NEW DELHI: Hero MotoCorp Ltd, the country’s largest two-wheeler manufacturer, expects recovery in rural markets to be faster than anticipated in the coming months and plans to increase production to more than 4 lakh units in June, three people aware of the development told Mint.
The company produced just 1.12 lakh motorcycles and scooters last month after restarting production from May 4.
The management expects a quicker demand recovery in the rural markets in the coming months due to a normal monsoon forecast, good summer crop and preference for personal mobility post covid -19 pandemic.
The New Delhi-based company is witnessing retail sales of 17000-18000 vehicles every day. In a webinar with suppliers last week, the senior management urged the component suppliers to be ready as the company is witnessing robust recovery in retail sales, the people mentioned above said.
Hero is the leader in entry-level motorcycles and almost 60% of its domestic sales come from rural markets. Hero’s competitors, Bajaj Auto Ltd and Honda Motorcycles and Scooters India PvT Ltd are yet to decide on a significant increase in manufacturing in the coming months.
The Pawan Munjal-led company manufactures 6-6.5 lakh motorcycles and scooters on a monthly basis and going by its projection, the output could reach 70% of its pre covid-19 production levels by the end of June or start of July.
According to industry experts, two-wheelers, especially motorcycles and tractors, are on a sound footing compared to other sub-segments such as passenger cars and commercial vehicles due to the exposure to rural markets. Also, on the back of a healthy monsoon and good summer crop, agriculture is expected to be the only sector expected to witness growth in the current fiscal.
“Tractors and two-wheelers are likely to see relatively faster recovery in the second half of this fiscal. Both the segments benefit from a bumper rabi production and the forecast of 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," said analysts of Crisil in a report on May 28.
"As per our policy, we do not give out forward guidance on volumes, nor do we comment on speculative market information," said a spokesperson of Hero MotoCorp in response to a Mint query.
According to the first person mentioned above, Hero has been very aggressive with production forecasts since the company expects demand in the rural market to come back stronger but it remains to be seen whether the company 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 for the tier 2 and tier 3 vendors. Also, it will be difficult for some to ramp up operations," said the person mentioned above.
After lockdown measures were announced in late March, Hero MotoCorp had to incur losses due to the unsold stock of Bharat Stage 1V compliant vehicles at dealerships.
“In a call last week the management told it’s stakeholders about the robust growth in sales it has been witnessing and they also informed vendors to be ready since the company thinks rural sales is likely to pick up soon and it would not want to miss out on the opportunity," said the second person.
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