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8/14/2019 Design & Developed by Bounce Design Plant
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Design&DevelopedbyBounceDesign
PlantPhotographyby:SKumar
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MEASURE
SUCCESS?Every businessstrives forsuccess. Success however has manybenchmarksand manyinterpretations.Some view success on a
purely financial plane, others view it in terms of theirmarketreachwhile someargue it as theirabilityto survivein difficultterrain.
25years of operation have taught us that there are manyyardsticks and measuresto qualify success. Whathowever remainssacrosanct is the inexorable linkbetweenfaith and success.If you
have faith, successis boundto follow.
Thisyears annual report showcases our performance againstsomeestablished benchmarksand moreimportantly, those thatmake us
truly successful.
HOW DO WE
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STATURE
INTHEINDUSTRY?
HERO HONDA ISTHE LARGEST MANUFACTURER OFTWO WHEELERS IN THE WORLD.AND HAS BEEN SO OVER THE
LAST EIGHT YEARS.
IS IT ABOUT THE
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CORPORATE PROFILEA GLORIOUS HISTORY AND ANEVEN MORE GLORIOUS FUTURE
Itall beganwith adream
The HeroHonda storybeganwitha simplevision thevision ofa mobileand anempoweredIndia,poweredbyHero Honda. This vision was driven by Hero Honda'scommitment to customer, quality and excellence,andwhiledoingso,maintainthehigheststandardsof ethicsand societal responsibilities. Twenty five yearsand 25
mill ion two wheelers later, Hero Honda is c loser tofulfi l ling this dream. This v ision is the driving force behindeverythingthatwe doatHeroHonda.
Weunderstood thatthe fastest wayto turnthat dreaminto a reality is by remaining focused on that vision.There were many unknowns but we kept faith, andtoday, Hero Honda has been the largest two wheelercompanyinthe worldforeightconsecutiveyears.
Our growth has kept compounding. The company crossed the ten million unit milestone over a 19-yearspan. In the new millennium, Hero Honda has scaledthisto15millionunitsin justfiveyears!
Infact,duringthe yearin review,HeroHondasold moretwowheelersthan thesecond,third andfourth placedtwo-wheelercompany puttogether. WithHero Honda,the domestic two wheeler market was able to showpositivegrowthduringtheyear inreview.WithoutHeroHonda, the domestic market would have actually shrunk.
Over the course oftwo and a half decades,and threesuccessivejointventureagreementslater, bothpartnershave f ine-tuned and perfected their roles as joint venturepartners.
Whatthe twopartners didwas somethingquite basic.Theysimplystuckto theirrespectivestrengths.Asone oftheworld'stechnologyleadersin theautomotivesector,
Honda has beenable to consistentlyprovide technicalknow-how,design specifications andR&D innovations.
This has led to the developmentof world class, value-f or -money motor cy cl es a nd s co ot er s f or t heIndianmarket.
Onits part, the Hero Grouphas takenon the singularand onerous responsibility of creating world-classmanufacturingfacilitieswith robust processes,buildingthe supply chain, setting up an extensive distributionnetworks and providing insights into the mind of the Indiancustomer.
S ince both par tners con tinue to focus on the ir
r es pe ct iv e s tr en gths , t he y h av e b een a bl e t ocomplementeach other. In theprocess,Hero Honda isrecognized today as one of the most successful jointventures in the world. It is therefore no surprise thatthereare moreHeroHondabikesonthiscountry'sroadsthanthe totalpopulation of someEuropeancountriesputtogether!
The company's meteoric growth in the two-wheeler
market in India stems from anintrinsic ability to reachoutandcomecloserto itscustomers,with everypassingyear.HeroHonda'sbikesaresoldand servicedthroughanetwork o f o ve r 3500 cus tomer touch points, comprising a mix of dealers, service centres and stockistslocatedacrossruralandurbanIndia.
Hero Honda has built two world-class manufacturingfacilitiesat Dharuheraand Gurgaonin Haryana,and itsthird andmost sophisticated plantat Haridwar hasjustcompletedafull yearofoperations.
Itis difficultto imagine thatall thishas happenedin thespanofjusttwoand ahalfdecades!
The bestis yet to come.During the yearin review,HeroHondapoweredits wayin amarketthat,for allpracticalpurposes, was feeling the full effects ofthe economic
slowdown in India. With an economic recovery nowclearly onthe cards, Hero Hondais all set to ride intoanothersummi t.
As Brijmohan Lall Munjal, the Chairman, Hero HondaMotors succinctly puts it, "We pioneered India's twowheeler industry, we've steered it through difficult times;nowitis ourresponsibilityto setthepaceagain.''
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Hero Honda commencescommercialproduction at Dharuhera
Plant, rolls out1stmotorcycle(CD 100)
1985
Hero Honda newmanufacturingplantatGurgaon goes onstream
1997
Hero Honda foraysinto sportspromotion withtheHero Cup a fivenation cricketseries,morepopular asminiworldcup
1993 HeroHonda CBZlaunched First150cc motorcyclein theIndiantwowheeler industry
1999
Hero Honda becomesthe world no.1
two wheeler manufacturer
2002
Hero Honda Karizma launchedindustry's first 223cc motorcycle
2003
Hero Honda PassportProgramlaunched A first ofits kindCRMinitiativeinthe Indian twowheeler industry.Hero Honda Splendorbecomesthe singlelargestsellingmotorcyclein theworld
2000
Cumulative productionvolumesreached10 million mark
2004
Hero Honda'snew manufacturingplant atHaridwar goes onstream
2008
Hero Honda foraysinto scootersegment,launched100 ccgearless
scooter, Pleasure.Cumulative productionvolumes
reached15 million mark
2006
Hero Hondacelebrated the20million cumulative productionvolumesmarkby conducting Bike A- Thon- a national levelbike rally
2007
Pawan Munjal,Managing Director&CEO, HeroHonda MotorsLimited,receivedthecovetedManof theYearHallof Fameawards by CNBCTV18OverdriveAwards 2009.
2009
A JOURNEY OFTWENTY FIVE YEARS
08/09
Hero andHonda sign jointcollaborationagreement
1983
Birth ofa legend- Hero HondaSplendormotorcycle launched
1994
Cumulativeproduction volumereached5 lacmark
1991
Dr. Brijmohan LallMunjal,Chairman, Hero Honda MotorsLimited,received thePadmaBhushan
award from thePresidentof India
2005
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Tworoadsdivergedin awoodandItook theonelesstravelledby,andthathasmadeall thedifference.
Thesememorablelines byRobertFrostsummariseHeroHonda's odyssey over these last 25 years. They alsocapture the spirit of the Indian people, who proved allpre-poll forecastsand predictions wrongto votein thecountry's most stable and durable government intwo decades.
Theprospectof stabilitycouldn'thave comeat a bettertimeforIndia.
As the country's GDP growth p lunged from a veryimpressive9 per cent to 6 per cent during the year in review, thecultureof consumerism thatpropelled Indiain the preceding four years, took a backstage. Family budgets shrank, and in many companies, pay packetsbecamesl immer.
Expectedly,defaultsalsorose.As aresult,banksbecameeven more cautious in offering loans, particularly in towns where very little information was available to measurethecreditworthinessofa customer.
The trend among consumers to postpone purchasedecisions and the banks decision to withdraw fromcertain areas had an impact. The share of financing,which had increased rapidly to 50-60per cent of thetotalretail salesbyearly 2007,has now comedownto
below30percent.
Thiswas a majorsetbackfor thetwo-wheeler industry,although just like the preceding year, your companybucked the trend. In value terms, both top l ine and bottom l ine was up in double d igits. Hero Honda retailedmoretwo wheelersin thedomesticmarketthanthe second, thirdand fourth placed manufacturer put
together.Effectively, thishelpedyourcompany boost itsdomestic motorcycle market share by more than fourpercentage points and scooter market share by threepercentagepoints.
The hea lthy g rowth in sales a lso improved you rcompany's bottom line. EBIDTA margins for the entireyear increased by 120 basis points compared to thepreviousyear.
Someof these financialnumbersare thehighestin our25-year history. Weare fortunate that these numbersare coinciding with our silverjubilee year. Atthe sametime, I knowtheydonotrepresenta peak,butjustthebeginningofa climbtoanotherhighersummit.
As I mentioned in the opening,we took the road lesstravelled.Whenthe two-wheelerindustrystartedgoinginto a tailspin,our first strategic option was to remainrock-solidas thewinds ofthe global crisissweptacrosscompanies, businesses and consumers based in urbanIndia.
We certainly spent some t ime consolidating our business. We controlled costs on a war footing. Of course, plungingcommoditypriceshelped bring downprices ofkey inputs suchas steel,nickeland aluminum;thisinturnhelpedusprunemanufacturingcosts.
Yet your company d id not just get lucky; it took a numberof soundbusinessdecisionsthroughthe year.
To give you an example, your company took a policy decision and resisted the temptation of offering discountsto stirupsales ina tepidmarket. However,wed id not compromise on market development and customer focus; we upgraded our products, addedfeatures, introduced new products and increased ouradvertising spends.
HeroHondaalso madeitssupplychainmorerobustwithstrong online connections bothat thefront endas wellasatthe back-end.
Yourcompanydidn'tstopatconsolidation;it sought togrowaswell. AsI mentionedlastyear,ourobjectiveasac ompa ny h as b ee n t o d ev el op a cr os s b ot hIndiaandBharat.
Weare strongly convincedthat the newgovernment'splanto strengthen inclusiveprogramsin ruralIndia willcreate jobopportunitiesand aspirationdemand.I havea lways bel ieved tha t rural and sma ll town Ind ia r ep re se nt s o ur f ut ur e. Now , a ft er l as t y ea r' s
performance, I am convinced that we have to makeruralIndiaalsoanintegralpartofourpresent.
Wehave here a market that has incredible depth. This makesit lesssusceptibletoglobaleconomiccyclesand amarketwhereeverygovernmentwhichcomesto powerisguaranteedtoinvestheavily.
Although your company has always concentrated on
bothurbanand ruralareas,we havenowstartedaddingmoremuscleto ourrural initiatives;some ofour effortshavestartedpayingoff.
It gives megreatpersonal pleasureto seethatoverthecourseof mylifetime,I ambeingableto seethegradualevolutionofIndia'svillagesandsmalltowns:frombeingsurvivorstoaspirantsandconsumers.
I remain confident about the near-term future. Of
course, there will be challenges ahead. But I wouldrathersee themasopportunities.
