Hero Honda Motors

On behalf of the Board, I take immense pleasure on presenting the 25th
 Annual Report of the Company. The report is being presented along with
 the Audited Statement of Accounts for the financial year ended March
 31, 2008.
 
 FINANCIAL RESULTS
                                                      (Rupees in crores)
                                                     For the year ended
                                        March 31, 2008   March 31, 2007
 
 Gross Sales                                 12,038.53       11,542.04
 Net Sales and other Income                  10,517.22       10,089.81
 Profit before Finance charges
 and Depreciation                             1,534.79        1,362.89
 Less: Finance charges                          (35.81)         (22.99)
 Depreciation                                   160.32          139.78
 Profit before tax (PBT)                      1,410.28        1,246.10
 Less: Provision for tax
 - Current                                      436.81          375.81
 - Deferred                                       1.20            9.42
 - Fringe Benefit Tax (FBT)                       4.39            2.98
 Profit after tax (PAT)                         967.88          857.89
 Add: Balance of profit brought forward       1,594.78        1,224.05
 Balance available for appropriation          2,562.66        2,081.94
 Appropriations
 Dividend
 Proposed Final                                 379.41          339.47
 Corporate Dividend Tax                          64.48           57.69
 Transfer to General Reserve                     97.00           90.00
 Balance carried to Balance Sheet             2,021.77        1,594.78
 Dividend (%)                                      950             850
 Basic and Diluted Earnings Per Share (EPS) (Rs.)48.47           42.96
 
 BUSINESS PERFORMANCE
 
 Your Company defied a process of de-growth in the industry and achieved
 cumulative sales of 33,37,142 units of two-wheelers. In the process,
 Hero Honda consolidated its leadership position in domestic two-wheeler
 market with more than 52 per cent market share. The Company
 successfully launched seven new models including variants during the
 year under review.
 
 On the financial front, total income (net of excise duty) of the
 Company grew by 4.2 per cent from Rs. 10, 090 crores in previous year
 to Rs. 10,517 crores during 2007-08. The Company posted a net profit
 (PAT) of Rs. 968 crores, compared to Rs. 858 crores in the previous
 fiscal, a growth of 13 per cent. Despite the increasing pressure on
 inputs, your Company was able to maintain EBIDTA margins at 13.1 per
 cent, compared to 11.9 per cent in the previous year.
 
 During the year, Hero Honda also retained, for the seventh year in a
 row, its position as the Worlds Number One Two Wheeler Company. During
 2007-08, your Company achieved another landmark of reaching cumulative
 sales of 20 million bikes.
 
 In the course of the year, your Company launched new models (including
 variants) including Splendor NXG, Hunk, New Super Splendor, New Passion
 Plus, Commemorative Splendor+ and a refreshed version of Pleasure.
 
 A detailed discussion on the business performance and future outlook
 has been given in the chapter on Management Discussion & Analysis
 Report.
 
 DIVIDEND
 
 Few manufacturing companies in the Indian corporate sector have a
 better dividend pay out record than Hero Honda. We have recommended a
 Dividend of 950 per cent i.e. Rs.19 per equity share of Rs. 2
 aggregating to Rs. 379.41 crores (exclusive of corporate dividend tax)
 for your approval for the financial year ended March 31, 2008. The
 dividend, if approved, will be paid to the eligible members well within
 the stipulated period.
 
 Our dividend policy is in line with our strong and consistent belief
 that if funds are not re-invested for capital investments, they should
 be optimally distributed to shareholders.
 
 TRANSFER TO GENERAL RESERVE
 
 A sum of Rs. 97 crores have been transferred to the General Reserve of
 the Company. This reaffirms the inherent financial strength of the
 Company.
 
 NEW MANUFACTURING FACILITY AT HARIDWAR
 
 Your Company inaugurated its third plant - the Shrine of Technology
 in the holy city of Haridwar in Uttarakhand.  The plant has an initial
 production capacity of 0.5 million units which would be scaled up to a
 million units by 2008-end. The total capital outlay on the new
 manufacturing facility has been around Rs. 375 crores. The new plant
 will employ flexible production techniques enabling production of
 different models in the Companys portfolio. In addition to
 manufacturing for the domestic market, the plant will also cater to
 export requirements.
 
 MATERIAL CHANGES AND COMMITMENTS
 
 No material changes and commitments affecting the financial position of
 the Company have occurred between April 1, 2008 and the date on which
 this Report has been signed.
 
 BOARD OF DIRECTORS
 
 During the period under review, Mr. Tatsuhiro Oyama resigned from
 directorship on May 11, 2007 and Mr. Takashi Nagai was appointed as an
 Additional Director in Non-Executive Category on May 11, 2007.
 Further, Dr. Vijay Laxman Kelkar has resigned from directorship on
 December 31, 2007.
 
