Hero MotoCorp cuts production amidst sluggish demand

Saturday 08 September 2012, 10:29 AM by

Due to sluggish demand, Hero MotoCorp, the world's largest two-wheeler manufacturer, has decided to slash production by 15-18 per cent in September as compared to the first five months of financial year 2013. The biggest cut in the production has been made in the company's flagship model, Splendor.

According to the production plan, sent by the two-wheeler maker to the vendors, Hero MotoCorp will produce a total of 4.48 lac units. This is around 15 per cent less than the company's average production of 5.25 lac units, which it manufactured in the first five months of this financial year. The wholesale average dispatch of Splendor has come down to 1.73 lac units in August 2012, which was between 2.2 lac and 2.4 lac units since April. The company plans to further bring down the production of the model and as per its plans, Hero MotoCorp will manufacture around 1.20 lac units in September.

"We have seen a slowdown in the retail sales for the two-wheeler industry in July and August and it is expected to continue in September; so we are correcting production in order to avoid an inventory pile-up, which has been happening over the last few months. We have inventory stuck at our plants and with our dealers," Pawan Munjal, MD & CEO, Hero MotoCorp was quoted.

The CEO, however, did not wish to talk in depth about the cuts made in the production of specific models. Munjal is optimistic that there would be boost in the sales during the festive season and the industry would recover from the slowdown. Hoping for a positive sign from the auto industry, Hero MotoCorp has plans to launch models like Passion Xpro during the coming months. He further pointed out that the company, in order to build volumes, plans to bring out 8 to 10 new models and variants every year.

“We will ensure that there is sufficient stock available at the dealerships to leverage the high retail opportunity that comes with the festive season. All our brands are in good health, and we have a robust communication plan leading up to the festive season," said the MD.

On the other hand, the second and the third largest two-wheeler manufacturer of the country-- Bajaj Auto and Honda Motorcycle & Scooter India (HMSI), unlike Hero MotoCorp, do not have plans to cut the production. According to an official familiar with marketing plan of Bajaj Auto, the new models like Discover ST and Pulsar 200NS are helping the company in achieving its target. The Pune-based two-wheeler manufacturer plans to produce 3.2 lac bikes in September, which was its target set long back at the start of the financial year. An equity journalist, who keeps a close eye on HMSI, said that the company's production has increased by 10-12 per cent, mainly because of Dream Yuga, which was launched in June.

Hero MotoCorp had got an idea about the present situation in the very first five months of the fiscal year, as there was a growth of only 1.8 per cent in the company's sales compared to the same period last year. During the financial year 2012, the domestic sales of two wheelers increased by 15 per cent.

Mahantesh Sabarad, an equity analyst at Fortune Financials said, “It will take six to eight months (for Hero Moto) to come out of this downward phase. The new models - the Maestro scooter and the Ignitor 125 cc bike -- have started on a good note, but offtake is yet not fast enough for sales to recover.”

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