Overthenext12months,thetwo-wheelerenvironmentwillbecomemuchmorecompetitiveasmore playerstryto enter our higher volume executive segment. Wewelcome this emerging competition, s ince it will provide us with an opportunity to prove our mettleonceagain.
Thereis also some buzz and anticipation surroundingthelow-costcars. Withoutdoubt,thesewill begoodforIndia's consumers. Nevertheless, from the perspectiveofour industry and our company, I amconvinced thatthe two-wheeler segment will continueto remain thevehicleof choiceby themassesinIndia.
Fuel efficiency and maintenance costs continue to bethe most important considerations for the Indiancustomer today. They will be the most importantconsiderationsin themediumtermaswell.
There are more than seven million new bicycle usersevery yearin India, andmost ofthem aspire toupgradeto two-wheelers. The growing aspirations, expandingroad networksand growth ofsatellitetownships acrossIndia are someofthe factorsthatwill spurdemandfortwo-wheelersin thenearandmediumterm.
These factorswill operateas thetwo-wheelerindustry'sbiggestinsurancein thecomingdecades.
In my preceding year's message, I talked about howstrong companies are ones thatare able to growrootsamong the rocks.They have the capacity to hold thefort, while other bastions around them crumble.Champion companies don't just grow roots, theydevelopf ar-reachingbranches.
Yourssincerely,
Brijmohan LallChairman
DEARSHAREHOLDERS,
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BrijmohanLallMunjalChairman
PawanMunjalManagingDirector & CEO
Ms.ShobhanaBhartiaNon-ExecutiveandIndependentDirector
TakashiNagaiNon-ExecutiveDirector
SumihisaFukudaTechnicalDirector(w.e.f.June 01,2008)
PradeepDinodiaNon-Executiveand IndependentDirector
Gen.(Retd.)V.P.MalikNon-Executiveand IndependentDirector
Dr. PritamSinghNon-ExecutiveandIndependentDirector
SunilKantMunjalNon-ExecutiveDirector
Analjit SinghNon-ExecutiveandIndependentDirector
MeleveetilDamodaranNon-ExecutiveandIndependentDirector(w.e.f.June 16,2008)
ToshiakiNakagawaJointManaging Director
OmPrakashMunjalNon-ExecutiveDirector
MasahiroTakedagawaNon-ExecutiveDirector
BOARD OFDIRECTORS
BOTTOMROW LEFTTO RIGHTTOPROWLEFTTORIGHT
Formoreinformationpleasevisit www.herohonda.com
COMMITTEEOF DIRECTORS
AUDITCOMMITTEE
PradeepDinodiaChairman
Gen.(Retd.)V.P.MalikMember
Dr. PritamSinghMember
SHAREHOLDERS'
GRIEVANCE COMMITTEE
Dr. PritamSingh
Chairman
PradeepDinodiaMember
MeleveetilDamodaranMember
REMUNERATIONCOMMITTEE
Gen.(Retd.)V.P.MalikChairman
PradeepDinodiaMember
COMPLIANCE OFFICER
IlamC.KambojSr. G.M.Legal &CompanySecretary
SENIOR MANAGEMENTTEAM
RaviSudSr. VicePresident&CFO
AnilDuaSr.Vice President-Sales,
Marketingand CustomerCare
VikramS. KasbekarPlants Head-Operations
andSupplyChain
Dr.AnadiS. PandeVicePresiden t-HRM,Corpo rate
Planningand Strategy
VijaySethi
VicePresiden t-InformationS ystems
ALTERNATEDIRECTOR
Satoshi Matsuzawa(AlternateDirectorto Mr. Takashi
Nagai)
OUTGOING DIRECTORS
YutakaKudoWhole-time Director
(uptoMay31, 2008)
NarinderNath VohraNon-Executiveand Independent
Director
(uptoJune24, 2008)
SunilBharti Mittal
Non-Executiveand IndependentDirector
(uptoApril 21, 2009)
ArunNathMairaNon-Executiveand Independent
Director
(uptoJuly23, 2009)
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RURALMARKETIN
GFOCUS
REACHING THE LENGTHAND BREADTH OF INDIA
18/19
Thecompany hasmade significantprogressin its ruralmarketinginitiativecalled Har Gaon,Har Aangan. Thisnationallevel programhas madestridesintothousandsofIndianvillageswitha populationof5,000and above. In a ll, more than 125,000 opinion leaders in these villages were met by specially trained 523 rural salesexecutives. The program itself has added sales of25,000vehiclesfromthesevillagesin justoneyear.
Theprogramfocusesonmanyactivitiestoalignwiththeobjectives that go beyond commercial transactions, inorder tobuild enduringrelationshipwith thecustomers
in these villages. The program generally covers salespromotions, loanand exchangeoffers, freeserviceandcheck up camps, a long with host value adds l ike consultation for obtaining driving license, safe ridingeducational programs and other services like health check up and awareness camps. These services areofferedfreeofchargesinthe interestofsocietyatlarge.
Underthe HGHA program the company makesall theefforts to be a part of the villages byconducting suchprogramseither directly orby partneringor sponsoring
the events organized by the local administration onregularbasis.
Thecompanybelievesthat therural mobility is a majorcontributor toGDP growth inan agrarian economylikeours.'SikhaoBaliye'iscompany'suniqueinitiativeintherural market that aims at driving the mobility of ruralwomen. The program aims at promoting company'slight and zippy gearless scooter Pleasure by creatingawareness amongst its TGwhich primarily are all ruralmen,particularlyopinion leadersandthosewho wishtoimpart r iding tra ining to their wives, daughters,
daughter-in-laws, s isters etc., and prospects in general.The program covered 40 villages, 266 femaleriders received basic riding training, and 35 of themcouldride thescooterimmediatelyafterthe training.
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Economic Environment
Industry and Segment Dynamics
Results and Financial Analysis
Risks and Outlook
Operations, Reach & Supply Chain
People and Environment
Social Responsibility
CAUTIONARYSTATEMENT : Statementsin this management discussionandanalysis describingtheCompany's objectives,projections,estimatesand expectations may be ' forward looking s tatements' within themeaning ofapplicablelaws andregulations.Actualresults might differsubstantially or materially fromthose expressed or implied. Importantdevelopments that could affect the company's operations includesignificant changesin politicalandeconomicenvironmentin Indiaorkeymarketsabroad, taxlaws, litigation,labour relationsand interestcosts.
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OUR TOP LINE HAS TOUCHED
OVER Rs. 12,300 CROREWITH OUR NEAREST COMPETITORSAND PEERS A LONG DISTANCE OFF
TOPLINE?
IS IT ABOUT THE
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Likeany otheremerging country,Indiaexperienced theknock-oneffectsof the global crisis during the year in review. The effects were felt through the monetary,financialandrealchannels.
Dryingup ofglobalfinanceimpactedfromthemiddleofthe f iscal impacted domestic capital f inance; and corporate earnings came off peaks. In April 2009, Reserve Bank o f Ind ia p redicted tha t the Ind ianeconomy's growth for 2008-09 wouldslowto 6.6 percent,breakinganexcellentfive-yeargrowthsequence.
Thereweretwo dimensionstotheeconomicslowdown.Inthefirst half,inflationran intodoubledigitsas aresultof the global crude shock and the global food grain shortage.Tocontrol inflation,theRBI clampeddownonmoney supply,andreducedliquidityin theeconomy. Bythe t ime inflation started coming under control, domesticinterestratesstartedshootingup.Meanwhile,the global crisis erupted, putting further pressure onliquidity levels.
By October 2008, slowdown was clearly apparent in export-intensivesectors,both inthe manufacturingandservice side. By December, the slowdown turned intode-growth. The cutback in demand from Europe andthe US was so sharp that even a competitive rupee,whichdevalued byaround12 percent during theyear,couldn'tactas abuffer.
ByDecember2008, thegrowthmomentumof thefirstsix months was lost.Plannedinvestmentprojectswereshelved;live projectsfaceda shortageof funds ascreditflowsdriedup.As moneybecame dearer, pay packetsbecame slimmer and risk aversion grew both from thedemandandsupplyside.
Compulsionsof coalition politics at theCentre andtheimpending Lok Sabha elections didn't helpeither,andslowed downreformsand implementation of projects,particularlyincriticalsectorslikeroads,portsandpower.
The worsthit was the manufacturing sector. From the
second halfof thefinancialyear,the index of industrialproduction contracted on three occasions, remainedcloseto zeroon twooccasions,and wasmildly positiveonlyonce.
Therewas moderationacrossothersectorsaswell.
Growth in theservice sector slipped fromdoubledigitsto single digits. Agriculturegrowth onceagain slipped
toless than2 percent,mostly onaccountof indifferentproductionof cottonandpulses.
Onits part,thegovernmentcameout withthreeroundsoffiscalmeasuresto revive theeconomy.Yetthe effectshadn't begun to show, at least till the financial yearhadended.
While the year in reviewwas disappointing by Indianstandards, India was still an outperformer by globalstandards. Along with China, India st il l provided a beaconof lighttotheworld.
There werein fact,some signsof somesort of recoverytaking shape towards theend ofthe financialyear,andthis momentum continued in the f irst quarter of2009-10aswell.
Cement despatches in April were the highest in fiveyears,thankstorevivalin constructionactivity.
TheWorldSteel estimatedthat Indiawouldbe theonly
major country in 2009 with a positive consumptiontrend.
InMarch,themonthlyABNAmroPurchasingManagers'Index crossed 50 for the first time since September2008, indicating some increase in manufacturing expansionactivity.
TheNHAIinvested60 percentof itsfundsin thesecondquarterof2008-09invariousroadprojects.
Such inves tments , made dur ing the peak o f the s lowdown, could create important multip liers in a slowing economy.
It is expectedthat some ofthesemeasures will createnewmultipliers andgeneratenewsourcesof growth inthecoming year.
Theoverall economy continuesto remain a bitvolatile,and yet a positive feel-good sentiment does seem to have returned, especially with the coming of a stablegovernmentatthecentre.
ECONOMICENVIR
ONMENT
IN ADVERSITYCREATING OPPORTUNITY
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Inthe previousyear,thedomestictwo-wheelerindustryentered a period of de-growth. However, this was arrested in 2008-09, largely on the back of HeroHonda's performance. After the blip of last year, thetwo-wheeler industry went back to a growth phase,largelydrivenbyHeroHondaandexports.
