Made it as a case study for a job opportunity. Limit of 5 slides so not very detailed

1. Performance Evaluation
Submitted by:
Aniket Harsh
On: 9th Oct 2014

2. • Started in 1983 as Hero Honda, with a joint collaboration agreement
with Honda Motor Company Ltd, Japan.
• Name changed to Hero Motocorp post exit by Honda in Jan 2011
• World’s largest two-wheeler company in terms of unit volume sales.
• Presence in 19 countries.
• JV with Magneti Marelli and alliance with Erik Buell Racing.
• 41.2 % share in domestic 2-Wheeler market and 51.8% in domestic
motorcycle market.
• Installed capacity of 7 million units

3. Segment Analysis
• The two-wheeler industry has three distinct segments, based
on income and lifestyle classifications. In FY 2013-14, the
deluxe category accounted for 66% of sales. It was followed by
the entry segment (18%) and the premium category (16% ).
• The deluxe segment grew by 5.4% with volumes of 6.8 million
units.
• The entry segment which accounted for 1.8 million units,
declined by 2.6%.
• The sales in the industry’s premium segment increased
significantly by 7.1%.
2W Market FY14
• During FY 2013-14, the two-wheeler industry grew marginally
by 7.1%, from 16.9 million units sold compared to 15.8 million
units in FY 2012-13.
• In a similar pattern, the motorcycle volumes which account for
a major industry proportion grew by 4.3% from 11.95 million
units in FY2012-13 to 12.5 million units in FY 2013-14.
• The scooter category was the star industry performer with
22.1% growth in sales, from 3.07 million units in FY 2012-13 to
3.75 million units in FY 2013-14.

4. KPIs HMC FY14 HMC
FY13
Bajaj
FY14
TVS
FY14
Liquidity and Leverage Ratios
Quick Ratio 1.10 1.06 1.05 0.56
Current Ratio 1.26 1.22 1.19 0.92
Turnover and Control Ratios
Net realization per unit
(Rs) 40466.91 39120.71 52576.84 38407.38
Expenses per unit 34799.15 33714.67 41623.64 36101.06
Expenses as a % of sales 84.63% 84.94% 78.27% 88.31%
Raw material cost as a %
of sales 72.09% 73.06% 63.58% 68.06%
Equity Turnover 4.59 4.83 2.19 5.65
Asset Turnover 2.55 2.51 1.43 2.24
Capital Intensity 40.19% 40.88% 70.05% 44.60%
Inventory days 10.5 11.16 12 29
Fixed Asset Turnover Ratio 8.30 7.71 9.79 6.81
Inventory Turnover 40.33 40.01 32.40 15.78
Working Capital Turnover 23.84 28.09 23.38 -71.84
Current Asset turnover 11.28 11.68 6.33 5.67
Profitability
Profit before interest and
tax/Income from ops 11.39% 10.69% 20.28% 4.73%
Profit before tax/Income
from Ops 11.34% 10.64% 22.76% 4.43%
Profit After tax/Income
from ops 8.34% 8.91% 15.94% 3.29%
Operating profit before
tax/Income from ops 9.62% 9.02% 20.27% 4.73%
EBITDA/Income from ops 14.01% 13.82% 21.16% 6.68%
KPIs HMC
FY14
HMC
FY13
Bajaj
FY14
TVS
FY14
Cash Flow
Net cash from operating
activities (Rs Crores) 2963.41 1890.43 3545.71 523.79
Net cash used in investing
activities (Rs Crores) 1619.32 732.94 2141.49 -259.84
Net cash used in financing
activities (Rs Crores) 1414.93 1056.27 1468.22 -198.38
Net cash and cash
equivalents (Rs Crores) 66.41 134.95 486.28 65.57
Management Effectiveness
Return on Equity 37.66% 42.31% 35.82% 18.49%
Return on Asset 20.89% 21.97% 23.34% 7.34%
Return on capital employed 52.67% 47.85% 44.76% 18.50%
Dividend Payout
Payout ratio 61.55% 56.55% 42.80% 35.70%
Dividend per share 65 60 50 1.4
Earnings per share 105.6 106.1 116.8 3.9
Hero Motocorp DuPont Analysis
2012 2013 2014
Profit Margin 10.09% 8.91% 8.34%
Asset use efficiency 2.384 2.465 2.503
Equity Multiplier 2.305 1.926 1.803
ROE 0.554 0.423 0.377

5. Liquidity and Leverage: Hero MotoCorp is debt free and showcases best in class liquidity
performance
Profitability is a concern when compared to Bajaj. End of Royalty payment to Honda would
certainly boost up numbers for next year, and it is expected that with the change in regime,
market conditions will improve, regardless Hero should be better prepared to defend its margins
Turnover and Control Ratios: Compared to Bajaj, the per unit realization is lower and raw material
consumption and expenses as a % of sales is high which should be a cause for major concern.
Cash flows are healthy. A good chunk of it is being directed towards R&D efforts. However, a look
at Bajaj’s cash flow suggests more aggressive effort at financing and R&D investment.
Management effectiveness ratios indicate that the management at Hero is doing a better job than
their peers at competition. DuPont analysis shows that decreasing ROE is largely due to
decreasing profit margin. It can be seen from asset use efficiency that management has
constantly been effecting improvements to increase investors wealth.
Intensifying competition in premium segment is also a cause of concern as it is a high margin low
volume segment. Competitors like Honda and Yamaha through their parent companies have ready
products which would allow them shorter time to market.

6. • Pricing strategy might be re-worked to increase realization per unit. As can be seen, there is a substantial
difference in Bajaj’s realization per unit and expense per unit but it is not so with Hero.
• Hero is languishing behind Bajaj in exports. Export focus needs to be increased. Export revenues will help in
shoring up the bottom line. (66.7% of the total Indian motorcycles exported this year were Bajaj’s and
export revenue constitutes more than 40% of Bajaj’s Total Sales)
• Premium segment line needs to be extended as they offer greater margins. This needs to be done sooner
rather than later because with the change in regime it is but a matter of time before Honda and Yamaha
begin manufacturing of their high end motorcycles in India and capture the market.
• Hero needs to implement practices for effective resource management. Expenses and raw material
consumption as a % of sales is highest for Hero.
• R&D should be directed towards creating unique products (alternative fuel bikes etc) and not trying to play
catch-up with Honda and Yamaha (Blue Ocean Strategy). For countering the Japanese, Hero should look for
technology collaborations or outright acquisitions.
• The retail finance arm, Hero FinCorp, could also look at providing vehicle insurance (subject to government
regulations).