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DRIVEN BY PASSION A N N U A L R E P O R T 0 80 7
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PLEASURE GLAMOUR KARIZMA SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ
GLAMOUR FI SPLENDOR SUPER SPLENDOR
Hero Honda Motors Limited
34, Community Centre, Basant Lok,
Vasant Vihar, New Delhi-110 057, India
PH. 91-11-2614 2451, 2614 4121
PLEASURE GLAMOUR KARIZMA SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ X-TREME PLEASURE GLAMOUR GLAMOUR FI KARIZMA SPLENDOR SUPER SPLENDOR SPLENDOR PLUS SPLENDOR NXG ACHIEVER HUNK PASSION PASSION PLUS CD DELUXE CBZ
GLAMOUR FI SPLENDOR SUPER SPLENDOR www.herohonda.com
India and Bharat co-exist today. India comprises of fast-
growing cities and towns; Bharat is made up of villages
thentering the economic mainstream. As we enter our 25
year, we seek to walk and march with both India and Bharat.
0203
HCONTENT
Corporate Profile
Chairman’s Message
Board of Directors
Management Discussion & Analysis
Social Responsibility
Directors’ Report
Corporate Governance Report
FAQ’s
Auditors’ Report
Balance Sheet
Profit & Loss Account
Cash Flow Statement
US GAAP
04
10
14
16
18
24
28
32
36
43
47
71
74
78
79
80
115
Industry and Segment Dynamics
Results and Financial Analysis
Operation, Reach & Supply Chain
People And Environment
In some ways, Hero and Honda are like
two volumes of a single book. What has
made the book a bestseller is the fact
that right from the outset, the co-authors
knew the script they had to write in order
to be successful in the Indian market.
Over the course of two and a half
decades, both partners have fine-
tuned and perfected their roles. As the
largest motorcycle producer in the
world, Honda has been able to
consistently provide technical know-
how, design specifications and R&D
innovations to its most prolific affiliate in
the world, Hero Honda. This has led to
the development of world class, value-
for-money motorcycles and scooters
for the Indian market.
On its part, the Hero Group has taken on
the singular and onerous responsibility
of developing the supply chain,
ramping up production facilities, setting
up distribution networks and creating
customers.
Since both partners are completely
focused on their respective skills, they
have been able not just to complement
each other, but also draw from each
others strengths. In the process, Hero
Honda has gone on to create history, by
becoming one of the most successful
joint ventures in the world.
Today, every second motorcycle sold in
the country is a Hero Honda. There are
more than 22 million Hero Hondas on
“If your actions inspire others to dream more, learn more, do more and become more, you are a leader.”
CORPORATE PROFILE
Indian roads today. There are more
Hero Honda bikes on this country's
roads than the total population of some
European countries put together!
The company's growth in the two-
wheeler market in India is the result of an
intrinsic ability to increase reach in new
geographies and growth markets. Hero
Honda's motorcycles and scooters are
sold and serviced through a network of
over 3500 customer touch points.
These outlets comprise of a mix of
dealers, service centres and stockists
located across rural and urban India,
and with every passing year, the
network is augmented.
Hero Honda has built two world-class
manufacturing facilities at Dharuhera
and Gurgaon in Haryana. These two
units now churn out over 3 million bikes
per year. The company's third, and its
largest and most sophisticated plant at
Haridwar has also gone on-stream.
All this has happened in the span of just
two and a half decades!
Leaders create pathways where none
exist. In the 1980’s – much before
“green” became a fashionable word,
Hero Honda became the first company
in India to prove that it was possible to
drive a vehicle without polluting the
roads. The company introduced new
generation motorcycles that set
industry benchmarks for fuel thrift and
low emission.
0405
A legendary ‘Fill it - Shut it - Forget it'
campaign captured the imagination of
commuters across India and Hero
Honda sold millions of bikes purely on
the commitment of increased mileage.