Theindustry clockedtotal volumes of8.5 million duringtheyearin review,a growthof 5per centcomparedto afallof5 percentinthe previousyear.Thepaceofgrowthwas lower in the domestic market,where the industry clockedsalesof 7.43million,a riseofonly2.60 percent.This,however, was a significantimprovement overthe
p revious yea r when the industry had shrunk by8percent.
Motorcycles continueto constitutethe largestchunk ofthetwo-wheelerindustry,and duringthe yearinreview,
accounted forfour fifth of sales. Interestingly, for thesecondyearin succession,scootersincreasedtheirshareinthe two-wheelerpie from14 percent to16 percent.This is clearly a trend reversal from the last 10 years,where theshareof scootersin thetwo-wheeler piehadbeenshrinking.Changinglifestylesamongwomen,andthe introduction of feature-rich, high-quality scooterspossiblyhasmuchto dowiththerevivalin demand.
The entry segment made up of basic 100 cc b ikes - hadstartedslowingtwo yearsago,and during theyearinreview,sales inthissegmentweredownby morethan15 per cent. This could be attributed to the fact thatDeluxe segment b ikes have become affordable onaccountofa 4 percentexcisecut,1 percent reductionin CST and the special package of reduction in excisedutyinDecember,whichmostmanufacturerspassedontotheconsumers.
The deluxe segment-made upof valuefor moneyandfeature-rich bikesin the 100-125 cc category-grew by15.2percent.
The125-250cc category-grewat 8.8percent.The paceofgrowthhas fallen fromlast year's levels. There is nodoubt thatthehigherinterestrateshave broughtdowngrowth. Nevertheless, this segment was still able to
clock agrowth ratein highsingledigits mainly becauseofthe excitementcausedby a slewof newmodelsthatcameintothissegmentduringtheyear.
Thebiggerstory,of course,is thatbuyersin small-townIndia and rural India, as well as employees ofthestateandCentralgovernment,were relativelylessaffectedbythe slowdown, and this benefitted the two wheelerindustry.
INDU
STRY
ANDSEGME
NTDYNAMICS
AN INDUSTRYTHAT IS RIDING AHEAD
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Hero Hondawas the torchbearer for the two-wheelerindustry during the year in review. It sold more two-wheelersduringtheyear thanthecombinedvolumesofthesecond,thirdandfourthplacedcompetitor.
Overall, the company sold 3.72 million two-wheelers,up 12 per cent. Motorcycle sales in the domestic market, which account for more than 95 per cent ofHeroHonda'ssales,wereup11 percent.
HERO HONDA'S PERFORMANCESETTING THE BENCHMARK
During theyear,the companyalso turned ina rollickingperformance with its scooter portfolio, with a 49 percent growth in domestic sales to 156,210 units. This performance allowed HeroHonda to increase its sharein the domestic scooter market by more than three percentagepoints.
HeroHonda's performance inthe two-wheelerindustrywas the only standout performance during the yearamongst the large p layers. Without Hero Honda's numbers,the twowheelerindustrygrowthwouldhavebeenmarginal.
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BOTTOMLINE?
HERO HONDA HAS BEEN CONSISTENT INWEALTH CREATION FOR NEARLY TWO
DECADES. AND OUR CURRENT PROFIT AFTERTAX OF OVER Rs. 1280 CRORES BEARSTESTIMONY TO OUR BUSINESS ACUMEN.
IS IT ABOUT THE
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OPBT- PBTbeforeotherincome PAT - Profit aftertax
PATOPBT
RESULTS ANDFINANCIAL ANALYSIS
TABLE 2
2007-08 2008-09
Inventory Period 11.9 11.0
Operating Cycle 21.2 16.9
Cash Cycle -10.6 -13.1
Current Ratio 0.68 0.64
Acid Test Ratio 0.45 0.43
WORKING CAPITAL MANAGEMENT& LIQUIDITY RATIOS
Sales
Despite a slowdown in thetwo-wheeler industry, salesofthe company grewby 11.53 percent. Thecompanyendedthe year with a market shareof around 57percent. Hero Honda sold 3,722,000 units in 2008-09compared to 3,337,142 units in 2007-08. In valuetermstotalsales (net ofexcise duty)increasedby 19.2per cent to Rs.12,319 crores from Rs.10,332 crores in 2007-08.
Profitability
The company's earnings before interest depreciationand taxes(EBITDA) margins increased from13.33 percent in 2007-08 to 14.16 per centin 2008-09and theoperatingprofit(PBTbeforeotherincome)increasedby28.4 per cent from Rs.1,221.79 crores in 2007-08 to R s. 1,568.86 c ro re s i n 2 008-09 . T he marginimprovements camefrombetter salesrealizations,costrationlisation and optimization measures. Theseincluded better control over material cost, marketingcos t and ove rheads , bes ides a sha rp focus onoperational efficiencies.
Other income,including non-operating income
Other income increasedby19.0percentfromRs.185croresin 2007-08toRs. 221croresin 2008-09.
*Income fromoperations
CashFlows
Growth in sales turnover and better efficiencies in working capital managementimproved the cash flowfrom operations from Rs. 1 ,211.78 crores to Rs. 1,359.03 crores. Cash flows before working changesalsoimprovedfrom Rs.1,392.56crores toRs. 1,762.16
croresonaccountofbetterEBITDAmargins.
The Company spent Rs. 861.19 crores in investing activities. Investmentsin productioncapacitieslead toan outflow of Rs. 315.08 crores. The balance was deployed in f inancial assets. F inancing activit ies a ccounted for an out flow o f R s. 499 .93 c ro resattributableto dividendoutflows.
Table 1
2007-08OPBDIT / IFO*(%) 13.3OPBT/ IFO*(%) 11.8 12.7PBIT/ IFO*(%) 13.3 14.2PBT / IFO*(%) 13.6 14.4PAT /IFO*(%) 9.3 10.4ROACE (%) 49.0 50.9ROAE (%) 35.5 37.8
KEYINDICATORSOF PROFITABILITY
2008-0914.2
1200
900
600
300
0
PROFITS(Rs.in crores)
1500
05-06 06-07 07-0804-05 08-09
1056
858
1253
971
810
1225
968
1561
1282
1076
CapitalExpenditure
During the year the Company incurred a capital expenditure of Rs. 315.08 crores. Thefunds wentintoexpansionof operations.
RawMaterial costs
Softeningmetalpricesparticularlyaluminum& nickelinsecond half of the year combined with better salesrealisation to bring down the share of material costsconsiderably.Raw materialcostsas aproportionof totalcostscamedownfrom71.6percentto71.0per cent.
CurrentAsset turnover
Thisratio,whichshowssalesas aproportion ofaveragecurrent assets, increased from 11.2 to 12.7 times,onaccountofhigheraverageinventory& bankbalance.
Debtstructure
HeroHondahasbeena debtfreecompanyfor thelast8
years. The unsecuredloan of Rs.78.49 crores fromthestate government ofHaryana onaccountof sales taxdeferment,isinterestfreeandhasno holdingcosts.Netinterest payment by the company has been negativeduringthe lastfewyears.
Dividendpolicy
Overthe years,the company hasconsistently followeda policy ofpayinghighdividends,keepingin mindthecash-generatingcapacities, theexpectedcapitalneedsofthe business andstrategicconsiderations. For2008-09,theboardhasrecommendedadividendof1000percent,whichis higher thanthe 950per centdeclared inthepreviousyear.However, thepayout ratiohas comedown to 36.5 per cent v is-a-vis 45.9 per cent in the previousyear.
Workingcapitalmanagement
Hero Honda has always sought to efficiently use thevarious components of the working capital cycle. Despite the adverse conditions in the two-wheelerindustry, the Company has been able to effectively control the receivable and inventories enabling it to continuetooperateonnegativeworkingcapital.
Noteson workingcapital
Theaverageof inventory, receivablesand payableshasbeen taken for calculations of inventory period, operatingandcashcycle.
NetCashFlow From Operations(Rs.in crores)
800
600
400
200
1000
0
1200
05-06 06-07 07-0804-05 08-09
936
625
1212
1359
747
1400
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RISKSAND CONCERNS Slowdown: Sales in the lucrative premium two-
wheeler segment (150 cc and above) have beenaffectedbytheeconomicslowdown;a quickreturnto robust growth is unlikely, and this couldaffectHero Honda's near term plans for an increasedpresenceinthissegment.
Interestrates:Lending rateshavestartedsofteningbut effective lending rates for the two-wheelerindustryremainhighon accountof riskaversion bybanks. However, Hero Honda has de-risked its business by focusing onsegments which are nottoo dependent on financing. Still, if interest ratesfortwo-wheelers continueto remain highand theoverall credit-squeeze persists, it is l ikely toadverselyimpactthe company'seffortsin realizingitsfullgrowthpotential.
Inflation:Afterclimbing to double digits in thefirst half,inflation growth wascloseto zeropercent by
year-end. However, high fiscal deficit and risingfood prices could push up inflation again duringthe year. Risinginflation may limit the downwardtrendin interestrates.
Inc reas ing competi tion : Several two-wheeler companiesintroducednew models inthe lucrativepremiumsegment;over timethis couldimpacttheprofitability ofthis segment. Atthe sametime, theexpectedfresh competitionin the100 ccsegmentin 2010 poses a challenge to the company's strongholdon thissegment.
Input costs: Prices of crit ical inputs came downduring theyear thanks tolower commodityprices.However,pricesmaybe closetobottomlevels,andmay start perking up in the second half of the comingyearif thereis aneconomicrevival.
Outlook
Attheendof the financialyear, therewere somesignsthat the worst mightbe over for the Indian economy.The emergence ofa stable government at the Centre,and the prospects of policy stability and economic reformsoverthe nextfiveyears,couldenhance thefeel-goodfactorbothwithinandoutsidethecountry.
However,for thecomingyear,at leastfor thefirst sixtoeightmonths,therecould stillbe somepocketsof painacross export-dependent sectors, and business sectorsthatdependheavilyonurbanmarkets.
Demand c reat ion in u rban Ind ia cou ld remain a challengefor the twowheelerindustry as a wholeonaccount of job insecurity, lower pay packets and lessdisposableincome.WhileHero Honda's ruralfocuswillcontinue to provide somebuffer during theyear,therecou ld be volume p re ssure a t the upper end o fthemarket.
A regime of lower interest rates could provide somesuccor in urban markets. However, the higher fiscaldeficit andgovernment borrowingprogramcould limitthefallininterestrates.
