New Delhi: Two-wheeler maker Hero Honda Motors Ltd has had a stellar year with the company growing its market share to 59%. The country’s largest two-wheeler manufacturer expects this momentum to continue. In an interview, managing director and chief executive Pawan Munjal talks about the partnership with Japan’s Honda Motor Co. Ltd, a possible entry into the electric scooter segment and labour issues in the Gurgaon industrial belt. Edited excerpts:
The last year was a remarkable one for Hero Honda, with the company selling in excess of 350,000 two-wheelers per month. With the competition catching up, do you expect the momentum to continue in the current calendar year?
Growth momentum: Hero Honda’s Munjal says there are immense possibilities in the two-wheeler market. Ramesh Pathania / Mint
We’ve actually been saying this now for the past few years that competition is going up, newer players are coming in. This is not going to stop. In fact, it’s only going to get fiercer. We have new players even in 2009 who have come in, and if you talk about the fact that Hero Honda’s base keeps getting larger and larger, yes, the company has been performing. better than before. The kind of momentum we have going forward and with the possibilities in the market, I think there are immense possibilities. We are confident about growing and we’ll continue to try and do better than before.
What are the issues that worry you? Commodity prices are rising, financing for two-wheelers is very patchy and interest rates may be increased...
Financing can only get better. It is terrible now. In our case, I remember at the peak level maybe 60% of our bikes were financed. Today, we’re selling 15% of our products on finance. If (more) financing comes through, it will surely help us to expand our reach, our market, our customer base. Having said that, rising commodity prices is a concern. It’s always a concern.
But (commodity prices) are not as high as 2008 which was a killer year...
Exactly. We’ve had a pretty good time in the last 18 months with commodity prices. This has helped us improve our margins. There are signs of prices going up. Steel is slowly inching up. So is rubber. This is not a surprise to any one of us. We knew that commodity prices had bottomed out and they had to head up. But I don’t believe they will go through the kinds of level they had gone through earlier.
Your margins are at their highest ever. Is there room for further increase in margins?
That’s something which one has to keep watching closely. We’re trying to work towards improving our margins all time. These levels that we have today are very high margins. Nobody in the automotive industry in the world today has such high margins.
After the Splendor, Hero Honda hasn't had a blockbuster product for a long time. What are your future product plans?
We have the Passion, Passion Plus. They do huge numbers. I suppose, for any company, you have during the lifetime one such product that does really well. It’s not that we have a Splendor and we don't have other products to fall back on. We have a huge line-up.
Hero Honda and Honda have always had a differentiated product strategy. But now that Honda has entered into the 100cc segment it competes directly with your company. How do you view this?
While you look at it as differentiation (but) when Honda came in with a 150cc bike we were already there with a 150cc bike. When they came in with a 125cc bike, we were already there. Now they’ve come in with a 100cc bike. Having said that it may be a surprise or new news for you people but we knew this three or four years ago. We sit and plan our models together. So we know who’s going to make what. So all our products and marketing strategies are already decided.
Will you be launching bikes in the 180cc and 200cc range? These bikes are more profitable...
I wouldn’t say that we will launch bikes in other areas where we are not present. We are always interacting with customers to understand what they want. But we won’t go into the market saying that because somebody else has a 180cc bike, we also need to have one.
It is possible that electric vehicles could become very popular in the Indian market... Do you see Hero Honda ever selling electric bikes?
Well, in the design studios and R&D (research and development), there’s continuous work going on on various technologies.
As and when the market demands and when the company feels that there will be an issue with internal combustion engines, we’ll do what ever is appropriately required.
How is Hero Honda developing its own R&D capability?
The idea of a joint venture is that every partner brings its strengths and, in this arrangement, there is a technology arrangement between us. Honda brings in the technology and Hero Honda does the rest. Their technology is available to us today and will be available tomorrow. We really don’t need to put up an R&D facility. While we are gradually putting up our own capability, we really don’t need to.
Labour issues have tripped up the auto industry in the last few months. Why is this happening repeatedly?
In my view, it is purely a (labour) union-driven activity from the outside and they’re doing a huge disservice to this belt of Gurgaon, Manesar and Dharuhera. I only hope it doesn’t go the Faridabad way.
I wish and I pray to the government of Haryana to take strict action otherwise it could become a huge problem. It can impact investments in this belt and Haryana.