Big Diwali for autos, cautiously optimistic now: HeroMoto

He admitted competition is heating up, but so is the share of the pie. "I think margin will not drop at this point despite competitive pressures," he said. The company is eyeing Sri Lanka, Latin American markets to increase its exports. "We are well positioned to take advantage of global and domestic opportunity," Munjal said.

Below is the edited transcript of the interview:

Q: It looks like a brilliant Diwali going by your sales but give us some colour - was it largely rural? How was the mix and how would you position this demand in an economic context? Is it just your company grabbing market share or is it that the economy is turning and the pie is getting largely?

A: This has been a wonderful Diwali for India, for Indian industry, certainly for the automotive industry and for two-wheelers.

To you question – I think it is a bit of both. The overall size has grown. We have seen in the last six months growth over 16 percent in two-wheelers and our company particularly over the last few months has done well. The festival period has been very kind to the industry. There was some nervousness earlier on. It grew rapidly then petered off but on Dhanteras day, we were fortunate to get a very large number of two-wheelers sold in the market. A part of it came from the branding, part came from the new launches and part of it also came from better logistics and planning and how to position the product across the market. Therefore, it was a combination of multiple things that are going on.

Q: What is the prognosis for the second half of the year in terms of growth for the sector as a whole as well as for Hero Motocorp?

A: I will stick to the sector and the economy. There is cautious optimism right now in India (a) because of the number of initiatives the government has taken and which they are likely to take over the next few months because they have spoken about some of the others and these are in the areas of labour reform continuing the excise benefit that is offered. There are series of them going on and many of them are pure reform related (b) those specifically will build the market.

The concern side of course is that as on date the monsoon has reported 12 percent shortfall across India. It’s not even across India but overall is 12 percent and it has been patchy. In some places it’s been very good, in some it is way behind the normal. The good thing is that agriculture has not suffered across the board. Therefore, it is somewhat mixed bag right now. The expectation for the next few months is we will continue to see consolidation with significant growth coming into the next year.

Q: Would you say that this 16 percent growth, which mentioned for the industry in the first six months would be repeated in the second half. Would it be 16 percent higher than the previous second half or would it be better than that?

A: The industry would like to see that happen but at this moment, it is sensible to be cautiously optimistic. There are both pros and cons in the industry because of continuous high interest rate there is some push back. Hopefully with the improved economy the Reserve Bank of India (RBI) will see it fit to start to taper down interest to encourage some growth in the economy right now. At the same time the general improvement both in the mood, actually on the ground, in the macroeconomic factors and the rating agencies both Indian and global giving a thumbs up to the direction that Indian economy has taken will give us some headroom for growth. I do not want to get the number right now but I would say the direction is right and we will see upside.

Q: Talking about some of the micros in the industry, the scooter industry has seen a very sharp growth. In the first half of the year, the industry has grown 32 percent. What is the outlook for the second half and what would a strategy be to grow in the scooter industry from Hero Moto point of view?

A: The scooter industry has made a big comeback over the last few years and that’s apparent in all of the numbers and we are also seeing company after company look at this as a product line those who were not involved in this and those who were also expanding the lines as we have done ourselves. We had one single scooter for a long time and we launched the second one. The plan right now is to continue to expand the capacity because there is significant growth in demand in scooters and interestingly it is happening across – earlier it was only in few places, it is now pretty wide spread and we are seeing both men and women drawing the scooter volume across India. However, for us we have already grown the scooter volume production over the last few months and we continue to do this again now.

Q: How will that help you in terms of market share? We have seen others like TVS Motor gain in the scooter segment in the last three-six months and then Honda which is in any case is the market leader in that segment. For Hero, how much of growth in market share would you expect because of all the initiatives that you are taking in the scooter segment?

A: We have been constrained by capacity. We were selling whatever we were making. In the last few months we made an effort to grow the capacity for these and you will see further growth in the next few months on production of scooters and we are adding capacity. We just started up a new plant. So overall capacity growth is taking place for us and we are hoping that our scooter market share would also grow. As I said, I am not going to give any number and I would rather talk of the overall economy rather than just specific only on one entity alone.

Q: As things heat up do you expect that the competition gets a little hot and therefore margins could come under pressure in the second half for most of the two-wheelers?

A: It is clear that competition has become pretty intense but fortunately so is the size of the pie. The market has shown good growth and with the improvement we are seeing in the economy, one would expect this to continue over the next few months and into the next few years. So margins while maybe under pressure but I do not think margin will drop in this industry at this moment.

Q: One of the segments of Hero Motocorp that has enthuse the market a lot is the way exports are expected to grow going ahead. You have set an aggressive target of 250,000 units in FY15. I want to understand from you what are the key markets where you expect exports to pickup in order for the company to reach that target?

A: The export markets that we have gone to are in the immediate neighbourhood, Sri Lanka, Bangladesh, Nepal etc and then in Africa and in central Latin America - these are the three broad market segments that we are looking at. We would like to grow these. There are also new markets we would like to add but that’s something which the company would announce at an appropriate time. At this moment, a lot of work has been done over the last few years to setup and establish our presence there, setup distributors, setup assembly in some places even manufacturing in some of the market and to try and develop the brand there. So, the response that we are getting is reasonably good and that is why it gives one hope and confidence that over the next few months and years we will see a significant growth in our export volume which is why we need to increase the production capacity here because we do not expect Indian market to go down anytime soon, so in that sense it’s a good news on both ends.

Q: If I look at all your plans, Hero alone intents to have about 12 million bikes in installed capacity by 2020. Honda is speaking of a similar capacity by similar time period. Do you expect that kind of a burgeoning of demand or by then would you all be sitting on capacity that you cannot use?

A: If you look at what the Indian government is putting out as numbers or if you look at what the new economic adviser put out, if Indian economy can and hopefully will grow at about 8-8.5 percent for a sustained period of time. The numbers one can expect maybe even more optimistic than the one some of us are putting out because the population in India which is currently not able to afford a two-wheeler will then be in that position and with easier transactions, with more banking, with more financing available, easier access to distribution points and service points. The market is expected over a time to have a healthy and a significant growth and as always in any industry, some will win more and some will win less but it is clear there is growth and we would like to position ourselves well to be able to take advantage of this growth.

Q: On that same theme Siddhartha Lal of Eicher Motors has proved that there is a huge market even for the premium segment. Do we see you getting into that segment more aggressively?A: I do not think this is an appropriate time or a place to make those kinds of an announcements but the company would like to position itself well to take advantage of the evolving market, the growing market, watching the domestic market and also internationally and you will hear the plans as they are made public. Q: To add on the point – in terms of combating the intense competition, can we expect to hear anything from Hero Motocorp on a new brand being launch, something like Splendor and Passion and how they have worked in the past. So far we have seen variants. We have seen refreshers of the older brands but in the next 12-18 months any new brand launches that we can expect from Hero in the motorcycle segment?A: Pawan had already mentioned this in a couple of interviews earlier that there would be new product launches happening over the next coming months and years and there is intense work going on right now in the company in its technology centers to create more specific product features and attributes in some of the existing products and certainly in the new products which are in the pipeline and this is not something which one announces on an interview like this.