Onthe brighterside, metalprices couldremain soft in
thenearterm. Evenif theystartrisingin thesecondhalfagainstthebackdropofan economicrevivalinIndiaanda downsizing of global inventories, the chances of a commoditybullrunin theneartermareremote.
Ina nutshell,therefore,the companyis likelytoturn inas te ad y p er fo rman ce , r at he r t ha n a r ol li ck in gperformance during theyear.Thebottomlineis likelytog row a t a rea sonable pace on the back o f cos timprovements , p lant ra t iona l i sa t ion p rocess efficiencies,andsteadymetalprices.
RISKSANDOU
TLOOK
MANAGING RISK ISHALF THE BATTLE WON
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Operations
HeroHondahas twokey priorities:first, to expand andgrowaggressively,and second, to develop capabilitiesand innovate constantly. Keeping these priorities in mind, Hero Honda undertook the following activitiesduringthe year:
Commi ss io ning o f a n ew p la nt a t Har idwa r: Thecommissioningof thisthirdplantgives HeroHondaa totalinstalledcapacity of 4.2million twowheelers.Acapacity of thismagnitudehas enabled HeroHonda toretain its position as the world's largest two-wheelermanufacturerfor eightsuccessiveyears.
The full commissioning ofthe Haridwar plantallowedthe company to planits productionbetter. Dependingon volumes, production was rationalized across thethree plants. Thisreducedchangeover timehelped thecompanyincreaseitsoverallefficiency level.Inturn, thishelped HeroHonda bringdown overall manufacturingcostpervehicleduringtheyear.
New Models: During theyear,seven newmodels were
introduced across segments. Out of thesefour modelswerelaunchedinthe spaceof amonth.Thevariabilityofthe product mix could have posed a challenge; but,flexible systems at thethree plants allowed productiontoproceed smoothly.
Distribution Network: The company has a consciouss tr at eg y o f p en et r at in g n ew m ar ke ts a nd unrepresented territories through its d istribution network of dealers, authorized representatives, stockists and SSPs. In March 2001, the company had826 such sales and service points in India. By March2009,this numberhadgrown to morethan3500. All t he f ou r m ar ke ti ng z on es o f t he c ompa ny demonstrated a uniform increase in new dealershipsandSSPsduringthe yearinreview.
Ruralnetwork:Duringtheyear,HeroHonda'sambitiousruralconnectprogramHarGaon,HarAangan gainedcritical mass.Currently, everynon-metrodealership hasa dedicated Rural Sales Executive who travels to villages, meets people and drives the initiative on a sustainable basis across the country. At the moment,
the re i s a network o f more than 500 rural sales executivesworking on the ruralverticalwhich workson the hub and spoke model . The re i s a p lan tosubstantiallyboostthisnumberinthe comingyears.
Typically, the rural executives fan out and visit villageswith a population of more than 5000 people. Apartfrom meeting opinion leaders, the executives are alsotasked with organisingLoan Melasin partnershipwith
OPERATIONS,
REACH&
SUPPLYCHAIN
DRIVING TO NEW DESTINATIONS,STRENGTHENING PROCESSESALONG THE WAY
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GraminBanks,License Campsand Riding Schools. Theidea is not just to increase awareness about the twowheeler industry but also to increase buy-in for HeroHondaproducts.
Duringtheyear, morethan23,000 villageswith a5000-pluspopulation werecovered byrural executivesundertheHarGaon,HarAanganinitiative.
InformationTechnology: ITat HeroHondais anintegralpart of the business. The organisation has a mix of
packagedandin-houseapplicationsto supportbusinesstransactions, integration with partners, reporting,productivity and compliance. The applications rangefrom simple workflows to enterprise applications.Similarly,at theinfrastructureend,the organisation hasarobustandscalableworld-classITinfrastructure.
The organisation continued to investsignificantly in ITduring theyear.Twolarge initiatives ProductLifecycleManagement (PLM) and Dealer Management System(DMS)wereinitiated.
Mos t o f t he p ro ce ss es a nd o pe ra ti on s i n t he organisationare fullyintegratedwithIT.Duringtheyear,the organisation tried to leverage the capabilities ofbasic software by integrating with other applications.
For example, bar-coding systems are now extensively usedand thesearefully integratedwith SAPR/3. Thereare also SMS based alerts to employees and dealers.Workflows have been designed to improve internalproductivity.Dashboardsand otherreportingtoolshavebeenintroduced toenhance decision-making abilities.
In add i tion, the CRM (Customer Rela tionsh ipManagement) software being used was upgraded.CRM Software is currently being used by dealers forordering spares parts. By usinga special feature called
web shop, dealers can directly shop for spare parts through online catalogues. Thesystem alsoallows theDealersto viewthestatusof dispatchor payments.Alsoas part of the CRM initiative, Hero Honda's flagshipCRM programthe passport programwas mademoretechnology enabled.
WorkingwithSupply chain
Hero Honda c on ti nu es t o b ui ld a nd maint ai nsus tainable rela tionsh ip s w i th i ts supply cha inparticularlyinrelationto long-termstrategicdirectionofthe business. Vendor management is critical to HeroHonda, as nearly 73 per cent of the production is currentlymade upof material cost.A nationalnetworkof 256 vendors - including 36 ancillaries - forms thebackboneofitsplantoperations.
Softening metal prices, particularly of aluminum &nickel in second halfof theyear,combinedwith bettersales realization worked together to bring down theshare ofmaterialcosts considerably. Rawmaterialcostsasa proportionoftotalcostsscaleddownfrom72.5 per
cen t to 69.5 per cen t. S imultaneously, a mores tr eaml in ed s ou rc in g p ol ic y a ls o h el pe d i nlowering costs.
During the year, the inbound logistic system at the Haridwar plant was revamped; Hero Honda switchedfromthe individuallogistic modelto a specializedthirdparty logistic service provider for all Haridwar-basedsuppliers. This switch helped the company reducelogistics costand improve theoperational efficiencyofthevaluechain.Duringthe year, thecompanyalsopaidconsiderable attention to developing a multi-modaltransportsystem,inordertoderivecosteconomies.
Alsoat theHaridwarplant, HeroHondaswitchedfromindividual purchaseof basic materials by supply chainpartners to consolidated settlements by the companyitself. Theresultingeconomies of scalehave resultedingreater leverage with suppliers and havehelped bringdownmaterialcosts.
Theonlinevendor connectivityprogramhasmade rapidprogress. Three years ago, the company had only 46vendors connected online to the company's factories.
Bytheend of2008-09,itis estimated72 percentof thevendorsandtheirsupplieswereconnectedonline.
During theyear,Hero Honda alsoworkedwith vendorsto develop and produce alloywheels withinHaridwar.T hi s c on si de r ab l y r ed uc ed d ep en de nc e o ncostlyimports.
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TheHuman TouchDedicatedtoinvestinginourpeople
We believe it is the passion of our employees thate nabl e s t he c ompany t o d el i ve r e xc ep ti on al p er fo rman ce a nd g rowth e ve n i n a n a dv er se marketenvironment.
Rewardingthispassion:
Despite the adverse economic conditions and the
automobileindustrygoingthrougha verydifficultyear,the company stayed true to its policy of rewarding its emp lo ye es a nd a nnounc ed a n i nc rement o f7-9percent.
Hero Honda has t radi tional ly enjoyed e xcel lent industrial relations. Taking this a step forward, therewereimportantwage settlementswith the workers att he Dha ru he ra p la nt a nd Gurgaon p la nt . T he agreementswill goa longway insustainingcordialand
productiveindustrialrelationsinthe company.Encouragingthe passionto learn:
Several newmodels wereintroduced onthe shopfloor,and this involved mastering d ifferent skil l sets and process capabilitieson partof theworkforce. Thelatterwere able to cope admirably, leading to increasedefficiency levels. In fact, Hero Honda managed toinc rease top line g rowth a t a hea lthy pace whi le retaining control over the size of the organization,therebyincreasing shareholdervalue.
At Hero Honda's new plantat Haridwar, a number ofbest practices have been put in p lace. One of the
c ompany ' s c or e c ompe tenc ie s i s Sp eed o fImplementation. Taking this forward, a flatter andleanermanpowerstructurewasintroducedatthis plant.Today, this plant is able to ensure considerably higherlevels of output, without compromising on either costorquality. Overtime, thecompanyplansto introducea
similar hierarchicaland workflow structure at its otherplantsin GurgaonandDharuhera.
HeroHondabelievesin empoweringits employees byprovidingthem life-longlearningopportunities.In syncwith this belief, Hero Hondaintroduced a study leaveprogram for the employees this year. The companyhopes tha t this w il l p rovide emp loyees w ith an
opportunitynot onlytoaugmenttheirprofessionalskillsandknowledge,butalsotoimprovetheirlifeskills.
Celebratingand sharingthe passion:Hero Parivaar
HeroHondaheld anannualday for the workers and a familyday for employees across the organisation. Thefull-daygalaeventwas heldina festive atmosphereandwas attended by the entire management and HeroHonda employees, along with their families. Eventsflowed seamlessly throughout the day in a completelyinformal environment. It is planned to make this an annualfeaturefromnow.
EnvironmentalStewardship Reducingour energyfootprint
WeCareaboutHow
HeroHondahascontinuouslyaspiredto becomeone ofIndia's most environmentally sustainable firms, and itstrives to strike the right balance between business,
mankindand nature.It is the company's endeavour to create a culture ofminimum waste across the business. As part of this philosophy, Hero Honda seeks to institutionalise resourceconservation, in particular, in the areas of oil,water, electrical energy, paints and chemicals, andfinally,usage ofpaperin various companyofficesroundthecountry.
The company ful ly compl ie s w ith a ll app licableenvironmental regulations and practices. Periodic energy audits are conducted by internal and externalexperts.Theseensurecontinuousimprovementin areasrelated to manufacturing processes and energy conservation.
Thecompany has trained energy managers who focuson curbing the wasteful usage of energy. They alsoimplement and encourage usage of equipment withbetterenergy efficiency.
In the coming years, Hero Honda seeks to become a zero-discharge company. Towards th is end, thecompanyis alsoevaluatingvariousproposals forbuyingrenewableenergyfrom various sources. Thecompanyhas a lso in it iated the process of putting together a policy to offset carbon credits, in order to mitigate globalwarmi ng.
