Hero forecasts rural revival, boosts output
3 min read . Updated: 09 Jun 2020, 11:55 PM ISTHero MotoCorp plans to manufacture more than 400,000 motorcycles and scooters this month, up from the 112,000 vehicles it made in May
NEW DELHI : Hero MotoCorp Ltd will likely produce over three times more vehicles in June compared with May, said three people aware of the plans, as India’s largest two-wheeler maker sharply ramps up production on expectations of a rebound in rural demand this year.
The New Delhi-based company plans to manufacture more than 400,000 motorcycles and scooters this month, up from the 112,000 vehicles it made in May, the people said, requesting anonymity.
This month’s production would still lag the 500,000-600,000 two-wheelers Hero MotoCorp produced each month before the company was forced to shut its factories in late March. The plants reopened on 4 May. The increased output plans in June, if achieved, would help the automaker gain more than 70% of its pre-covid-19 levels of capacity utilization by the end of June or start of July.
The company led by Pawan Munjal expects rural demand to bounce back on a healthy monsoon forecast, good summer crop and preference for personal mobility in the wake of the coronavirus pandemic, which has increased the need for social distancing, said the first person cited above.
An increase in rural demand will help Hero MotoCorp, the leader in entry-level motorcycles, as it garners almost 60% of domestic sales from rural markets.
The management urged its component suppliers last week to be ready as it is witnessing robust recovery in retail sales after lockdown restrictions were relaxed, the people cited above said.
The company has been selling 17,000-18,000 vehicles each day across states.
“As per our policy, we do not give out forward guidance on volumes, nor do we comment on speculative market information," a Hero MotoCorp spokesperson said in response to a Mint query.
Competitors Bajaj Auto Ltd and Honda Motorcycles and Scooters India Pvt. Ltd are, however, yet to decide on a significant increase in manufacturing in the coming months.
“Tractors and two-wheelers are likely to see relatively faster recovery in the second half of this fiscal. Both segments benefit from a bumper rabi production and a normal monsoon, which augur well for rural incomes. Within two-wheelers, which have a lower replacement share of ~50% and lower finance penetration of 35-40%, motorcycles are expected to fare better, riding on rural demand," a Crisil report said on 28 May.
The second person mentioned above said Hero has been aggressive with production forecasts since it expects rural demand to rebound, but it remains to be seen whether it actually manages to achieve the projections.
“The forecast has been quite aggressive from Hero but suppliers may have some problem in meeting the demand, given the lack of manpower. Also, it will be difficult for some to ramp up operations," the person said.
After lockdown measures were announced in late-March, Hero MotoCorp had to incur some losses due to the unsold dealer inventory of vehicles compliant with the previous Bharat Stage-IV emission norms. India shifted to the new BS-VI emission norms from 1 April.
“In a call last week, the management told stakeholders about the robust growth in sales it has been seeing and also informed vendors to be ready as it thinks rural sales may pick up soon," said the third person cited above.
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