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Exactly three decades ago, and not very far from where I am sitting right now, I penned my first message to you. It was a message based on cautious optimism about an India Story that would unfold. Thirty years later, India is a trillion dollar economy– and Hero is a Rs. 22,000– crores story.
In my previous message, I shared with you the joy that the MD and I experienced after your Company was finally able to fly unfettered and free. With this sense of independence and strength, your Company fully completed its brand transition for its portfolio of products –from Hero Honda to Hero –during the year in review, two years before schedule. Of course, to continue flying free, birds need to fulfil their responsibilities. On occasion, they need to nest, and find the right partners. At other times, they need to mentor their young, so that growth and life can begin a new, and with renewed vigour.
2012–13 was a year of nesting for Hero MotoCorp. It was a period for recharge and renewal. We quietly completed the groundwork for a world–class technology centre, additional capacity expansion, spare part augmentation and an ambitious international foray. Your Company has nurtured three alliances. These are beginning to deliver results that have exceeded our expectations. Pawan will talk about some of the milestones that have been crossed, as well as some of the plans to take Hero global. I am confident that in the coming months, these will emerge as strong sources of strategic advantage for Hero MotoCorp.
There is, of course, the interim to deal with. Adverse economic conditions coincided with the nesting period during FY 2012–13. The two wheeler industry witnessed one of its worst performances in a decade. In 2012–13, two–wheeler customers bravely weathered high inflation, steep petrol prices and interest rates. While these headwinds continued during the year under review, a poor crop eroded the earnings and consumption potential of rural buyers dependent on the farm sector. Across cities, a sluggish service sector resulted in lower increments, widespread job uncertainty and weakening demand.
Hero MotoCorp too found the going challenging, especially in the second half of the year. This was owing to continuing economic hardship and also partially because your Company's product pipeline is in transition. Despite this adversity, three of the four products that were launched under the new brand found resonance among customers, and Hero MotoCorp enjoyed a record–breaking festive season.
If I look back, on every setback the two wheeler industry has suffered over the past decade. I notice that every trough is followed by a recovery in demand. Therefore, I am positive that a good monsoon, plus a possible increase in government spending in the run–up to the 2014 elections, will increase consumer spending in the short term. However, as I have mentioned in my earlier communications as well, it is the medium–to–long term future playing out in the Indian countryside that I am really excited about.
We have seen the MNREGA scheme is putting more money in the hands of rural people in the form of higher wages. The 2011 Census has re–classified 2500 large villages as census towns. These settlements are mostly non–dependent on agriculture for livelihood and are experiencing rapid growth. Such drivers of rural prosperity, coupled with the on–going direct beneficiary transfer scheme –– where subsidies will be paid directly to millions of bank accounts – will transform those parts of India that have underperformed for decades.
Against this backdrop, companies, such as yours, which has few peers when it comes to cost of ownership, distribution, reach and service – are poised to benefit from this transformation the most. Buying a motorcycle or a scooter is not the same as buying a TV or a mobile phone. There are recurring costs, which can only be effectively met through a strong sales and distribution network.
Our strengths in these areas are strategic advantages simply because they are difficult to scale and replicate quickly. In the coming years, we will do what it takes to maintain these advantages, so that we can maintain and grow our leadership position.
So keep the faith, and stay invested in us.
Brijmohan Lall Munjal