Business Today

Still burning rubber

Hero Honda found more buyers for its two wheelers in a year in which major companies were finding fund supply short or hugely expensive.

Shalini S. Dagar | Print Edition: May 2, 2010

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

  • Background: PGDM from IIM Ahmedabad, AICWA, FCS. Has spent 12 years with Hero Honda. Previously was with Eicher Motors.
  • Winning move in 2008-09: Raised Rs 425 crore in July 2008 which helped dealers sell better-than-usual numbers in the festive season.
  • Challenges ahead: Inflation, interest rates and crude prices.
  • Most likely to be heard saying: "Great companies are not built overnight."
Hero Honda's biggest success has been its ability to nudge market share upwards-from 52 per cent to 57 in 2008-09-at a time when bank finance was not easy to come by either for consumers or for its dealers (some 75 per cent of bike sales were happening via auto finance). The company could do this because it didn't have to rely too much on banks but on its own welllubricated funding machine.

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.


  • Plan fund-raising much in advance, and not at the 11th hour.
  • Risk management is an imperative at all times.good and bad.
  • Relationship with vendors has to be long-term, not transaction-based.
The customers rewarded it with good sales. Today, roughly 40 per cent come from non-urban markets. Overall, the company sold more two- wheelers in the domestic market than the second, third and fourth placed manufacturers put together in 2008-09, even as operating margins increased 120 basis points over the previous year.

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."

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