Hero MotoCorp, the country’s largest two-wheeler manufacturer, will infuse Rs 1,500 crore in FY20 for setting up a new factory as well as for upgrading products to meet Bharat Stage VI (BS-VI) emission norms, which will come into effect from April 2020. Capital expenditure (capex) will be nearly double compared to last fiscal's Rs 800 crore.
Confirming this development, Niranjan Kumar Gupta, Chief Financial Officer, Hero MotoCorp, told Moneycontrol, “In FY19, our capex outflow has been around Rs 800 crore on a cash basis. In FY20, we expect this number to go rise to around Rs 1,500 crore. This fiscal, we have a plant coming up in Andhra Pradesh and undertaking some BS-VI manufacturing lines. A combination of these two will lift our FY20 capex close to around Rs 1,500 crore.”
The Delhi-based manufacturer of Splendor and Passion is setting up a new plant at a time when its peers are initiating production holidays and cutting back on output due to fall in sales for the past two consecutive quarters and higher inventory at dealers end (currently pegged at 50-90 days from 30-45 normally).
During Q4 FY19, Hero MotoCorp reported a 11 percent year-on-year fall in two-wheeler volumes to 1.78 million units. In Q3, volumes fell five percent to 1.7 million units.
The company started work on its Rs 1,600 crore Andhra plant in March 2018. This plant, with an annual production capacity of 1.8 million units, is the eighth for the company and is scheduled to come on stream by December. When the additional capacity from the new plant comes on stream, its total manufacturing capacity will expand to 11 million units.
The Society of Indian Automobile Manufacturers (SIAM) has predicted a 5-7 percent growth in two-wheeler volumes this fiscal. On a base of 21.18 million clocked during FY19, this would translate to a 22.66 million units by FY20-end.
Despite muted growth during FY19, where Hero MotoCorp clocked three percent growth at 7.6 million units, which was lower than the industry’s growth of nearly five percent, the management is confident of growing better than the two-wheeler industry in FY20.
Gupta expects growth for the industry to be around mid-single digits. "Tale of two halves, probably first half flattish, second half closer to 10 percent growth (so this would mean) 5-7 percent growth. On the back of our launches and other planned initiatives, we would expect to do better than the industry,” he stated.
On May 1, the company launched three premium motorcycles – Xpulse 200, XPulse 200T and Xtreme 200S – in the Indian market to challenge the dominance of Bajaj Auto.
At present, the company has an annual capacity of 9.2 million units per annum. As per data from the auto industry’s apex lobby body, Hero MotoCorp produced 7.83 million units last fiscal, which represents a capacity utilisation rate of 85 percent. If the company's sales grows by seven percent to 8.15 million this fiscal, its utilisation rate will drop to 74 percent, leading to over capacity.