Today, as Hero Honda enters its silver
jubilee year, a riveting ‘Dhak Dhak Go’
sets the tone for India's Gen Next, its
emerging classes and its aspiring
classes.
The true test of champions comes
when the going gets tough. Champions
show the way by doing the basic things
right. In a particularly difficult year, when
the rest of the motorcycle industry
shrunk by 14 per cent, Hero Honda has
protected its turf and has actually grown
its market share, by re-establishing a
lead of more than one million bikes over
its nearest rival.
Not one to rest on its laurels, the
company believes the best is yet to
come. Today, Hero Honda is powering
its way through a market that —despite
the short term hiccup—hasn't still
unleashed its true potential, since
barely 2 per cent of the population has
been penetrated so far.
Not surprisingly, the company is in no
mood to take its hand off the throttle. As
Brijmohan Lall Munjal, the Chairman,
Hero Honda Motors succinctly puts it,
"We pioneered India's motorcycle
industry, and it's our responsibility now
to take the industry to the next level. We'll
do all it takes to reach there.'’
0607
WE CELEBRATE EVENTS AND WE CELEBRATE TIME.
BUT OUR MOST IMPORTANT CELEBRATIONS, ARE OF ACHIEVEMENTS.
CHAIRMAN’S MESSAGE
1011
Dear Shareholders,
As I sat on the stage during the
inauguration of our third plant in April this
year, a fleeting thought crossed my thmind: have we really entered our 25
year?
I remembered vividly how we started a
quarter of a century ago: our first plant
came up in the wilderness. We used dirt
tracks to reach our factory. Yet here I
was, sitting in front of India's first
automobile factory that connects
vendors through conveyor belts!
Friedrich Nietzsche once famously
remarked: “For a tree to become tall, it
must grow tough roots along the
rocks''. As we enter our silver jubilee
year, we have shown how.
As interest rates climbed during the
year, the industry went into de-growth,
aga ins t a l l e xpec ta t i ons and
projections. Domestic motorcycle
sales shrunk by 12 per cent and for the
first time in more than a decade,
motorcycle's share of the overall two-
wheeler pie actually came down by
around 2 per cent.
For most of the two-wheeler industry
therefore, managing 2007-08 was like
trying to grow on rocky terrain. The sub-
soil was far from nourishing and the
business climate was harsh. Yet, strong
companies, like strong trees, learn to
adapt and adjust. They grow tough
roots along the rocks.
Marching with India and walking with Bharat—this, I believe, should be our leitmotif in our silver jubilee year.
We chose to see 2007-08 like a glass of half-full water; and we were able to make the most of adversity. Yet I would like to stress that the road ahead won't be entirely smooth.
Throughout the year in review, customers in the entry and executive segments began to postpone buying decisions. By the middle of the fiscal, effective interest rates for the two-wheeler industry hovered around 20 per cent.
Being motorcycle-centric, we were also affected. The high rates led to large-scale delinquencies and defaults in a number of regions. This in turn forced financiers to withdraw loan facilities in a number of dealerships.
High interest rates continue as I write this, but these are beyond our control. Nevertheless, the management is convinced it can, to an extent, control rampant delinquencies by partnering NBFC lenders with regional strengths and strong grassroot connections, instead of depending entirely on national level banks.
Though much smaller in size, regional non-banking financial companies are able to leverage their excellent domain knowledge on local borrowers. This ensures extremely low levels of non-performing assets. These NBFC’s could be our ideal finance partners, especially in smaller towns and rural areas, where national-level banks have poor distribution networks. We tied up with a regional financier during the year and hope to sew up more regional tie-ups in the months to come.
Inflation is another concern. While it is true that double-digit inflation of 11-12 per cent would certainly upset household budgets and postpone certain purchases, the rise in auto fuel prices might actually turn out to be a blessing in disguise for the two-wheeler industry. It is my belief that cost-effective and fuel-efficient modes of transport will become more popular. In fact, I will not rule out the possibility of a number of car-owning homes actually buying an additional two-wheeler to
reduce the impact of the monthly fuel bill on the household budget.
