROL SYSTEMSThe Company has a proper and adequate system of internalcontrols. This ensures that all assets are safeguarded andprotected against loss from unauthorised use or dispositionand those transactions are authorised, recorded and reportedcorrectly.
  100. 100. An extensive programme of internal audits and managementreviews supplements the process of internal control. Properlydocumented policies, guidelines and procedures are laid downfor this purpose. The internal control system has been designedto ensure that the financial and other records are reliable forpreparing financial and other statements and for maintainingaccountability of assets.The Company also has an Audit Committee, comprising fourNon-Executive & Independent and professionally qualifiedDirectors, who interact with the Statutory Auditors, InternalAuditors, Cost Auditors and Auditees in dealing with matterswithin its terms of reference. The Committee mainly dealswith accounting matters, financial reporting and internalcontrols. During the year under review, the Committee met4 (four) times.AUDIT COMMITTEE RECOMMENDATIONDuring the year there was no such recommendation of theAudit Committee which was not accepted by the Board. Hence,there is no need for the disclosure of the same in this Report.RISK MANAGEMENT SYSTEMYour Company follows a comprehensive system of RiskManagement. Your Company has adopted a procedure for riskassessment and its minimisation. It ensures that all the Risksare timely defined and mitigated in accordance with the wellstructured Risk Management Process. The Audit Committee
  101. 101. and Board reviews periodically the Risk Management Process.RATINGSThe rating agency ICRA Limited, has reviewed and reaffirmedthe rating assigned to the Company for its Non-convertibleDebenture Programme as LAAA *pronounced “L triple A”+indicating the highest credit quality and A1+ [pronounced“A one Plus”+ for its Non-fund based facilities and LAAA*pronounced “L triple A”+ to Fund based facilities indicatingthe highest credit quality rating carrying lowest credit risk.ICRA also has LRAAA *pronounced “L R triple A”+ issuer ratingassigned for the Company.The rating agency CRISIL, during the year under review,assigned the bank loan ratings of “AAA/Stable” and P1+ to theCash Credit Limit & Letter of Credit Limit Facility respectively tothe Company.FIXED DEPOSITSDuring the year under review, the Company has not acceptedany deposit under Section 58A and 58AA of the CompaniesAct, 1956 read with the Companies (Acceptance of Deposits)Rules, 1975.AUDITORSM/s. A. F. Ferguson & Co., Chartered Accountants, New Delhi,Auditors of the Company will retire at the conclusion ofthe ensuing Annual General Meeting and being eligible,COMPANY
  102. 102. OVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSDIRECTORS’ REPORT61offer themselves for re-appointment. The Company hasreceived a certificate from the auditors to the effect that theirre-appointment, if made, would be in accordance withSection 224(1B) of the Companies Act, 1956. The Boardrecommends their re-appointment.AUDITORS’ REPORTThe observations of Auditors in their report, read with therelevant notes to accounts are self explanatory and thereforedo not require further explanation.COST AUDITORSThe Board has re-appointed M/s. Ramanath Iyer & Co.,Cost Accountants, New Delhi, as the Cost Auditors of theCompany under Section 233B of the Companies Act, 1956for the financial year 2011-12 and the necessary applicationfor obtaining the requisite approval has been filed with theCentral Government. The Cost Auditors’ Report for 2010-11 willbe forwarded to the Central Government in pursuance of theprovisions of the Companies Act, 1956.
