Hero MotoCorp Aims To Save Rs 1,000 Crore This Fiscal

Indian two-wheeler manufacturer Hero MotoCorp looks to save close to Rs 1,000 crore in the financial year 2014-15, with its ongoing margin transformation programme yielding desired results and the ammortised payments to former partner Honda coming to an end in June.

The company is aiming to more than double its savings to more than Rs 300 crore in fiscal 2014-15 from the previous financial year as part of its margin transformation drive 'Leap', started a few years ago.

Ravi Sud, senior vice-president and chief financial officer at Hero, said, "We accrued more than Rs 150 crore in the financial year 2013-14, which is going to increase progressively. We have already come to a stage where, effective April 1, 2014, the monthly accrual was Rs 25 crore. So, all other factors, such as volatility in commodity market and the currency fluctuation remaining constant, we expect over Rs 75 crore to be added to the bottom line per quarter in FY15."

"And it will keep growing as we go on implementing the ideas at different points of time. The exit run rate for FY2015 could be anything between Rs 50-60 crore. It's too early to say, but we are working on it," he added.

Hero MotoCorp had launched the 'Leap' programme in May 2013 with a view to transforming its margins over a four-year period, keeping April 2013 as its base. The programme looks at a wide gamut of areas, including pricing and feature optimisation, raw materials consolidation, outbound logistics, operational excellence and marketing expenditure, e-sourcing and product design.

Additionally, the company stands to gain big with the last of the 14 instalments of the amortised payments to erstwhile partner Honda coming to an end in June.

"The one-time lump sum payment of 45 billion Japanese yen to Honda was amortised into 14 quarters, and the last instalment will be paid in June,” said Sud.

While it may not have any impact on the EBIDTA of the company, it will still positively impact our EPS (earnings per share). And the positive impact on PAT for the period July 2014 to March 2015 will be around Rs 440 crore net of tax," he added.

Therefore, the actual impact of this is likely to be Rs 600 crore in savings. So, this along with the 'Leap' benefit put together, will accrue in total savings of close to Rs 1,000 crore for Hero MotoCorp in FY15.

The company is also moving rapidly to scale up its capacity from its current 6.9 million units to close to nine million per year, said Sud.

Hero, on June 2, reported 8% growth in sales in May and its highest-ever non-festive monthly sales of 6,02,481 units. The company’s shares closed at an all-time high of Rs 2582.2 on June 5, up by Rs 40.7.