Since fuel prices are not expected to soften in the near term, fuel-efficient industries such as ours could be beneficiaries.
We will continue to be confident and aggressive about the future, we will also be patient. I read somewhere that patience is waiting. Not passively waiting - that is laziness; but to keep going when the going is hard and slow - that is real patience.
Yours sincerely,
Brijmohan LallChairman
Luckily, we weathered the storm -- and actually surpassed our tally of the previous year marginally. More significantly, your company boosted its share in the domestic motorcycle market to more than 54 per cent—the highest share in recent memory. As the year ended, your company led its nearest competitor in the domestic two-wheeler market by more than 1 million units.
I think it would be safe to summarise 2007-08 as the year in which we migrated from schemes to themes. Despite difficult market conditions, we resisted the temptation to bump up sales artificially through comprehensive festival-related discounts. Instead, we invested in new models and upgrades.
Our performance in the domestic premium segment gives me special satisfaction, since our share increased from 15 per cent to nearly 24 per cent. In my last message, I talked about our plans to consolidate our presence in this part of the market; we are clearly on track.
In my last message, I had said that we were taking measures to ensure that are profitability gets back on track.
Near-stagnant topline performance forced us to look inwards: at process efficiencies, at our supply chain and at our sales frontline. We tweaked, changed and rationalised where possible and managed to increase our operating margins from 11.9 per cent to 13.1 per cent.
Going forward, I expect our supply chain to become even leaner as ongoing online projects go live. I am happy to report that our online vendor connectivity program – which seeks to links our plant with vendor premises on a real-time basis-- has made rapid progress, with more than 70 per cent of vendors seamlessly integrated. Likewise, dealer management system software is also rolling out on a national basis very shortly.
In my last message, I had also said that the slowdown would be temporary. This year, when conditions are even more trying, I continue to hold this view. This company has coped with high interest
rates before. This company has coped with double-digit inflation before. So what we are seeing today is nothing extraordinary.
Of course, good times do not last forever—perhaps years of 30 per cent growth will become rare in the future. But just as good times don't last forever, nor do bad times. The current de-growth in the industry is also an aberration caused by external factors outside the control of the auto industry. It is not driven by fundamentals. Indeed, the ground conditions that drove this country and this company have not changed.
Two Indias exist today. Both excite me equally. By the end of this decade, India is expected to have an urban population of 173 million. This is significant, since urbanisation rises with GDP per capita in a “hockey stick” fashion.
I am equally excited about rural India. Government development schemes are finally showing signs of working at the grassroots—landless farmers from Uttar Pradesh and Bihar who traditionally migrated to Punjab to work are now demanding higher wages to come, since there is work available at home, for the first time. In 1990, for every Rs. 4300 earned by an Indian villager, an urbanite made Rs. 3526 more. Today, the difference has dropped to Rs. 2408. This is a clear sign of progress.
Increasingly, the rural economy is a microcosm of the national economy. Today, India's 700 million villagers now account for the majority of consumer spending in the country, more than Rs. 4300 billion a year. Millions step into consumerism each year, graduating from the economics of necessity to the economics of gratification, buying themselves products we make.
We in Hero Honda are actively seeking to be part of this miracle. In December 2007, we launched a unique national level rural connect program called Haar Gaon, Haar Aangan (every village, every house). It is my belief that this program, as it gains critical momentum in the years to come, it will sustain this company well into the next decade.