PEOPLEANDENVIRONMENT
HUMAN CAPITALTHE POWER OF
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Greentechnology
Constantadoptionof innovativegreenpracticesatHeroHonda has resulted in the introduction of a special Acrylic Cathodic Electro Deposition (ACED) paintingprocess for theframe body. Thisnew process results in99 per cent paint transfer efficiency and minimizeseffluents. Thewater soluble paintused is environmentfriendlyanddeliversbetterqualityandproductivity.
At another level, the fluidized bed system, a thermalcleaningprocessforpainthangers,is moreenvironmentfriendlythananyotherconventionalcleaningmethod.
The incinerator used for sludge burning,alongwith a pollution monitoring and control system, providesproper treatmentof fluegasesbeforereleasing it totheatmosphere.
Last year, the company successfully developed primerfrom waste paint sludge which had passed all quality parameters and was at par with the virgin primer. This ecologicallyfriendlyandcosteffectivere-cyclingprocessisnowan integralpartof themanufacturingoperations.
Safemanufacturing
Overthe lastfew years, thecompanyhas progressivelye liminated the use of a large number of harmful substances. Today, every raw material and chemical isthoroughly evaluated for its environmental impactbeforeit isintroducedina productionprocess.
The company has been successful in eliminating toxic substances.Forexample,lead-basedbalancersusedforcast wheels have been changed to zinc. Hexavalentchrome has been replaced by trivalent chrome in all p la ted par ts and a sbes tos has been completelyeliminated from all product parts and manufacturingoperations.
Conservingenergy
In the area of energy conservation, the heat recoveryunitinstalledin theincinerator exhaust is usedfor pre-heating the boiler feed water and furnace o il. This resultedina costsavingof Rs. 60lakhperyear.
The boiler systems have also been reengineered andoptimised to savefuel, energy andsteam losseswhichhavehelpedpruneenergycostsconsiderably.Dedicatedpower supply to respective shop floors, forced draftventilation system and use of CFLs also helped bringdownenergycosts.
Hero Honda also ensures complete reuse of treatedwaterin cooling towers.This saves upto 300kilo litresofwaterina day.
RainWater Harvesting
Over the years, Hero Honda has been involved in rainwater harvesting projects to protect, preserve andenhancethe environment.
T he c ompany h as impl ement ed t he v ar i ou srecommendationsof an extensivestudy thatwas doneto assess the scopeof Ground Water Rechargein thefactory premises through Rooftop Harvesting, StormwaterHarvesting&OpenareaHarvesting.
GreenRoof
The green roof at the Haridwar plant was one of themajor environment friendly initiatives during the year.
Besidesrestoringecologicalandaestheticvalue,it helpsin substantialamount of energy saving by moderatingtemperatureof roofandsurroundingareas.It alsohelpsin reducing stormwaterrunoff volume and peak flowrate, and increases the service life of water proofingmembrane.
TheGreen SupplyChain
Hero Honda believes the process of sustainabledevelopment is incomplete without involving the company'ssupply chain.
With this in mind, the company has put together a Green Vendor Development Program for the frontend and a Green DealerDevelopment Program forthe back end of the supply chain. In each of these programs, the partners' are expected to manage theirenvironment involving material resources, industrialwastes, energy resource,pollution and othereffluentsbasedon anumberofpre-determinedparameters.
HeroHondaplansto supportall itspartnersin theGreenSupply Chain ven ture b y developing requi redcompetencies, sharing knowledge, and by providingtechnical support. 31 vendors enrolled under thisprogram in 2007-08 underwent requisite training andwerecertifiedas greenvendorsduring2008-09.A freshlot of 40 vendors were inducted during the year forthe program.
GreenAwards
Forits diverse environment initiatives,the companyhasreceivedthe following certifications:
- Environmental Management Systems as per ISO14001
- Occupat iona l Hea lth and Safety ManagementSystemsas perOHSAS18001
- QualityManagementSystemsasperISO9001
TheCompany hasalso beenawardedthe Three GreenLeavesAwardfor itsoverallenvironmentalperformancebythe Centre for Science & Environment(CSE). It hasalsoreceivedEnvironmental Excellence Award, givenbyTheEnergyResourceInstitute.
HeroHondahas beenawarded TERICorporate Awardsfor EnvironmentalExcellence 2008.
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MEASUREOF OUR
SUCCESS?
?
SO WHAT REALLY IS THE TRUE
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OURRELATIONSHIPS
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FINANCIAL HIGHLIGHTS AND KEY RATIOS
Financial Highlights
(Rupees in crores)
Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
Sales (Nos.) 26,21,400 30,00,751 33,36,756 33,37,142 37,22,000
Growth in sales (nos.) - % 26.6 14.5 11.2 0.01 11.53
Total net income 7,559 8,870 10,090 10,517 12,540
Growth in total income - % 26.1 17.4 13.7 4.2 19.2
Profit before tax 1,217 1,412 1,246 1,410 1,781
Profit after tax 810 971 858 968 1,282
Share capital 39.94 39.94 39.94 39.94 39.94
Reserves and surplus 1,453 1,969 2,430 2,946 3,761
Total debt 202 186 165 132 78
Net fixed assets 715 994 1,355 1,549 1,694
Total assets (net) 1,695 2,195 2,635 3,118 3,879
Market capitalisation 10,943 17,781 13,753 13,869 21,390
EVA 564 641 485 575 835
KeyRatios
Particulars 2004-05 2005-06 2006-07 2007-08 2008-09
Long term debt/Equity Nil Nil Nil Nil Nil
OPBDIT*/Income from operations-% 16.0 16.0 12.2 13.3 14.2
OPBT**/Income from operations-% 14.8 14.6 10.8 11.8 12.7
Profit after tax/ Income from operations-% 10.9 11.1 8.6 9.3 10.4
Return on average equity- % 61.6 55.5 38.3 35.5 37.8
Return on average capital employed- % 80.9 72.3 51.6 49.0 50.9
EVA/Capital employed-% 37.5 32.9 20.1 20.0 23.9
Dividend per share (Rs.) 20.0 20.0 17.0 19.0 20.0
Dividend Payout- % 56.3 46.9 46.3 45.9 36.5
Earning per share (Rs.) 40.6 48.6 43.0 48.5 64.2
Market value/book value (times) 7.3 8.8 5.6 4.6 5.6
Notes:
* OPBDIT: Operating Profit before Depreciation, Interest andTax
** OPBT: PBTbefore Otherincome
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CORPORATEINFORMATION
Statutory Auditors
A.F. Ferguson & Co.
Chartered Accountants,
9, Scindia House,
Kasturba Gandhi Marg,
NewDelhi 110 001, India
Tel: 011-23315884
Principal Bankers
ABN AmroBank N.V.
Bank ofAmericaNT &SA
Canara BankCitibank N.A.
HDFC BankLimited
HSBCLimited
ICICI BankLimited
Punjab National Bank
StandardCharteredBank
TheBank of Tokyo-Mitsubishi UFJ Limited
CostAuditors
RamanathIyer& Co.
CostAccountants,
BL-4(Paschmi),ShalimarBagh
Delhi110 088
Tel. : 011-27481904, 47028048
Email: [email protected]
Technical & FinancialCollaborator
HondaMotor Co., Ltd.,
1-1, 2 - Chome,
Minami- Aoyama
Minato-ku,
Tokyo107-8556, Japan
www.world.honda.com
Registered & Corporate Office
34,CommunityCentre,
Basant Lok,VasantVihar,
NewDelhi 110 057, India
Tel.: 011-26142451, 26144121
Fax: 011-26153913
www.herohonda.com
Registrar & Share Transfer Agents
KarvyComputersharePvt. Ltd.
PlotNo. 17-24, VithalraoNagar,
Madhapur, Hyderabad500 081Tel.: 040-23420815-820
Fax: 040-23420814
Email: [email protected]
Dharuhera Plant
69KM Stone,
Delhi-Jaipur Highway,
Dharuhera,Distt. Rewari,
Haryana 122100, India
Tel.: 01274-264012-15
Fax: 01274-267024
Gurgaon Plant
37KM Stone,
Delhi-Jaipur Highway,
Sector 33, Gurgaon,
Haryana 122001, India
Tel.: 0124-2372123-134
Fax: 0124-2373141-142
Haridwar Plant
PlotNo. 3 Sector-10,
I.I.E.SIDCUL,
Roshanabad, Haridwar 248001
Uttrakhand
Tel.: 01334-239513
Fax: 01334-239512
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(Rupees incrores)
DIRECTORSREPORTth
We,theDirectorsof HeroHondaMotorsLimitedaredelightedtopresentthe26 Annual Reportfor theSilverJubileeYear.The Reportisbeingpresentedalongwith theAuditedStatementofAccountsfor thefinancialyearendedMarch31,2009.
FINANCIAL RESULTS
Forthe yearended
March 31, 2 009 March 31, 2 008
Gross Sales 13,543.09 12,038.53
Net Salesand otherIncome 12,539.84 10,517.22
Profit beforeFinancechargesandDepreciation 1,930.44 1,534.79
Less:Financecharges (31.68) (35.81)
Depreciation 180.66 160.32
Profit before tax (PBT) 1781.46 1410.28
Less:Provision fortax
- Current 475.65 436.81
- Deferred 19.06 1.20
- FringeBenefit Tax(FBT) 4.99 4.39
Profit after tax (PAT) 1,281.76 967.88
Add:Balanceof profit brought forward 2,021.77 1,594.78
Balance available forappropriation 3,303.53 2,562.66
Appropriations
Dividend
- ProposedFinal 399.38 379.41
CorporateDividend Tax 67.87 64.48
Transferto General Reserve 129.00 97.00
Balance carried to Balance Sheet 2,707.28 2,021.77
Dividend (%) 1,000 950
Basic and Diluted Earnings Per Share (EPS)(Rs.) 64.19 48.47
The Auditedstatement ofaccountsfor the yearended March31,2009is attachedalongwiththe Report.
