Hero Honda Motors

Two roads diverged in a wood. ..and I took the one less travelled by,
 and that has made all the difference.
 
 These memorable lines by Robert Frost summarise Hero Hondas odyssey
 over these last 25 years. They also capture the spirit of the Indian
 people, who proved al I pre-poll forecasts and predictions wrong to
 vote in the countrys most stable and durable government in two
 decades.
 
 The prospect of stability couldnt have come at a better time for
 India.
 
 As the countrys GDP growth plunged from a very impressive 9 per cent
 to 6 per cent during the year in review, the culture of consumerism
 that propelled India in the preceding four years, took a backstage.
 Family budgets shrank, and in many companies, pay packets became
 slimmer.
 
 Expectedly, defaults also rose. As a result banks became even more
 cautious in offering loans, particularly In towns where very little
 Information was available to measure the creditworthiness of a
 customer.
 
 The trend among consumers to postpone purchase decisions and the banks
 decision to withdraw from certain areas had an impact. The share of
 financing, which had increased rapidly to 50-60 per cent of the total
 retail sales by early 2007, has now come down to below 30 percent.
 
 This was a major setback for the two-wheeler industry, although just
 like the preceding year, your company bucked the trend. In value terms,
 both top line and bottom line was up in double digits. Hero Honda
 retailed more two wheelers in the domestic market than the second,
 third and fourth placed manufacturer put together. Effectively, this
 helped your company boost its domestic motorcycle market share by more
 than four percentage points and scooter market share by three
 percentage points.
 
 The healthy growth in sales also improved your companys bottom line.
 EBIDTA margins for the entire year Increased by 120 basis points
 compared to the
 
 Some of these financial numbers are the highest in our 25-year history.
 We are fortunate that these numbers are coinciding with our silver
 jubilee year. At the same time, I know they do not represent a peak,
 but just the beginning of a climb to another higher summit.
 
 As I mentioned in the opening, we took the road less travelled. When
 the two-wheeler industry started going into a tailspin, our first
 strategic option was to remain rock-solid as the winds of the global
 crisis swept across companies, businesses and consumers based in urban
 India.
 
 We certainly spent some time consolidating our business. We controlled
 costs on a war footing. Of course, plunging commodity prices helped
 bring down prices of key inputs such as steel, nickel and aluminum;
 this in turn helped us prune manufacturing costs.
 
 Yet your company did not just get lucky; it took a number of sound
 business decisions through the year.
 
 To give you an example, your company took a policy decision and
 resisted the temptation of offering discounts to stir up sales in a
 tepid market. However, we did not compromise on market development and
 customer focus; we upgraded our products, added features, introduced
 new products and increased our advertising spends.
 
 Hero Honda also made its supply chain more robust with strong online
 connections both at the front end as well as at the back-end.
 
 Your company didnt stop at consolidation; it sought to grow as well.
 As I mentioned last year, our objective as a company has been to
 develop across both India and Bharat.
 
 We are strongly convinced that the new governments plan to strengthen
 inclusive programs in rural India will create job opportunities and
 aspiration demand. I have always believed that rural and small town
 India represents our future. Now, after last years performance, I am
 convinced that we have to make rural India also an integral part of our
 present.
 
 We have here a market that has incredible depth. This makes it less
 susceptible to global economic cycles and a market where every
 government which comes to power is guaranteed to invest heavily.
 
 Although your company has always concentrated on both urban and rural
 areas, we have now started adding more muscle to our rural initiatives;
 some of our efforts have started paying off.
 
 It gives me great personal pleasure to see that over the course of my
 lifetime, I am being able to see the gradual evolution of Indias
 villages and small towns: from being survivors to aspirants and
 consumers.
 
 I remain confident about the near-term future. Of course, there will be
 challenges ahead. But I would rather see them as opportunities.
 
 Over the next 12 months, the two-wheeler environment will become much
 more competitive as more players try to enter our higher volume
 executive segment. We welcome this emerging competition, since it will
 provide us with an opportunity to prove our mettle once again.
 
 There is also some buzz and anticipation surrounding the low-cost cars.
 Without doubt, these will be good for Indias consumers. Nevertheless,
 from the perspective of our industry and our company, I am convinced
 that the two-wheeler segment will continue to remain the vehicle of
 choice by the masses in India.
 
 Fuel efficiency and maintenance costs continue to be the most important
 considerations for the Indian customer today. They will be the most
 important considerations in the medium term as well.
 
 There are more than seven million new bicycle users every year in
 India, and most of them aspire to upgrade to two-wheelers. The growing
 aspirations, expanding road networks and growth of satellite townships
 across India are some of the factors that will spur demand for
 two-wheelers in the near and medium term.
 
 These factors will operate as the two-wheeler industrys biggest
 insurance in the coming decades.
 
 In my preceding years message, I talked about how strong companies are
 ones that are able to grow roots among the rocks. They have the
 capacity to hold the fort, while other bastions around them crumble.
 Champion companies dont just grow roots, they develop far-reaching
 branches.
 
 Yours sincerely,
 Brijmohan Lall
 Chairman