Margin transformation programme & end to Honda payments to boost co's coffers Co has completed a pre-production run at Neemrana plant and expects the plant to be fully operational by the end of June
Hero MotoCorp looks poised to save close to 1,000 crore in the financial year 2015 with its ongoing margin transformation programme yielding desired results, and the ammortised payments to former partner Honda coming to an end in June.
Pawan Munjal-led Hero is aiming to more than double its savings to over ` . 300 crore in fiscal 2014-15 from the previous financial year as part of its margin transformation drive 'Leap', started a few years ago. “We accrued more than ` . 150 crore in the financial year 2013-14, which is going to increase progressively. We have already come to a stage where, effective April 1, 2014, the monthly accrual was ` . 25 crore. So, all other factors, such as volatility in commodity market and the currency fluctuation remaining constant, we expect over ` . 75 crore to be added to the bottom line per quarter in FY15,“ Ravi Sud, senior vice-president & chief financial officer at Hero, told ET.
“And it will keep growing as we go on implementing the ideas at different points of time. The exit run rate for FY2015 could be anything between ` . 50 and ` . 60 crore. It's too early to say, but we are working on it,“ he added.
So, even by a back-of-the-envelope calculation, it means a straight savings of ` . 300 crore for the company in FY15.
Taking April 2013 as the base, Hero MotoCorp had launched the 'Leap' programme in May 2013 with a view to transforming its margins over a four-year period. The programme looks at a wide gamut of areas, including pricing and feature optimization, raw materials consolidation, outbound logistics, operational excellence and marketing expenditure, e-sourcing and product design.
In addition, Hero stands to gain big with the last of the 14 installments of the amortized payments to erstwhile partner Honda coming to an end in June.
“The one-time lumpsum payment of 45 billion Japanese yen to Honda was amortised into 14 quarters, and the last installment will be paid in June. While it may not have any impact on the EBIDTA of the company, it will still positively impact our EPS (earnings per share). And the positive impact on PAT for the period July 2014 to March 2015 will be around . 440 crore net of tax,“ Sud said.
` The actual impact of this, therefore, is . 600 crore in savings. So, this likely to be ` along with the 'Leap' benefit put together, will accrue in total savings of close to . 1,000 crore for Hero ` MotoCorp in FY15. MotoCorp in FY15.
The company is also moving rapidly to scale up its capacity from its current 6.9 million units to close to 9 mil lion per year. “We have already completed a pre-production run last week at Neemrana and plan to start trial pro duction this month, and expect the plant to be al by the end of June. As far fully operational by the end of June. As far as the fifth plant (at Halol in Gujarat) is concerned, we have started building a boundary wall and our expectation is it will take 12 months for the plant to be ready . I would say by the end of the second quarter (September 2015), the Gujarat plant will also be operational,“ Sud added.
Neemrana will commence production with a capacity of 750,000 units while the plant at Halol in Gujarat will have an installed capacity of 1.2-1.5 million units of two-wheelers.
Hero on Monday reported 8% growth in sales in May and its highest-ever non-festive monthly sales of 6,02,481 units. Hero MotoCorp's shares closed at an all-time high of ` . 40.7.
Hero MotoCorp looks poised to save close to 1,000 crore in the financial year 2015 with its ongoing margin transformation programme yielding desired results, and the ammortised payments to former partner Honda coming to an end in June.
Pawan Munjal-led Hero is aiming to more than double its savings to over ` . 300 crore in fiscal 2014-15 from the previous financial year as part of its margin transformation drive 'Leap', started a few years ago. “We accrued more than ` . 150 crore in the financial year 2013-14, which is going to increase progressively. We have already come to a stage where, effective April 1, 2014, the monthly accrual was ` . 25 crore. So, all other factors, such as volatility in commodity market and the currency fluctuation remaining constant, we expect over ` . 75 crore to be added to the bottom line per quarter in FY15,“ Ravi Sud, senior vice-president & chief financial officer at Hero, told ET.
“And it will keep growing as we go on implementing the ideas at different points of time. The exit run rate for FY2015 could be anything between ` . 50 and ` . 60 crore. It's too early to say, but we are working on it,“ he added.
So, even by a back-of-the-envelope calculation, it means a straight savings of ` . 300 crore for the company in FY15.
Taking April 2013 as the base, Hero MotoCorp had launched the 'Leap' programme in May 2013 with a view to transforming its margins over a four-year period. The programme looks at a wide gamut of areas, including pricing and feature optimization, raw materials consolidation, outbound logistics, operational excellence and marketing expenditure, e-sourcing and product design.
In addition, Hero stands to gain big with the last of the 14 installments of the amortized payments to erstwhile partner Honda coming to an end in June.
“The one-time lumpsum payment of 45 billion Japanese yen to Honda was amortised into 14 quarters, and the last installment will be paid in June. While it may not have any impact on the EBIDTA of the company, it will still positively impact our EPS (earnings per share). And the positive impact on PAT for the period July 2014 to March 2015 will be around . 440 crore net of tax,“ Sud said.
` The actual impact of this, therefore, is . 600 crore in savings. So, this likely to be ` along with the 'Leap' benefit put together, will accrue in total savings of close to . 1,000 crore for Hero ` MotoCorp in FY15. MotoCorp in FY15.
The company is also moving rapidly to scale up its capacity from its current 6.9 million units to close to 9 mil lion per year. “We have already completed a pre-production run last week at Neemrana and plan to start trial pro duction this month, and expect the plant to be al by the end of June. As far fully operational by the end of June. As far as the fifth plant (at Halol in Gujarat) is concerned, we have started building a boundary wall and our expectation is it will take 12 months for the plant to be ready . I would say by the end of the second quarter (September 2015), the Gujarat plant will also be operational,“ Sud added.
Neemrana will commence production with a capacity of 750,000 units while the plant at Halol in Gujarat will have an installed capacity of 1.2-1.5 million units of two-wheelers.
Hero on Monday reported 8% growth in sales in May and its highest-ever non-festive monthly sales of 6,02,481 units. Hero MotoCorp's shares closed at an all-time high of ` . 40.7.
