Hero to enter retail financing

More than 25% of HMC's customers avail of financing options while purchasing a two-wheeler

To boost the sales of its two-wheelers, Hero MotoCorp, India’s largest motorcycle manufacturer, has decided to offer retail financing solutions to customers.

The company’s financing arm, Hero FinCorp (erstwhile Hero Honda Finlease), which offered financing solutions to vendors, dealers and transporters till now, would expand its ambit to help finance two-wheeler purchases.

Ravi Sud, chief financial officer, Hero MotoCorp, said, “Hero FinCorp has been doing captive financing for our dealers, vendors and logistics suppliers. The company would now offer financing solutions at competitive rates to our customers.” Currently, about a quarter of cent of Hero MotoCorp customers avail of financing options while purchasing two-wheelers.

Sud declined to specify the rates at which financing options would be made available to customers.

He said compared to interest rates of 26-28 per cent for two-wheeler loans in the national capital, Hero FinCorp’s offers would be “competitive and transparent”.

Early this month, Hero MotoCorp had launched the financing service at a dealership in south Delhi. The company plans to extend the facility to 200 dealer outlets by the end of this financial year and to 450 dealerships by 2014-15. By March 2016, it would extend the facility to all its sales outlets. Currently, the company has 800 dealers. As of March, Hero FinCorp had equity and reserves of Rs 200 crore, Sud said. Hero MotoCorp, which holds 40 per cent stake in Hero FinCorp, is expected to infuse additional equity of about Rs 200 crore by 2014-15.

“It makes a lot of sense for two-wheeler companies to start thinking of offering financial solutions to customers. Often, banks do not lend when they perceive risks in the retail business. Having a financing arm ensures availability of liquidity in the system at competitive rates,” said Abdul Majeed, partner and leader (automotive practice), PricewaterhouseCoopers.

Hero MotoCorp’s move comes at a time when the company’s market share in the domestic two-wheeler industry has been declining, owing to increasing competition from former partner Honda Motorcycle and Scooter India and an overall slowdown in the macro economic environment. In the last financial year, Hero MotoCorp’s sales declined 2.16 per cent to 5.9 million units; its share in the two-wheeler market fell from 45.2 per cent in 2-11-12 to 42.8 per cent.