Basically we had planned it well, as we always do," says Ravi Sud, CFO, Hero Honda, with the wicked grin of someone who has won a hard-fought battle. In fact, the joke amongst analysts is that the veteran of 12 years at Hero Honda planned it so well that the company continued to be on cruise control even when he wasn't there! Sud left the world's largest two-wheeler company (by volume) in November 2008 for a real estate company, only to return by March 2009.
Best in Liquidity Management (Large Company)
RAVI SUD, CFO/ Hero Honda
It uses the services of subsidiary Hero Honda Fin Lease to raise funds at competitive rates. "The dealers need funds for roughly 45 days-during the festive season-and it is often cumbersome for them to raise it from banks," says Sud. Hero Honda regularly gets advance estimates of fund requirements of its associates, raises funds at competitive prevailing market rates and then lends to its associates.
It duly went about that task in 2008-09. While the dealers had indicated only around Rs 350 crore, in a tight market, the finance subsidiary raised Rs 425 crore in July 2008. "To plan for the activity is critical. If we had waited for till September to raise this money, we would not have got even Rs 5 crore," Sud recounts.
Hero Honda kept selling through the slowdown, which cast its shadow on the festive season in September and October. But guess what: It sold a record 6,00,000 units in October-12 per cent higher than the previous highest of 5,31,000 in October 2006.
The strategy continued to work not just during tight money conditions. In 2009-10, when banks were flush with liquidity but averse to lending to small companies, Hero Honda Fin Lease again pulled in Rs 250 crore. The company's vendors gained as their cost of money shrank by close to 300 basis points, even as Fin Lease made money on the difference due to its higher credit ratings.
"We do this very proactively. None of the vendors had asked us for money," says Sud before explaining, "Morally, we take responsibility for their well-being. It is a long-term relationship. It is not based on transactions." Hero Honda, for its part, is a cash-surplus company. However, liquidity management apart, the company, like a genuine blue chip, used the adverse circumstances to its advantage. It continued introducing new models and variants to keep customer interest alive, and stubbornly refused to cut ad spend. It also continued to expand its reach in rural India. From 2,000 touch points in the hinterland, the company is now at 4,200 points today.
How does 2010-11 look? Sud, a veteran of many business cycles, cautions that things are not going to be easy this year. Inflation and prices of crude and other commodities are what he worries about. But his focus-in good times or bad- doesn't waver: Rigorous risk management, use of technology to the hilt to increase business, and looking within the company to spot and remedy inefficiencies. His parting words of wisdom: "Be alert, be in touch with the ever-changing environment."