1213
BOARD OF DIRECTORS
For more information please visit www.herohonda.com
COMMITTEE OF DIRECTORS
Audit Committee
Pradeep DinodiaChairman
Gen. (Retd.) Ved Prakash MalikMember
Dr. Pritam SinghMember
SHAREHOLDERS'
GRIEVANCE COMMITTEE
Dr. Pritam SinghChairman
Pradeep DinodiaMember
REMUNERATION
COMMITTEE
Gen. (Retd.) Ved Prakash MalikChairman
Pradeep DinodiaMember
COMPLIANCE OFFICER
Ilam C. Kamboj G.M. Legal & Company Secretary
SENIOR MANAGEMENT TEAM
Ravi SudSr. Vice President & CFO
Anil DuaSr. Vice President-Sales,
Marketing and Customer Care
Vikram S. KasbekarPlants Head-Operations
and Supply Chain
Dr. Anadi S. PandeVice President-HRM, Corporate
Planning and Strategy
Vijay SethiVice President-Information Systems
1415
Brijmohan Lall MunjalChairman
Pawan MunjalManaging Director & CEO
Toshiaki NakagawaJoint Managing Director
Sumihisa FukudaTechnical Director (w.e.f. June 01, 2008)
Pradeep DinodiaNon-Executive and Independent Director
Gen. (Retd.) Ved Prakash MalikNon-Executive and Independent Director
Dr. Pritam SinghNon-Executive and Independent Director
Analjit Singh Non-Executive and Independent Director
Om Prakash MunjalNon-Executive Director
Masahiro TakedagawaNon-Executive Director
Sunil Kant MunjalNon-Executive Director
Takashi NagaiNon-Executive Director(w.e.f. May 11, 2007)
Ms. Shobhana BhartiaNon-Executive and Independent Director
Sunil Bharti MittalNon-Executive and Independent Director
Meleveetil DamodaranNon-Executive and Independent Director(w.e.f. June 16, 2008)
ALTERNATE DIRECTOR
Satoshi Matsuzawa(Alternate Director to Mr. Takashi Nagai)
OUTGOING DIRECTORS
Tatsuhiro OyamaNon-Executive Director
(upto May 11, 2007)
Dr. Vijay Laxman KelkarNon-Executive and Independent Director
(upto December 31, 2007)
Yutaka KudoWhole-time Director
(upto May 31, 2008)
Narinder Nath VohraNon-Executive and Independent Director
(upto June 24, 2008)
MANAGEMENT DISCUSSION & ANALYSIS
Industry And Segment DynamicsPerformance Across Segments
Results And Financial Analysis
Operations, Reach & Supply ChainManufacturing
Vendor Mangement
Distribution Network
Rural Network
People And EnvironmentThe Human Touch
Information Systems
Environment
Cautionary statement Statements in this management discussion and analysis describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the company's operations include significant changes in political and economic environment in India or key markets abroad, tax laws, litigation, labour relations and interest costs.
1617
In the previous year, there were early
signs that growth in the two wheeler
industry was slowing. Within the space
of a year, the pace of the fall has been
quite dramatic, and perhaps for the first
time since economic reforms started in
1991, India's domestic two wheeler
market entered a period of de-growth.
The industry clocked total volumes of
8.03 million during the year in review, a
fall of nearly 5 per cent compared to the
previous year. The picture was bleaker
in the domestic market, where the
industry clocked sales of 7.19 million, a
decline of 8 per cent.
While the motorcycle industry continues
to dominate the structure of the two
wheeler industry, this category's
contribution to the domestic two
wheeler industry actually declined
during the year from 83 per cent to a little
over 79 per cent—a clear symptom of
the ongoing slowdown. In fact, this is
the first time since the early nineties
since motorcycles’ share of the two
wheeler market has actually declined;
reversing a consistently growing trend
from the previous year.
In contrast, there was another trend
reversal during the year. After appearing
to go into decline since the early 1990s,
the scooter market clocked a revival of
sorts during the year. After suffering at
the hands of motorcycles for many
years, scooter sales in the domestic
market as a percentage of motorcycle
sales actually increased from 12.4 per
cent to 14.8 per cent.
As in previous years, the three price
points in the motorcycle segment
continued to grow at different paces.
Dark clouds had started gathering in the
entry segment during the previous year,
with sales of entry level bikes growing at
just 5 per cent. During the year in review,
the entry segment in the domestic
market shrunk visibly from over 36 per
cent of total motorcycle sales to around
30 per cent. In just two years, the entry
segment's share in the total motorcycle
mix has declined by 10 percent.
