Hero MotoCorp eyes 7 million units by fiscal end

In order to cater to the growing demand for fuel-efficient two wheelers in a tough economic climate, market leader Hero MotoCorp is increasing output of its three plants in North India to around 7 million units by March, 2012.

A new fourth plant, previously expected to come up in the later part of this fiscal in South India, is now likely be commissioned by the second half of 2012-13. Around Rs 500 crore is expected to be invested in this new plant with a 1.5 million annual capacity over a phased manner.

“We’re working on de-bottlenecking and expanding our plants … they will work on three shifts from next year. After a couple of quarters we may have 7 million plus capacity. We’re producing 8,000 a day at Haridwar - the plan is to take this to 9,500 a day over the next 6 months,” Mr Ravi Sud, CFO, Hero MotoCorp said during an investor call on Wednesday.

“The fourth plant is expected to be commissioned by the third quarter or the beginning of the fourth quarter of next fiscal,” he added. With the new plant plans pushed back, the capital expenditure target for 2011-12 has been reduced to Rs 600 crore from Rs 900 crore.

At present, Hero MotoCorp has an installed annual production capacity of 6.1 million units across its three plants in Gurgaon, Dharuhera and Haridwar. Though last year it produced 5.4 million units, this year production has already being taken up to 6.4 million units a year.

“Our view is that the slowdown in auto sales, because of a global impact, will get resolved over the next few months. Two wheelers have been less impacted and rural is compensating the dip in urban sales - from 38 per cent in 2009, rural is now more than 46 per cent of our sales,” Mr Sud.

He added that commodities prices, which are now stabilising, are expected to come down over the next few months on a drop in demand from the US and Europe.

Global plans

As for its international plans, the two wheeler maker has shortlisted some “potential partners” for possible assembly and distribution. New markets where it has a “good understanding” include Latin America, Africa and South-east Asia. It is now preparing a roadmap for an entry strategy.

Hero MotoCorp shares at the BSE were up 4.13 per cent at Rs 2,066.90 on Wednesday.