(Rupeesin crores)
ECONOMIC VALUE ADDED (EVA) STATEMENT
2004-05 2005-06 2006-07 2007-08 2008-09
Average Cap Employed 1,504 1,945 2,415 2,877 3,499
Average Debt/Average Capital (%) 1.8 1.3 1.1 1.1 0.6
Average Equity/Average Capital (%) 98.2 98.7 98.9 98.9 99.4
Cost of Debt (% post-tax ) 0.7 1.0 0.6 0.9 1.6
Costof Equity
Beta 1.01 0.98 0.75 0.59 0.59
Cost of Risk Free Debt (%) 6.7 7.52 8.15 7.94 6.99
Market Premium (%) 10 10 10 10 10
Cost of Equity (%) 16.74 17.32 15.65 13.83 12.85
EVA
Profit after Tax 810.47 971.34 857.89 967.88 1281.76
Add: Interest*(1-tax rate) 1.22 1.85 1.02 1.32 1.67
NOPAT= PAT + Interest*(1-t) 812 973 859 969 1283
Cost of Capital 247 333 374 394 448
EVA 564 641 485 575 835
Return on Capital Employed (%) 54.0 50.0 35.6 33.7 36.7
Weighted Average Cost of Capital (%) 16.5 17.1 15.5 13.7 12.8
EVA/Capitalemployed (%) 37.5 32.9 20.1 20.0 23.9
ENTERPRISEVALUE
Market Capitalisation 10943 17781 13753 13869 21390
Add: Debt 202 186 165 132 78
Less: Financial Assets 2044 2221 2010 2698 3588
EV (Enterprise Value) 9101 15746 11909 11303 17880
EV/Yr. End Capital Employed (Times) 5.4 5.9 4.5 3.6 4.6
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BUSINESSPERFORMANCE
Dur ing the yea r under rev iew you r Company, despi te a
slowdown in the two wheeler industry, achieved the11.53 per
cent growth in annual sales by clocking the sales volume of
3,722,000 units compared to 3,337,142 units in 2007-08. In
valuetermstotal sales(net of excise duty)increased by19.2 per
centtoRs.12,319croresfrom Rs.10,332crores in2007-08.YourCompanyconsolidatedits leadershipposition indomesticmotor
cycle market with 57 percent market share. The Company
successfully launched eight new models including variants
duringthe yearunderreview.
On the financialfront, total income of the Company grew by
19.2 per cent from Rs. 10,517 crores in previous year to
Rs.12,540croresduring2008-09. TheCompanyposteda Profit
aftertax(PAT)of Rs.1,282crores,compared toRs. 968croresin
the previous fiscal, a growth of 32 per cent. The Company's
earningsbeforeinterestdepreciationandtaxes(EBITDA)margins
increased from 13.33percentin 2007-08 to 14.16 per cent in
2008-09.The improvements on themargins wasaccomplished
through better sales realizations, effective cost rationalisation
measures which included better control over material cost,
marketing cost and overheads, apart from sharp focus on
operationaleffici encies.
Duringthe year,HeroHondaalsoretainedforthe eighthyear ina
row, its position as the World's Number One Two Wheeler
Company.
A detailed discussion onthe business performanceand future
out look has been g iven in the chapter on Management
Discussion&Analysis.
DIVIDEND
Very few manufacturing companies in the Indian corporate
sector have a better dividendpayout record than Hero Honda.
Weare pleasedto recommend a Dividendof 1000percenti.e.
Rs.20 perequityshareof Rs.2 aggregating toRs. 399.38crores
(exclusive of corporate dividend tax) for your approval for the
financialyear ended March 31,2009.The dividend,if approved,
will be paid to the eligible members well within the stipulated
period.
Ourdividendpolicyis inlinewith ourstrongandconsistentbeliefthat if funds are not re-invested for capital investments, they
shouldbe optimallydistributedtoshareholders.
TRANSFERTO GENERALRESERVE
A sum ofRs. 129 crores have been transferredto the General
Reserve of the Company. This reaffirms the inherent financial
strengthoftheCompany.
MATERIALCHANGES ANDCOMMITMENTS
No material changes and commitments affecting the financial
position of theCompany haveoccurredbetweenApril 1, 2009
andthedateonwhichthis Reporthasbeensigned.
BOARDOF DIRECTORS
During the period under review, Mr. Satoshi Matsuzawa wasappointed as analternate Director to Mr. TakashiNagaiw.e.f.
April 24, 2008. Mr. Yutaka Kudo, Whole-time Director of the
Company resigned fromboth theoffices i.e.Director & Whole-
time Director w.e.f. May 31, 2008. Mr Sumihisa Fukuda was
appointedas anAdditionalandTechnicalDirectorin theWhole-
timeemployment ofthe Company inhis stead onJune 1,2008.
Mr. Meleveetil Damodaran was appointed as an Additional
Director in theNon-Executive andIndependent Category w.e.f.
June16,2008and Mr. N.N.Vohraresignedfromthe Boardw.e.f.
June24,2008onhis beingappointedasGovernorofthestateof
Jammu & Kashmir. Mr. Arun Nath Maira wasappointed asan
AdditionalDirectorw.e.f.December20,2008.Sincehehasbeen
appointed as member of Planning Commission, he resigned
fromthe Board ofthe Directorson July23, 2009. Themembers
whilecongratulatingMr. Maira,has acceptedhis resignationin
the Meeting of Board of Directors held on July 29, 2009.
Mr.SunilBhartiMittalresignedfromtheDirectorshiponApril21,
2009.
TheBoardplacesonrecorditssincereappreciationandgratitude
fortheguidanceandworkputin bytheout goingmembers,and
wishes them a rewarding and satisfying career ahead. The
Directors also welcome the new members on the Board and
wishesthemasuccessfulandfruitfultenurewiththeCompany.
Atthe ensuingAnnual General Meeting,Gen. (Retd.) V.P. Malik,
Mr.BrijmohanLallMunjal,Mr.SunilKant Munjaland Mr.Takashi
Nagaiwill retire by rotationand beingeligible,offerthemselves
for re-appointment in terms of provisions of Articles of
Association of the Company. The brief resume/details of the
Directors, whoare to be re-appointed hasbeen furnished after
thenotestotheNoticeof theensuingAnnualGeneralMeeting.
Your Directors recommendtheir re-appointmentat theensuing
AnnualGeneralMeeting.
DIRECTORS'RESPONSIBILITYSTATEMENTTothe bestof their knowledge and beliefandaccordingto the
informationand explanations obtainedby them,your Directors
makethe following statementin termsof Section 217(2AA) of
theCompaniesAct,1956:
1. that in the preparation ofthe annual accountsfor the year
ended March 31,2009,the applicableaccountingstandards
havebeenfollowed;
2. thatappropriateaccounting policies havebeenselectedand
applied consistently and judgments and estimates that are
reasonable andprudenthavebeen madeso asto givea true
andfairview ofthe StateofAffairsas atMarch31, 2009and
of the Profit of the Company forthe financial year endedMarch31, 2009;
3. that proper and sufficient care has been taken for the
maintenance of adequateaccounting recordsin accordance
w ith the p rovisions o f the Companies Act , 1956 for
safeguarding theassets ofthe Company andfor preventing
anddetectingfraudandotherirregularities;
4. thattheannualaccountsfor theyearendedMarch31, 2009
havebeenpreparedonagoingconcernbasis.
MANAGEMENTDISCUSSION& ANALYSIS
A detailed chapter on, 'Management Discussion and Analysis'
(MDA), pursuant to Clause 49 of the L isting Agreement is
annexedandformspartof thisReport.
CORPORATESOCIAL RESPONSIBILITY
At Hero Honda , Corpora te Soc ia l Respons ib il i ty (CSR)
encompasses muchmore thansocial outreach programsand is
an integral partof theway theCompanyconductsits business.
Detailed informationon theinitiativesof theCompanytowards
CSR activities is providedin the SocialResponsibility section of
theMDA.
CORPORATEGOVERNANCE
AtHeroHonda,it isour firmbeliefthatthe essenceof Corporate
Governance l ies in the phrase 'Your Company'. It is 'Your'
Company because it belongs to you the shareholders. The
Chairmanand Directorsare 'Your'fiduciaries andtrustees. Their
objective is to take the business forward in such a way that it
maximises 'Your'long-term value.
Your Company is committed to benchmark itself with global
standards for providing good Corporate Governance and has
put in placean effective Corporate Governance System which
ensuresthattheprovisionsof Clause49ofthe ListingAgreement
aredulycompliedwith.
The Board has also evolved and adopted a Code of Conduct
basedon theprinciplesof GoodCorporateGovernanceand best
management practices being followed globally. The Code is
availableon thewebsiteofthe Companywww.herohonda.com.
A report on Corporate Governance along with the Auditors'
Certificateonits complianceisannexedheretoasAnnexure-I.
INTERNALCONTROLSYSTEMS
Hero Honda has a proper and adequate system of internal
controls. This ensures that a ll assets are safeguarded and
protectedagainstloss fromunauthoriseduse ordispositionand
those transactions are authorised, recorded and reported
correctly.
An extensive programme of internal audits and management
reviews supplement the process of internal control. Properly
documentedpolicies, guidelinesand procedures are laid down
forthis purpose.The internal control system hasbeen designed
to ensure that the financial and other records are reliable for
preparing financial and other statements and for maintaining
accountabilityof assets.
The Company also has anAuditCommittee, comprising three
Independent, Non-Executive and professionally qualified
Directors, who interact with the Statutory Auditors, Internal
Auditors, Cost Auditors and Auditees in dealing with matters
withinits termsof reference.The Committee mainlydeals with
accounting matters, financial reporting and internal controls.
Duringthe yearunderreview,theCommitteemetseventimes.
AUDITCOMMITTEERECOMMENDATION
During theyeartherewas nosuchrecommendationofthe Audit
Committeewhich wasnot acceptedby theBoard.Hence, there
isnoneedfor thedisclosureofthe sameinthisReport.
RISKMANAGEMENTSYSTEM
Your Company follows a comprehensive system of R isk
Management. Your Company hasadopteda procedurefor risk
assessmentand itsminimization. It ensuresthat allthe Risksare
t imely defined and mitigated in accordance with the well
structuredRiskManagementProcess.TheAuditCommitteeand
BoardreviewsperiodicallytheRiskManagementProcess.
RATINGS
TheratingagencyICRA Limited,hasreviewedandreaffirmedthe
rating assigned to the Company for its Non-convertible
Debenture Programme as LAAA [pronounced L triple A]
indicating the highest credit quality and A1+ [pronounced A
one P lu s ] for i ts Non-fund based fac il it ie s and LAAA
[pronounced Ltriple A]to Fundbasedfacilitiesindicating the
highestcreditqualityratingcarryinglowestcreditrisk.
TheratingagencyCRISIL,duringthe yearunderreviewassigned
thebankloanratingsofAAA/Stableand P1+totheCashCredit
Limit& LetterofCreditLimitfacilityrespectivelytoyourCompany.