  103. 103. CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION, FOREIGN EXCHANGE EARNINGSAND OUTGOInformation required under Section 217(1)(e) of the CompaniesAct, 1956, read with Companies (Disclosure of Particulars inthe Report of the Board of Directors) Rules, 1988 is given asAnnexure - II and forms an integral part of this Report.LISTINGThe shares of your Company are presently listed on BombayStock Exchange Limited (BSE) and National Stock Exchange ofIndia Limited (NSE).PERSONNELAs on March 31, 2011 the total number of employees on therecords of the Company were 5,257.Your Directors place on record their appreciation for thesignificant contribution made by all employees, who throughtheir competence, dedication, hard work, co-operation andsupport have enabled the Company to cross new milestoneson a continual basis.A detailed note is given in the chapter “People Approach”(Human Resource Management) of Management Discussion &Analysis, which forms part of this Annual Report.PARTICULARS OF EMPLOYEESInformation of Particulars of Employees as required underSection 217(2A) of the Companies Act, 1956 read with The
  104. 104. Companies (Particulars of Employees) Rules, 1975 forms anintegral part of this Report. As per the provisions of Section219(1)(b)(iv) of the Companies Act, 1956, the Report andAccounts are being sent to the shareholders of the Companyexcluding the statement of Particulars of Employees underSection 217(2A) of the Companies Act, 1956. Any shareholderinterested in obtaining a copy of such statement may write tothe Sr. G.M. Legal & Company Secretary at the Registered Officeof the Company.ACKNOWLEDGEMENTIt is our strong belief that caring for our business constituentshas ensured our success in the past and will do so in future. YourDirectors acknowledge with sincere gratitude the co-operationand assistance extended by the Central Government, StateGovernment(s), Financial Institution(s), Bank(s), Customers,Dealers, Vendors and Ancillary Undertakings. The Directors alsoplace on record their appreciation for the valuable assistanceand guidance extended to the Company by the promotercompanies and for the encouragement and assurance,which our former collaborator has given for the growth anddevelopment of the Company.The Board also takes this opportunity to express its deepgratitude for the continued co-operation and support receivedfrom its valued shareholders.For and on behalf of the Board
  105. 105. Brijmohan Lall MunjalChairmanNew DelhiAugust 17, 2011Hero MotoCorp Ltd. ANNUAL REPORT 2010-1162ANNEXURE - I TODIRECTORS’ REPORTPhilosophy on ‘Code of Corporate Governance’The Company’s philosophy of Corporate Governance stemsfrom a belief that the Company’s business strategy and plansshould be consistent with the welfare of all its stakeholders,including shareholders. Good Corporate Governance practicesenable a Company to attract financial and human capital. Inturn, these resources are leveraged to maximise long-termshareholder value, while preserving the interests of multiplestakeholders, including the society at large.Corporate Governance rests upon the four pillars of:transparency, full disclosure, independent monitoring andfairness to all, especially to minority shareholders. The Companyhas always strived to promote Good Governance practices,which ensure that: A competent management team is at the helm of affairs; The Board is strong with an optimum combination ofExecutive and Non-Executive (including Independent)
  106. 106. Directors, who represent the interest of all stakeholders; The Board is effective in monitoring and controlling theCompany’s affairs; The Board is concerned about the Company’s shareholders;and The Management and Employees have a stableenvironment.We believe that the essence of Corporate Governance lies in thephrase “Your Company”. It is “Your” Company because it belongsto “you” – the shareholders. The Chairman and Directors are“Your” fiduciaries and trustees. Their objective is to take thebusiness forward to maximise “Your” long-term value.The Securities and Exchange Board of India (SEBI) hasspecified certain mandatory governance practices, which areincorporated in Clause 49 of the Listing Agreement of StockExchanges.The Company is committed to benchmark itself with the beststandards of Corporate Governance, not only in form but alsoin spirit. This section, along with the section on ‘ManagementDiscussion & Analysis’ and ‘General Shareholders’ Information’,constitute the Company’s compliance with Clause 49 of theListing Agreement, entered into by the Company with the ofStock Exchanges.BOARD OF DIRECTORSComposition of the Board
