Hero MotoCorp might see reduction in earlier-projected capex of Rs 1,500 cr

Hero MotoCorp might see a reduction in its earlier-projected capex of Rs 1,500 crore for the current financial year, as the two-wheeler industry continues to face headwinds with no relief in sight from the prolonged slowdown, a senior company official said.

The country's largest two-wheeler maker, however, expects things to be relatively better in the second half as compared to the first half of the current financial year due to several factors like expectations of pre-buying ahead of BS-VI transition and better response from rural markets due to a good monsoon.

"We had earlier provided a capex (capital expenditure) guidance of Rs 1,500 crore for FY20, but it could be a tad lower as we move forward," Hero MotoCorp Chief Financial Officer Niranjan Gupta told PTI.

The company will recalibrate this overall estimate and decide on the new amount in the coming days, he added.

Earlier, this year, the company had announced that it has doubled its capex for the current financial year to Rs 1,500 crore to upgrade its portfolio to conform to BS-VI emission norms and for its upcoming plant in Andhra Pradesh.

Hero MotoCorp had earmarked a capex of Rs 700 crore in 2018-19.

Commenting on the outlook for the rest of the current fiscal, Gupta said, "As things stand, we do see some improvement in the sentiment in the second half of the fiscal, which will be partially reflected during the festive season." There is also the anticipation of better participation from the rural markets in third and fourth quarters owing to good monsoon, he added.

"So, versus the first half of the financial year, the second half should definitely be better, also because of the possibility of pre-buying ahead of the BS-VI transition on April 1, 2020. Thus, multiple factors may lead to some positivity in the months to come," Gupta said.

The overall automobile industry is going through an unprecedent downturn with wholesales witnessing its worst-ever drop in two decades in August with despatches in all segments, including passenger vehicles and two-wheelers, plummeting to an all-time low.

With slowing market, manufacturers have been forced to take drastic steps such as production cuts and in some cases even reduction in workforce. Elaborating on the steps being taken by the company to spur growth, Gupta said, it is taking various measures at the point-of-sales level like running customer-oriented schemes to help generate demand and increase footfalls in dealerships.

"Our efforts are guided in the direction of increasing retail sales and, therefore, all the schemes and promotions are towards increasing the throughput and also reducing the inventory," Gupta said.

Besides, the company has also extended the credit period in order to support the dealers, he added.

"We have also launched new brand campaigns for our premium product portfolio to drive engagement with customers. At our operations levels, we are looking at increasing our efficiencies and in line with that, we have recently launched a VRS (voluntary retirement scheme) option for our employees," Gupta said.

The scheme - which is valid till September 28 -- is applicable for employees who are at least 40 years of age and have completed a minimum of five years of continuous service at the company.