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NEW DELHI : Hero MotoCorp Ltd has set an ambitious target of producing 7.5 million motorcycles and scooters in the next fiscal—the most in four years and the second-highest in its history—as India’s largest two-wheeler maker bets on a rebound in economic growth, recovery in rural demand and improved consumer sentiment due to progress on coronavirus vaccines.

The company’s internal sales target includes a doubling of exports to 350,000 to 400,000 vehicles from the current levels of 150,000-200,000, said two people aware of the matter.

Achieving its target would bring Hero close to its highest-ever output and sales achieved in FY19 when it produced 7.83 million units and posted wholesales or factory dispatches of 7.61 million units on the back of economic growth and strong rural demand.

Hero’s sales, however, began to taper off from the second half of FY19 due to a credit squeeze triggered by the payments defaults made by non-bank lender IL&FS. The company produced 5.24 million two-wheelers during April 2020 to February 2021, a 14.9% decline from the previous year, according to data issued by the Society of Indian Automobile Manufacturers.

The bullish forecast for the next fiscal is thus at variance with the current market scenario, where sales of entry-level motorcycles have been on the wane since October due to a slowdown in demand in rural and semi-urban areas since the resumption of public transport across the country. Rising petrol price may affect sales of entry-level motorcycles in the coming months.

Hero plans to produce 600,000-650,000 two-wheelers each month in FY22, which will take the total output to more than 7 million, said one of the two people cited above.

“Hero’s management is also focusing on doubling its export business next year as it is imperative for them to expand export volumes for further improvement in profits and exports also boost operating margins. Overall, they are planning to target around 800,000 units from exports in the next few years," the person said, requesting not to be named.

An emailed query sent to a Hero MotoCorp spokesperson on Tuesday remained unanswered.

The unlocking of the economy led to a burst in two-wheeler sales, with the segment faring better than others due to a faster revival in demand in rural and semi-urban areas compared to the metros.

Expecting the robust rural demand to sustain, Hero ramped up production in July, and in October, the company produced a record 800,000 units. Sluggish sales, however, forced the company to cut output substantially in recent months.

“It remains to be seen whether they will be able to meet this target. They expected to touch around 7 million this year but demand contracted, especially in the rural markets, and it’s unlikely they will be able achieve that. The company is banking heavily on growth in rural economy in the next fiscal, especially after the announcement from the government to invest more in rural infrastructure," the second person cited above said.

“Rising fuel prices have a complex impact on motorcycle demand. On the one hand, it impacts the overall demand and, on the other, it lessens the transition of two-wheeler users to passenger vehicles," said Shaukat Ali, assistant vice-president, research, Monarch Networth Capital.

“So far, robust rural economy aided by improved farm income has been the key growth engine. Monsoon next season will be a key determinant of demand for two-wheelers in FY22."

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