  107. 107. As on March 31, 2011, the Company’s Board of Directorscomprised of fourteen Directors. Two Directors, including theChairman, are Executive Directors; four are Non-ExecutiveDirectors and eight are Non-Executive and IndependentDirectors. More than fifty per cent of the Board consists ofIndependent Directors, therefore the composition of the Boardis in consonance with Clause 49 of the Listing Agreement.Details of the composition of the Board, number of meetingsheld during their tenure and attended by them etc., are givenin Table 1.CORPORATEGOVERNANCE REPORTCOMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSCORPORATEGOVERNANCE REPORT63ATTENDANCE RECORD DURING FINANCIAL YEAR 2010-11 DIRECTORSHIP/MEMBERSHIPS ON MARCH 31,2011Name of Director Number of BoardMeetings held duringhis/her tenure and
  108. 108. attended by him/herAttendanceat last AGMNumber ofCommitteeMemberships(includingChairmanships)heldNumber ofCommitteeChairmanshipsheldNumberof outsideDirectorshipsheldHeld Attended (excluding Private Companies, Foreign Companies& Section 25 Companies)Executive DirectorsMr. Brijmohan Lall Munjal 5 5 Yes None None 6Mr. Pawan Munjal 5 5 Yes None None 3Non-Executive DirectorsMr. Sunil Kant Munjal 5 5 Yes None None 14Mr. Suman Kant Munjal
  109. 109. 13 3 Yes 1 None 5Mr. Yuji Shiga25 5 No None None NoneMr. Takashi Nagai55 5 No 1 None 2Non-Executive andIndependent DirectorsMr. Pradeep Dinodia 5 5 Yes 8 4 8Gen. (Retd.) V. P. Malik 5 5 Yes 5 1 3Mr. Analjit Singh 5 1 No None None 13Dr. Pritam Singh 5 3 Yes 3 None 4Ms. Shobhana Bhartia25 2 No 1 1 14Mr. M. Damodaran 5 2 Yes 4 1 6Mr. Ravi Nath 5 5 Yes 2 1 3Dr. Anand C. Burman 5 5 No 1 None 9(Resigned during the year)Executive DirectorsMr. Toshiaki Nakagawa35 5 Yes N.A. N.A. N.A.
  110. 110. Mr. Sumihisa Fukuda35 5 Yes N.A. N.A. N.A.Non-Executive DirectorMr. Om Prakash Munjal42 Nil N.A. N.A. N.A. N.A.TABLE 1: DETAILS ABOUT COMPANY’S BOARD OF DIRECTORSNotes:1. Appointed w.e.f. July 29, 2010;2. Resigned w.e.f. April 13, 2011;3. Resigned w.e.f. March 22, 2011;4. Resigned w.e.f. July 29, 2010;5. Resigned w.e.f. August 8, 2011.Hero MotoCorp Ltd. ANNUAL REPORT 2010-1164Mr. Brijmohan Lall Munjal is the father of Mr. Pawan Munjal,Mr. Sunil Kant Munjal and Mr. Suman Kant Munjal and thebrother of Mr. Om Prakash Munjal.Four Directors namely Mr. Brijmohan Lall Munjal (Chairmanin the Whole-time employment of the Company),Mr. Pawan Munjal (Managing Director & CEO), Mr. Sunil KantMunjal (Non-Executive Director) and Suman Kant Munjal(Non-Executive Director) belong to the promoter familyof the Hero Group, which owns 52 per cent equity in the
  111. 111. Company. Four Directors namely Mr. Toshiaki Nakagawa(Jt. Managing Director), Mr. Sumihisa Fukuda (Technical Director),Mr. Yuji Shiga (Non-Executive Director) and Mr. Takashi Nagai(Non-Executive Director) were nominees of Honda Motor Co.Ltd., Japan (Honda), former promoter of the Company. Apartfrom these, the rest of the Board comprises of Non-Executiveand Independent Directors.Board MeetingsDuring 2010-11, the Board of Directors met 5 (five) times on April19, 2010; July 29, 2010; October 29, 2010; December 16, 2010 andFebruary 2, 2011.The period between any two consecutive meetings of the Boardof Directors of the Company was not more than 4 months.Directors’ Attendance Record and Directorships /Committee MembershipsDetails are given in Table 1.Pursuant to Clause 49 of the Listing Agreement entered intowith the Stock Exchange(s), an Independent Director means aNon-Executive Director who: apart from receiving Director’s remuneration, does nothave any material pecuniary relationships or transactionswith the Company, its promoters, its Directors, its seniormanagement, its holding Company, its subsidiaries orassociates which may affect independence of the Director; is not related to promoters or persons occupying
  112. 112. management positions at the board level or at one levelbelow the board; has not been an executive of the Company in theimmediately preceding three financial years; is not a partner or an executive of the statutory audit firm orthe internal audit firm that is associated with the Companyand has not been a partner or an executive of any such firmfor the last three years and the legal firm(s) and consultingfirm(s) that have a material association with the entity; is not a material supplier, service provider or customeror a lessor or lessee of the Company, which may affectindependence of the Director; is not a substantial shareholder of the Company i.e. owningtwo percent or more of the block of voting shares; is not less than 21 years of ageNone of the Directors on the Board holds the office of Director inmore than 15 companies nor are they members in Committeesof the Board in more than 10 Committees or Chairman of morethan 5 Committees. Further, there are no pecuniary relationshipsor transactions between the Independent Directors andthe Company, except for the sitting fees drawn by the Non-executive Directors and sitting fees andcommission drawn bythe Non-executive and Independent Directors for attendingthe meetings of the Board and its Committee(s) thereof.Shareholding of Non-Executive Directors as onMarch 31, 2011