 Mr. Satoshi Matsuzawa was appointed as an Alternate Director to Mr.
 Takashi Nagai w.e.f. April 24, 2008. Mr. Yutaka Kudo, Whole-time
 Director of the Company resigned from both the offices i.e. Director &
 Whole-time Director w.e.f. May 31, 2008. Mr Sumihisa Fukuda was
 appointed as an Additional and Technical Director in the whole-time
 employment of the Company in his stead on June 1, 2008. Mr. M.
 Damodaran was appointed as an Additional Director in the Non- Executive
 and Independent Category w.e.f. June 16, 2008. Mr.  Narinder Nath Vohra
 has resigned from Directorship w.e.f. June 24, 2008.
 
 The Board place on record their sincere appreciation and gratitude for
 the work put in by the out going members, and wishes them a rewarding
 and satisfying career ahead. The Directors also welcome the new members
 on the Board and wish them a successful and fruitful tenure with the
 Company.
 
 At the ensuing Annual General Meeting, Ms. Shobhana Bhartia, Mr. Sunil
 Bharti Mittal, Mr. Masahiro Takedagawa and Mr. Pradeep Dinodia will
 retire by rotation and being eligible, offer themselves for
 re-appointment in terms of provisions of Articles of Association of the
 Company. The brief resume/details relating to Directors, who are to be
 appointed and re-appointed has been furnished after the Explanatory
 Statement to the Notice of the ensuing Annual General Meeting.
 
 Your Directors recommend their re-appointment at the ensuing Annual
 General Meeting.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 To the best of their knowledge and belief and according to the
 information and explanations obtained by them, your Directors make the
 following statement in terms of Section 217(2AA) of the Companies Act,
 1956:
 
 1.  that in the preparation of the annual accounts for the year ended
 March 31, 2008, the applicable accounting standards have been followed;
 
 2.  that appropriate accounting policies have been selected and applied
 consistently and judgements and estimates that are reasonable and
 prudent have been made so as to give a true and fair view of the state
 of affairs as at March 31, 2008 and of the profit of the Company for
 the financial year ended March 31, 2008;
 
 3.  that proper and sufficient care has been taken for the maintenance
 of adequate accounting records in accordance with the provisions of the
 Companies Act, 1956 for safeguarding the assets of the Company and for
 preventing and detecting fraud and other irregularities;
 
 4.  that the annual accounts for the year ended March 31, 2008 have
 been prepared on a going concern basis.
 
 MANAGEMENT DISCUSSION & ANALYSIS REPORT
 
 A detailed chapter on, Management Discussion and Analysis(MDA),
 pursuant to Clause 49 of the Listing Agreement forms part of this
 Report.
 
 CORPORATE GOVERNANCE
 
 At Hero Honda, it is our firm belief that the essence of Corporate
 Governance lies in the phrase Your Company. It is Your Company
 because it belongs to you - the shareholders. The Chairman and
 Directors are Your fiduciaries and trustees. Their objective is to
 take the business forward in such a way that it maximises Your
 long-term value.
 
 Your Company is committed to benchmark itself with global standards for
 providing good Corporate Governance and has put in place an effective
 Corporate Governance System which ensures that the provisions of Clause
 49 of the Listing Agreement are duly complied with.
 
 The Board has also evolved and adopted a Code of Conduct based on the
 principles of Good Corporate Governance and best management practices
 being followed globally. The Code is available on the website of the
 Company www.herohonda.com. A report on Corporate Governance along with
 the Auditors Certificate on its compliance is annexed hereto as
 Annexure - I.
 
 INTERNAL CONTROL SYSTEMS
 
 Hero Honda has a proper and adequate system of internal controls.  This
 ensures that all assets are safeguarded and protected against loss from
 unauthorised use or disposition and those transactions are authorised,
 recorded and reported correctly.
 
 An extensive programme of internal audits and management reviews
 supplement the process of internal control. Properly documented
 policies, guidelines and procedures are laid down for this purpose.
 The internal control system has been designed so as to ensure that the
 financial and other records are reliable for preparing financial and
 other statements and for maintaining accountability of assets.
 
 The Company also has an Audit Committee, comprising of three
 Independent, Non-Executive and professionally qualified Directors, who
 interact with the Statutory Auditors, Internal Auditors, Cost Auditors
 and Auditees in dealing with matters within its terms of reference. The
 Committee mainly deals with accounting matters, financial reporting and
 internal controls. During the year under review, the Committee met nine
 times.
 
 AUDIT COMMITTEE RECOMMENDATION
 
 During the year there was no such recommendation of the Audit Committee
 which was not accepted by the Board. Hence, there is no need for the
 disclosure of the same in this Report.
 
 RISK MANAGEMENT SYSTEM
 
 Your Company follows a comprehensive system of Risk Management.  Your
 Company has adopted a procedure for assessment and minimization. It
 ensures that all the Risks are timely defined and mitigated in
 accordance with the well structured risk management Process. The Audit
 Committee reviews periodically the risk management process.
 