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FIXEDDEPOSITS
During the year under review, the Company has not accepted
anydepositunderSection58A and58AAof theCompaniesAct,
1956read withthe Companies(Acceptance of Deposits) Rules,
1975.
AUDITORS
M/s. A. F. Ferguson& Co., CharteredAccountants, New Delhi,
Auditors of the Company will retire at the conclusion of the
ensuing Annual General Meeting and being e lig ible, offer
themselves for re-appointment. The Company has received a
c er ti fi ca te f rom t he a ud it or s t o t he e ff ec t t ha t t he ir
re-appointment,if made,would be in accordance withSection
224(1B)ofthe CompaniesAct,1956.
TheBoard recommendstheir re-appointment.
AUDITORS'REPORT
The observations of Auditors in their Report, read with the
relevantnotes toaccountsare selfexplanatoryand thereforedo
notrequire further explanation.
COSTAUDITORS
The Board has re-appointed M/s. Ramanath Iyer & Co., Cost
Accountants,New Delhi,as theCost Auditors of theCompanyunderSection233Bof theCompaniesAct, 1956forthefinancial
year 2009-10 and necessary application for obtaining the
requisiteapprovalhas beenfiledwiththe Government.TheCost
Auditors'Report for 2008-09 will be forwarded to the Central
Government in pursuance ofthe provisions ofthe Companies
Act,1956.
CONSERVATION OF ENERGY, TECHNOLOGYABSORPTION,
FOREIGNEXCHANGEEARNINGSAND OUTGO
Informationrequired under Section 217(1)(e)of theCompanies
Act,1956,read withCompanies (Disclosureof Particularsin the
Report of the Board of Directors) Rules, 1988 is given as per
Annexure-II andformsanintegralpartofthisReport.
LISTING
The shares of your Company are presently listed on Bombay
StockExchange Limited (BSE) and National StockExchange of
India Limited (NSE). The delisting application, was in-principleapproved by the Committee of the Calcutta Stock Exchange
Association L imited, the formal approval is awaited and is
expectedtobe receivedindue courseof time.
PERSONNEL
As onMarch 31, 2009 the total number of employees onthe
recordsofthe Companywas 4513.
Your Directors p lace on record their appreciation for the
significant contribution made by all employees, who through
their competence, dedication, hard work, co-operation and
supporthaveenabledtheCompanyto crossnew milestonesona
continual basis.
A d et ai le d n ot e i s g iv en i n t he c hapt er P eopl e a nd
Environmentof MDA,whichformspartofthis AnnualReport.
PARTICULARSOF EMPLOYEES
Information of Particulars of Employees as required under
Section 217(2A) of the Companies Act, 1956 read with the
Companies (Particulars of Employees) Rules, 1975 forms an
integral part of this Report. As per the provisions of Section
219(1) (b) ( iv) of the Companies Act, 1956, the Report and
Accounts are being sent to the shareholders of the Company
excluding the statement of particulars of employees under
Section 217(2A) of theCompaniesAct, 1956. Any shareholder
interestedinobtaininga copyofsuchstatementmay writetothe
Sr.G.M. Legal& Company Secretaryat theRegistered Office of
the Company.
ACKNOWLEDGEMENT
Itis ourstrongbeliefthat caringfor ourbusinessconstituentshas
ensured our success in the past and will do so in future. Your
Directors acknowledge with sincere gratitude the co-operation
and assistance extended by the Central Government, State
Government(s), Financial Institution(s), Bank(s), Customers,
Dealers, Vendorsand Ancillary Undertakings. TheDirectorsalso
placeonrecordtheirappreciationfor thevaluableassistanceand
guidance extended to the Company by Hero Cycles Ltd. and
HondaMotor Co., Ltd.,Japan andfor the encouragement and
assurance,whichour collaborator hasgiven forthe growth and
developmentof the Company.
The Board, a lso takes this opportunity to express its deep
gratitude for the continued co-operationand support received
fromitsvaluedshareholders.
ForandonbehalfoftheBoard
BrijmohanLallChairman
NewDelhi
July29,2009
ANNEXURE- ITO DIRECTORS'REPORT
CORPORATEGOVERNANCE REPORT
Philosophyon 'Codeof CorporateGovernance'
HeroHonda'sphilosophy of CorporateGovernance stemsfrom
a beliefthat theCompany'sbusinessstrategyand plansshould
be consistentwith the welfare of all its stakeholders, including
shareholders. Good Corporate Governance practices enable a
Company to attract financial and human capital. In turn,these
resources are leveraged to maximize long-term shareholder
value, while preserving the interests of multiple stakeholders,
includingsocietyatlarge.
Corpora te Governance res ts upon the fou r p il la rs o f:
transparency, full disclosure, independent monitoring and
fairness to all, especially to minority shareholders. Hero Honda
has always strived to promote Good Governance practices,
whichensurethat:
Acompetentmanagementteamis atthehelmof affairs;
The Boa rd i s s trong w ith an opt imum combina tion o f
Executive and Non-Executive ( including Independent)
Directors,whorepresenttheinterestofallstakeholders;
The Board is effective in monitoring and controll ing the Company'saffairs;
TheBoardisconcernedabouttheCompany'sshareholders;and
TheManagementandEmployeeshavea stableenvironment.
Webelievethatthe essenceof CorporateGovernancelies inthe
phrase Your Company. It is Your Company because it
belongs to you theshareholders.The Chairman andDirectors
areYourfiduciariesandtrustees.Theirobjectiveis totake the
businessforwardto maximiseYourlong-termvalue.
TheSecuritiesand ExchangeBoard of India(SEBI) has specified
certainmandatorygovernancepractices,whichareincorporatedinClause49of theListingAgreementofStockExchanges.
HeroHonda is committed to benchmarking itselfwith thebest
standardsof CorporateGovernance,not onlyin formbutalso in
spirit. This section, along with the section on 'Management
Discussion & Analysis' and'General Shareholder's Information'
constitute Hero Honda's compliance with the Clause49 ofthe
ListingAgreementof StockExchanges.
BOARDOF DIRECTORS
Compositionof theBoard
As on March 31, 2009, the Company's Board of Directors
comprised of Sixteen Directors. Four Directors, including the
Chairman, are Executive; four are Non-Executive and eightare
Non-Executive and Independent. Fifty per cent of the Board
consists ofIndependent Directors,therefore thecomposition of
the Board is in consonance with the Clause 49. Details of the
composition ofthe Board,numberof meetingsheld during their
tenureandattendedbythemetc.,aregivenin Table1.
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Four Directors namely Mr. Brijmohan Lall Munjal (Executive
Chairman in the Whole-time employment of the Company),
Mr. Pawan Munjal (ManagingDirector& CEO),Mr. Om Prakash
Munjal(Non-ExecutiveDirector) andMr.SunilKantMunjal(Non-
ExecutiveDirector) belong to the promoter family of the Hero
Group, which owns 26 per cent equity in the Company. Four
Directors namely Mr. Toshiaki Nakagawa (Joint Managing
Director),Mr.SumihisaFukuda(TechnicalDirectorin theWhole-
timeemploymentof the Company),Mr. Masahiro Takedagawa
(Non-Executive Director) and Mr.Takashi Nagai(Non-Executive
Director) arenomineesof Honda MotorCo., Ltd.,Japan,which
too,owns26per centequityinthe Company. Apartfromthese,
the res t o f the Boa rd compr ises o f Non-Execu tive and
IndependentDirectors.
BoardMeetings
During2008-09,theBoardofDirectorsmet4 (four)timeson April
24,2008;July29,2008;October21,2008andJanuary20,2009.
Numberof Board Attendance at Numberof Committee Numberof Committee Number of outsideMeet ing s held dur ing las tAGM Memberships Cha irmanships held Direc to rships he ld
his/her tenure and (including Chairman
Name of Director attended by him/her ships) held
Held A ttended ( excl uding P ri va te C ompanies, Foreign C ompanies a ndSection25 Companies)
Executive Directors
Mr. Brijmohan Lall Munjal 4 4 Yes None None 9Mr. Pawan Munjal 4 4 Yes None None 2Mr. Toshiaki Nakagawa 4 4 Yes None None 1
2Mr. Yutaka Kudo 1 1 N.A. None None 1
3Mr. Sumihisa Fukuda 3 3 Yes None None 1
Non-Executive DirectorsMr. Om Prakash Munjal 4 Nil No None None 10Mr. Sunil Kant Munjal 4 4 Yes None None 14Mr. Masahiro Takedagawa 4 Nil No 1 None 2
1Mr. Satoshi Matsuzawa 4 4 No None None None
Non-Executive andIndependentDirectors
4Mr. Narinder Nath Vohra 1 1 N.A. 2 1 1Mr. Pradeep Dinodia 4 4 Yes 8 4 8Gen. (Retd.) V.P. Malik 4 4 Yes 4 None 3Mr. Analjit Singh 4 2 No None None 13Dr. Pritam Singh 4 4 No 3 None 5Ms. Shobhana Bhartia 4 1 No 2 2 14Mr. Sunil Bharti Mittal 4 1 No 2 2 7
5Mr. Meleveetil Damodaran 3 2 No None None 3
6Mr. Arun Nath Maira 1 1 N.A. 1 1 5
Notes:
1. Mr.SatoshiMatsuzawawas appointedasanAlternateDirectorto Mr.TakashiNagaiw.e.f.April24,2008.
2. Mr.YutakaKudoresignedfromtheDirectorshipandWhole-timeDirectorshiponMay 31,2008.
3. Mr.SumihisaFukudawasappointedasan AdditionalDirectorandTechnicalDirectorinthe Whole-timeemploymentofthe Companyw.e.f.June1, 2008.
4. Mr.NarinderNathVohraresignedfromtheDirectorshiponJune24, 2008.
5. Mr.MeleveetilDamodaranwasappointedas anAdditionalDirectorontheBoardw.e.f.June16,2008.
6. Mr.ArunNathMairawasappointedas anAdditionalDirectorontheBoardw.e.f.December20,2008.
TABLE 1:DETAILS ABOUT COMPANY'S BOARD OFDIRECTORS / ATTENDANCERECORDDURING FINANCIAL YEAR 2008-09 The longest gap between any two Board Meetings was for a
periodof 3monthsand4days.
Directors' Attendance Record andDirectorships /
CommitteeMemberships
Detailsare givenin Table1.