  113. 113. Name of the Director Category No. of sharesheldMr. Om Prakash Munjal1Non-ExecutiveDirector25,000Mr. Sunil Kant Munjal Non-ExecutiveDirector32,500Mr. Suman Kant Munjal Non-ExecutiveDirector1,03,750Note:1. Resigned w.e.f. July 29, 2010.Apart from the above, none of the Non-Executive (includingIndependent) Directors holds any shares (as own or on behalfof any other person on beneficial basis) in the Company.Information Supplied to the BoardBoard members are given agenda papers along with necessarydocuments and information in advance of each meeting ofthe Board and Committee(s). However, in case of businessexigencies or urgencies, the resolutions are passed by wayof circulation. In addition to the regular business items, thefollowing items/ information are regularly placed before the
  114. 114. Board to the extent applicable: Annual operating plans and budgets, capital budgets andupdates; Purchase and disposal of major fixed assets; Quarterly and half yearly results of the Company; Minutes of the Audit Committee, Shareholders’ GrievanceCommittee, Remuneration Committee and Committee ofDirectors’ meetings; Information on recruitment of the Chief Financial Officerand the Company Secretary;COMPANYOVERVIEWBOARD & MANAGEMENTREPORTSFINANCIALSTATEMENTSCORPORATEGOVERNANCE REPORT65 Any material defaults in financial obligations to and by theCompany or substantial non-payments for goods sold bythe Company; Fatal or serious accidents, dangerous occurrences, anymaterial effluent or pollution problems; Transactions that involve substantial payment towards
  115. 115. goodwill, brand equity or intellectual property; Materially important show cause, demand, prosecution andpenalty notices; Details of quarterly foreign exchange exposures and stepstaken by the management to limit the risks of adverseexchange rate movement; Sale of material nature, of investments and assets, which arenot in the normal course of business; Details of Joint Ventures and Agreements or variationsthereof; Quarterly Statutory Compliance Report; Non-compliance of any regulatory, statutory nature orlisting requirements and shareholder’s service such as non-payment of dividend, delay in share transferetc.; Investments strategy/plan; Any issue which involves possible public or product liabilityclaims of substantial nature, including any judgement ororder which may have passed strictures on the conduct ofthe Company or taken an adverse view regarding anotherenterprise that can have negative implications on theCompany; and Significant labour problems and their proposed solutions.Also, any significant development in Human Resources/Industrial Relations front like signing of Wage Agreement,implementation of Voluntary Retirement Schemes etc.Code of Conduct
  116. 116. The Company has laid down a code of conduct for all Boardmembers and senior management of the Company. The codeof conduct is available on the website of the Company i.e.www.heromotocorp.com. The code has been circulated toall the members of the Board and senior management andthey have affirmed compliance with the code of conduct. Adeclaration signed by the Chief Executive Officer (CEO) andChief Financial Officer (CFO) to this effect is attached to theAnnual Report.Risk ManagementThe Company has established effective risk assessment andminimisation procedures, which are reviewed by the Boardperiodically. The procedures comprises of an in-house exerciseon Risk Management, carried out periodically by the Company,including the functioning of a structure to identify and mitigatevarious risks faced by the Company from time to time. Thestructure also comprises of risk identification and assessmentby the concerned departments, identification of controls inplace/mitigation process in place, updation of Risk registers byvarious departments and the consolidation and presentation ofthe risk reports by the Chief Risk Officer (CRO) before the Boardof Directors of the Company.BOARD LEVEL COMMITTEESAudit CommitteeThe genesis of the Company’s Audit Committee can be traced

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