Hero MotoCorp surprised by positive retail sales post lockdown, reduces FY21 capex by 40%1 min read . Updated: 10 Jun 2020, 02:59 PM IST
- Hero MotoCorp plans to increase production to more than 4 lakh units in June
- The company produced just 1.12 lakh motorcycles and scooters last month after restarting production from May 4
Positive retail sales in the rural market after easing of the lockdown measures has taken the management of Hero MotoCorp Ltd – country’s largest two-wheeler manufacturer - by surprise and the company is ramping up production to match the retail demand. The New Delhi based manufacturer has also decided to reduce capex by 40% to ₹600 crore for the current fiscal, as part of its cost cutting exercise, according to senior executives of the company.
Also, the Non Banking Financial Companies (NBFCs) have been aggressively approaching two-wheeler buyers as the lower tenure loans are considered safe, they said.
According to Niranjan Gupta, chief financial officer, Hero MotoCorp, it will be difficult to give any guidance for the current fiscal year but there is a pent up demand and people will move towards personal mobility due to the covid-19 pandemic.
“The positive response to retail has surprised us and production is ramping up pretty fast. As of now retails has been chasing the production. The rural and semi urban market are showing signs of a pick-up due to a good harvest and benefits of the financial package," added Gupta in a conference call with sector analysts.
Hero MotoCorp plans to increase production to more than 4 lakh units in June, Mint reported earlier. The company produced just 1.12 lakh motorcycles and scooters last month after restarting production from May 4.
In order to cut cost in a challenging year, Hero has reduced its planned capital expenditure to ₹600 crore compared to ₹1000 crore earmarked last year.
“We are not cutting our research and development related cost and are ensuring that our medium and longer term interests are not hampered. Plans related to capacity expansion and renovation projects have been curtailed but we have decided to prioritise our R&D related investments," added Gupta.
The Pawan Munjal lead company reported a 15% year-on-year decrease in net profit to ₹620.71 crore, for the quarter ending March 31, as a result of a significant decline in retail sales in March, due to the adverse impact of the Covid -19 pandemic and the subsequent lockdown measures imposed the by the centre and states to contain the spread of the virus.
Net sales during the period decreased by 20.88% year-on-year to ₹6238.39 crore as a consequence of 25.71% drop in vehicle sales to 13.23 lakh units.