Asper Clause49of theListingAgreement entered intowiththeStock Exchange(s), an Independent Director means a Non-
ExecutiveDirectorwho;
apart from receiving director's remuneration, does not have
any material pecuniary relationships or transactions with the
Company,its promoters,its directors,its senior management,
its holding Company,its subsidiariesor associateswhich may
affectindependenceofthedirector;
isnotrelatedto promotersorpersonsoccupyingmanagement
positionsatthe boardlevelor atonelevelbelowtheboard;
has not beenanexecutiveof the companyin theimmediately
precedingthree financial years;
is not a partner oran executive ofthestatutory audit firmor
theinternalauditfirmthatis associatedwiththecompanyand
hasnotbeen apartneror anexecutive ofany suchfirmfor the
lastthreeyearsandthe legalfirm(s)andconsultingfirm(s)that
haveamaterialassociationwiththeentity;
is not a material supplier, service provider or customer or a
l es sor o r l es se e o f t he c ompany, whi ch may af fe ct
independenceof theDirector;
is not a substantial shareholderof the Company i.e. owning
twopercentor moreoftheblockofvotingshares;
is notlessthan21yearsofage.
Noneof theDirectoron theBoardholdsthe office ofDirectorin
morethan 15 companiesnor arethey members in Committees
ofthe Board inmore than10 Committeesor Chairman ofmore
than5Committees.Further,thereare nopecuniaryrelationships
or transactions between the Independent Directors and the
Company,exceptfor thesittingfeesdrawnbythe Non-executive
Directors and s itt ing fees and commission drawn by the
Non-executive and Independent Directors for attending the
meetingof theBoardanditsCommittee(s)thereof.
Shareholdingof Non-ExecutiveDirectorsName o f t he Director Category No. o f
shares held
Mr. OmPrakashMunjal Non-Executive Director 25,000
Mr. Sunil Kant Munjal Non-Executive Director 32,500
Apart from the above, none of the Non-Executive (including
Independent) Directors holdany shares (as ownor on behalf of
otherpersononbeneficialbasis)intheCompany.
InformationSuppliedto theBoard
Board members aregiven agenda papers along with necessary
documentsand informationin advance of eachmeetingof the
Boardand Committee(s).However,incaseof businessexigencies
orurgencies, theresolutions arepassedby wayof circulation.In
addition to the regular business items, the following items /
informationare regularlyplaced before theBoard to theextent
applicable:
Annual operating plans and Budgets, Capital budgets and
updates;
Purchaseanddisposalof majorfixedassets;
QuarterlyandhalfyearlyresultsoftheCompany;
Minutes of the Audit Committee, Shareholders' Grievance
Committee, Remuneration Committee and Committee of
Director's meetings;
Information on recruitment and remuneration of senior
man ag emen t j us t b el ow t he B oa rd l ev el i nc lu ding
appointmentorremovalofCFOandCompanySecretary;
Any material defaults in financial obligations to and by the
Company,or substantialnon-paymentsfor goods soldby the
Company;
Fatal or serious accidents, dangerous occurrences, any
materialeffluentorpollutionproblems;
Transactions that involve substantial payment towards
goodwill,brandequityorintellectualproperty;
Materially important show cause, demand, prosecution and
penaltynotices;
Details of quarterly foreign exchange exposures and steps
taken by the management to l imit the r isks of adverse
exchangerate movement;
Sale of materialnature,of investmentsandassets,which are
notinthenormalcourseofbusiness;
Details of Joint Ventures and Agreements or variations thereof;
QuarterlyStatutoryComplianceReport;
Non-compliance of any regulatory, statutory nature or listing
r e qu i remen t s a nd s h ar eho ld e r' s s e rv i ce s u ch a s
non-paymentof dividend,delayinsharetransferetc.;
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Investmentsstrategy/ plan;
Any issue which involves possible public or product liability
claimsof substantialnature,including anyjudgmentor order
which may have passed str ictures on the conduct of the
Company or taken an adverse v iew regarding another
enterprise that can have negative implications on the
Company; and
Significant labour problems and their proposed solutions.
Also, any significant development in Human Resources /
Industrial Relations front like signing of Wage Agreement,
implementationof VoluntaryRetirementSchemesetc.
Codeof Conduct
WeatHeroHondahavelaiddowna codeofconductforallBoard
membersand senior managementofthe Company.Thecodeof
conduct is available on the website of the Company i.e.
www.herohonda.com. The code has been circulated to all the
members ofthe Boardand senior management and they have
affirmed compliance with the code of conduct. A declaration
signed by theChief ExecutiveOfficer (CEO)and ChiefFinancial
Officer(CFO)to thiseffectis attachedtothe AnnualReport.
RiskManagement
WeatHeroHondahaveestablishedeffectiverisk assessmentand
minimization procedures, which are reviewed by the Board
periodically. There is a structurein placeto identify andmitigate
variousrisksfacedbythe Companyfromtimeto time.
BOARDLEVEL COMMITTEES
AUDITCOMMITTEE
The genesis of Hero Honda's Audit Committee can be traced
back to the Audit Sub-Committee, constituted in 1987. Since
thenit hasbeendealingwith matters prescribedbythe Board of
Directors on a case to case basis. In general, the primary
role/objective of theAudit Committee is to reviewthe financial
statementsof theCompany, strengthen internal controls& look
into all transactions that have monetary implications on the
functioning of the Company. The nomenclature, constitution
and terms of reference of the Committee were revised on
January16, 2001andan AuditCommittee wasset upas perthe
provisionsof theSection292Aof theCompanies Act,1956and
clause49 oftheListingAgreementof theStockExchange(s).
Ason March 31,2009,the Committeehad three Non-Executive
and Independent Directors in accordance with the prescribed
guide lines. Mr. P radeep D inod ia , a l eading Chartered
Accountant, is the Chairman of the Committee. The other
members are Dr. Pritam Singh and Gen.(Retd.) V.P. Malik, all
learned personalities in theirrespective fields. The members of
theCommittee haveadequateknowledgein thefieldof finance,
accounting,and law. The role and "terms ofreference"of the
AuditCommitteeincludesthe following:
Overseeing
- theCompany'sfinancialreportingprocessanddisclosureof
its f inancial information to ensure that the f inancial
statementsarecorrect,sufficientandcredible.
Recommending
- the appointment, re-appointment, replacement and
removal of the statutory auditor,fixation of auditfees and
approvingpaymentsforany otherservices.
Reviewing
- theannualfinancial statementswiththe management with
primary focus on matters required to be included in the
Directors' Responsibility Statement, changes, if any in
accounting policies and practices and reasons thereof,
compliance with accounting standards and guidelines of
stock exchange(s), majoraccounting entries, qualifications
indraftaudit reports,relatedpartytransactions& thegoing
concernassumption.
- the quarterly financial statements with the management
beforesubmissionto theboardforapproval.
- the adequacyof internal control systems and the internal
auditfunctionand reviewing the Company'sfinancial and
risk managementpolicies.
- the findings of any internal investigations by the internal
auditors into matters where there is suspected fraud or
irregularity or a failure of internal control systems of a
materialnatureandreportingthemattertothe Board.
- the reports furnished by the internal auditors, discussion
with internal auditors on any s ignificant f indings and
ensuringsuitablefollowup thereon.
- Directors'overseastravelingexpenses;and
- Foreignexchangeexposure.
Complying
- with the provisions of listing agreement laid down bythe
Stock Exchange(s) and legal requirements concerningfinancial statements.
Discussing
- with externalauditors before the audit commences,of the
nature and scope of audit. Also post audit discussion to
ascertainanyareaofconcern.
Looking
- intothereasonsforsubstantialdefaults in thepaymentsto
the Shareholders (in the caseof non-payment of declared
dividends)and creditors.
The Sr. V ice President & CFO, Internal Auditors, Statutory
Aud itors and Cost Aud itors a ttend the meetings o f the
Committee on the inv itat ion o f the Cha irman. Mr. I lam
C. Kamboj, Sr. G.M. Legal & Company Secretary acts as the
SecretaryoftheCommittee.
During the year, 7 (Seven) meetings of the Audit Committee
wereheldon April07, 2008; April24, 2008; June02,2008; July
29,2008; October 21,2008; January 08,2009 andJanuary20,
2009 in due compliance with the stipulated provisions. The
attendancerecordof members ofthe AuditCommittee is given
inTable2.
TABLE2: DETAILSOF THEAUDIT COMMITTEE
Name o f Commit teePos it ion No. o f No. o f
member held meetings meetings
held during attended
histenure
Mr. Pradeep Dinodia Chairman 7 7
Gen. (Retd.) V.P.Malik Member 7 7
Dr. Pritam Singh Member 7 5
1Mr. N.N.Vohra Member 3 2
1. Mr.NarinderNath Vohrahas resignedfromtheDirectorship
onJune24,2008.
REMUNERATIONCOMMITTEE
The Company had set up a Remuneration Committee on
January 16, 2001 to review and recommend the payment of
annualsalaries,commission andfinaliseserviceagreementsand
other employment conditions of Executive Directors. The
Committee takes into consideration the best remuneration
practicesbeingfollowedin theindustrywhilefixingappropriate
remunerationpackages.
As onMarch 31,2009, theCommitteehad twoNon-Executive
and IndependentDirectors as its members in accordance withthe prescribed guidelines. Gen. (Retd.) V.P. Malik, is the
Chairman of the Committee and Mr. Pradeep Dinodia is the
memberof theCommittee.Mr IlamC. Kamboj,Sr.G.M. Legal&
CompanySecretaryactsas theSecretaryofthe Committee.
During the year, 2 (two) meetings of the Remuneration
CommitteewereheldonMay 12,2008andDecember2, 2008.
TABLE3: DETAILSOF THEREMUNERATIONCOMMITTEE
Name of Committee Position No. of No. of
member held meetings meetings
heldduring attended
histenure
Gen. (Retd.) V.P.Malik Chairman 2 2
Mr. Pradeep Dinodia Member 2 2
1Mr. N.N.Vohra Member 1 1
1. Mr. NarinderNath Vohrahas resignedfromthe Directorship
onJune24,2008.
RemunerationPolicy
Remunerationpaidto ExecutiveDirector
The remuneration paid to Executive Directors is recommended
bythe Remuneration Committeeand approvedby theBoardof
Directors, in the Board meeting, subject to the subsequent
approvalby the shareholders at the general meeting and such
otherauthorities,as thecasemaybe.
Atthe Board mee