Hero MotoCorp, India’s largest two-wheeler manufacturer, has lined up a capital expenditure (capex) in the range of Rs 800-1,000 crore for FY22 after it made a heavy cut on spending in the current year.
Its idea behind paring capex for FY21 to Rs 600 crore was to cut costs and be demanding on cash spends after the COVID-19 pandemic wiped out all sales projections for the year.
But following a better-than-expected recovery in demand in recent months, the maker of Splendor and Maestro has not only reinstated its annual capex but is ready to make provisions for more spends if demanded by the market.
Speaking to analysts, Niranjan Gupta, chief financial officer, Hero MotoCorp, said: “We are going back to the capex plans we had earlier because in the COVID period we had cut those down. For FY22, the capex probably would be more in the range of Rs 800-1,000 crore. We (will) keep calibrating it as we move forward, depending on the progress on the overall demand and supply side”. In FY20, Hero MotoCorp had incurred a capex of around Rs 1,000 crore.
From an average 2.61 lakh units per month during April-July, Hero MotoCorp sales have more than doubled in the September-January period to 5.91 lakh units a month.
Hero MotoCorp’s rivals, Bajaj Auto and TVS Motor Company, are yet to firm up their capex plans for the upcoming financial year. Eicher Motors-controlled Royal Enfield did not share its FY22 capex plans during the December quarter results announcement.
Two-wheeler companies have ramped up production significantly over the past few months owing to continued surge in retail demand. This surge has also allowed the companies to carry out multiple price hikes since December, which was the first since the Bharat Stage VI upgradation in April 2020.
After a strict lockdown spanning six weeks between April and May and the ensuing slow unlocking process, the two-wheeler segment saw sales crash 60 percent between April and July to 2.57 million units.
But during the period after August, the segment rebounded and started growing, compared to the same period last year. As per data shared by the Society of Indian Automobile Manufacturers (SIAM), the August-January period saw two-wheeler sales grow by 10 percent to 9.62 million units.
“All indicators which would boost overall demand are in place. So, there is no reason to believe that demand will suffer, moving forward. Of course, there can always be a couple of months here and there where somebody is off to a slow start, a marriage date which can shift from quarter A to quarter B… so, those kind of things can happen, but underlying medium-term demand, if you see, we have no reasons to doubt the robustness of the demand,” added Gupta.