 RATINGS
 
 The rating agency ICRA Limited, has reviewed and reaffirmed the ratings
 assigned to the Company for its Non-convertible Debenture Programme as
 LAAA indicating the highest credit quality, A1+ for its Non-fund based
 facilities and LAAA to Fund based facilities. These ratings indicate
 the highest credit quality carrying lowest credit risk.
 
 Another rating agency CRISIL reviewed and assigned AAA/Stable rating to
 the bank loan and P1+ rating to the Cash Credit Limit & Letter of
 Credit Limit Facility.
 
 Further, CRISIL also has reaffirmed the GVC 1 rating assigned to the
 Company for the third consecutive time. This governance and value
 creation (GVC) rating indicates that the companys capability with
 respect to creating wealth for all its stakeholders while adopting
 sound corporate governance practices is the highest. The rating
 reflects the high standards of corporate governance practised by your
 Company.
 
 FIXED DEPOSITS
 
 During the year under review, the Company has not accepted any deposit
 under Sections 58A and 58AA of the Companies Act, 1956 read with the
 Companies (Acceptance of Deposits) Rules, 1975.
 
 AUDITORS
 
 M/s. A. F. Ferguson & Co., Chartered Accountants, New Delhi, Auditors
 of the Company will retire at the conclusion of the ensuing Annual
 General Meeting and being eligible, offer themselves for re-
 appointment. The Company has received a certificate from the auditors
 to the effect that their re-appointment, if made, would be in
 accordance with Section 224(1B) of the Companies Act, 1956.
 
 The Board recommends their re-appointment.
 
 AUDITORS REPORT
 
 The observations of Auditors in their report, read with the relevant
 notes to accounts are self explanatory and therefore do not require
 further explanation.
 
 COST AUDITORS
 
 The Board has re-appointed M/s. Ramanath Iyer & Co., Cost Accountants,
 New Delhi, as the Cost Auditors of the Company under Section 233B of
 the Companies Act, 1956 for the financial year 2008-09 and necessary
 application for obtaining the requisite approval has been filed with
 the Government. The Cost Auditors Report for 2007-08 will be forwarded
 to the Central Government in pursuance of the provisions of the
 Companies Act, 1956.
 
 CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
 EARNINGS AND OUTGO
 
 Information required under Section 217(1)(e) of the Companies Act,
 1956, read with Companies (Disclosure of Particulars in the Report of
 the Board of Directors) Rules, 1988 is given as per Annexure - II and
 forms an integral part of this Report.
 
 LISTING
 
 The shares of your Company are presently listed on Bombay Stock
 Exchange Limited (BSE) and National Stock Exchange of India Limited
 (NSE). The delisting application, was in-principle approved by the
 Committee of the Calcutta Stock Exchange Association Limited, the
 formal approval is awaited and is expected to be received in due course
 of time.
 
 PERSONNEL
 
 As on March 31, 2008 the total number of employees on the records of
 the Company were 4321.
 
 Your Directors place on record their appreciation for the significant
 contribution made by all employees, who through their competence,
 dedication, hard work, co-operation and support have enabled the
 Company to cross new milestones on a continual basis A detailed note is
 given in the chapter Human Resource Management of Management
 Discussion & Analysis, which forms part of this Annua Report.
 
 PARTICULARS OF EMPLOYEES
 
 Information of Particulars of Employees as required under Section
 217(2A) of the Companies Act, 1956 read with the Companies (Particulars
 of Employees) Rules, 1975 forms an integral part of this Report. As per
 the provisions of Section 219(1)(b) of the Companies Act, 1956, the
 Report and Accounts are being sent to the shareholders of the Company
 excluding the statement of particulars of employees under Section
 217(2A) of the Companies Act, 1956. Any shareholder interested in
 obtaining a copy of such statement may write to the G.M. Legal &
 Company Secretary at the Registered Office of the Company.
 
 ACKNOWLEDGMENT
 
 It is our strong belief that caring for our business constituents has
 ensured our success in the past and will do so in future. Your
 Directors acknowledge with sincere gratitude the co-operation and
 assistance extended by the Central Government, State Government(s),
 Financial nstitution(s), Bank(s), Customers, Dealers, Vendors and
 Ancillary Undertakings. The Directors also place on record their
 appreciation for the valuable assistance and guidance extended to the
 Company by Hero Cycles Limited and Honda Motor Co., Ltd., Japan and for
 the encouragement and assurance, which our collaborator has given for
 the growth and development of the Company.
 
 The Board, also, takes this opportunity to express its deep gratitude
 for the continued co-operation and support received from its valued
 shareholders.
 
                                          For and on behalf of the Board
                                                   Brijmohan Lall Munjal
                                                                Chairman
 New Delhi
 July 29, 2008