Hero MotoCorp, India's largest two-wheeler maker, has slashed its capital expenditure (capex) programme by 40 percent to Rs 600 crore for FY21, in line with the rest of the auto industry.
The manufacturer of Splendor and Maestro, however, clarified that there has been no cutback on investments on new product development and R&D.
"Earlier our capex projection was Rs 1,000 crore. We have rationalized and deferred parts of it to contain it to close to Rs 600 crore for the year. We have not cut any investments on research and development (R&D). Product development is going on as scheduled. Spends on capacity expansion plans and renovation have been deferred," said Niranjan Gupta, chief financial officer, Hero MotoCorp.
Maruti Suzuki, Bajaj Auto, TVS Motor Company, Apollo Tyres, Ceat, Bosch had earlier announced reduction in capex for the year in light of absence of enough demand to support any incremental addition to output.
Speaking about the current situation the management further clarified that all of Hero’s plants and the plants operated by its parts vendors have become operational. In addition around 90 percent of dealerships have also become operational.
"All our plants have become operational and the volumes are getting ramped up gradually and will be in line with the customer demand. All our vendors have also opened their factories. More than 90 percent of our outlets have opened," said Gupta.
The company also claimed that most of its dealers are operating at 70-80 percent of pre-shutdown levels.
"In Jan-Feb we were doing around 500,000 retails a month. If current operation is 70-80 percent of that then it is 350,000 units which is the kind of run rate we are looking at," said Naveen Chauhan, head sales and after sales, Hero MotoCorp.
The executives also said that they have seen downtrading (consumers shifting to cheaper priced models than earlier decided) taking place in the market although it is too early to make a definitive call on that. Hero is the market leader in the budget bike segment with models such as Splendor, Passion and HF Dawn. The company also mentioned that dispatches of the Xtreme 160R will begin a couple of weeks.
"The dealer network in sitting on one of its lowest inventory levels. We are seeing good pick up in retail demand even though the dispatches indicate a decline. There were lots of pent up enquiry and conversion has also been good. Getting volumes back is key priority," added Gupta.
Hero raised dealer margins during the quarter on the basis on BS-VI upgradation. It also provided a one-off support of Rs 110 crore to dealers as compensation towards BS-IV inventory which have now become obsolete.
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