This sharp decline shows the clear
impact of interest rates on two wheeler
buyers at the entry level. Interest rates
started firming up in early 2007, and
have shown no signs of letting up ever
since; the slump in the entry segment
has coincided with this rise. This is an
indication that the entry segment is very
interest elastic, and buyers in this
segment (SEC B and C) react to higher
interest rates perhaps by either
postponing or cancel l ing their
purchase decisions.
Rising interest rates impacted the
deluxe segment of the motorcycle
industry as well, albeit to a lesser extent.
It was a matter of some irony that even
where all the major players in the
executive segment clocked an overall
decline in numbers, the executive
segment's share of the domestic
motorcycle market actually increased
by 4.4 per cent. The executive segment
now makes up nearly 57 per cent of the
motorcycle segment, compared to
52.5 per cent in the previous year. Quite
obviously, the decline of the entry
segment has been so sharp, that the
absolute reduction in executive
segment sales has translated into a
relative increase in the executive
segment's overall share in the
motorcycle mix.
The premium segment was the only
category of motorcycles that managed
to actually increase absolute sales in a
sharply declining market. Sales in the
domestic market for this segment
actual ly increased by 2.2 per
cent—while the premium segment's
overall share of the motorcycle market
increased from 11.1 per cent to 13 per
cent. This shows that of the three
segments the interest effect has
affected premium buyers the least. This
isn't surprising, considering that buyers
in the premium segment mostly fall in
the SEC A category, who are the least
likely to postpone purchase decisions
on account of an increase in the EMI.
At a broader level, there is no real cause
for alarm in the executive segment or
the premium segment, despite the
current decline and slowdown.
According to the National Council of
Applied Economic Research (NCAER)
in 2001-02, there were 61 million
Indians belonging to families that
“A leader leads by example, whether he intends to or not.”
INDUSTRY AND
SEGMENT DYNAMICS
1819
earned more than Rs. 2 lacs a year; by
2005-06, that number had crossed 100
million. In 2009-10, this number is
projected to increase to 173 million. It is
safe to assume that the bulk of the
buyers from these segments will opt for
either entry or deluxe segment
motorcycle offerings. On the other
hand, it has now been established
beyond doubt that a large chunk of
entry segment buyers will continue to
react when there is a spike in interest
rates. In other words, two wheeler
makers have few options but to ride out
the difficult times.
Performance Across Segments
Hero Honda's sales in the entry
segment declined by over 6 per cent;
the same as the rest of the motorcycle
industry. However, even in a declining
market Hero Honda's share of entry
segment went up from 28.7 per cent to
36.6 per cent—a clear indication that
sales of manufacturers in the entry
segment shrank substantially. In
contrast, Hero Honda was able to limit
the damage and in the process
increased its market share. Hero Honda
now finds itself in a situation to turn a
position of relative weakness into a
position of strength.
Hero Honda's story in the executive
segment was similar. Compared to the
previous year, sales of executive
segment bikes in the domestic market
were down 1.18 per cent. However, the
company still maintained its iron-grip in
this—the largest segment of the two
wheeler market -- by increasing its
share from 68.9 per cent to 71.5 per
cent.
Hero Honda turned in its best
performance in the domestic market's
premium segment, where its sales went
up by a whopping 69 per cent
compared to the previous year. In 2006-
07, Hero Honda had grown 25 per cent
in this segment.
In the course of a single year, the
company increased its share of the
overall premium motorcycle segment
by more than 8 percent; the company's
premium bikes now account for 23.5
per cent of the total premium pie. Given
the pace of growth of this segment
against the backdrop of a young and
affluent middle class. There is no doubt
that this segment will drive Hero
Honda's growth in the future.
2021
FOR US, EVERY CELEBRATION IS ENJOYABLE BECAUSE IT IS DIFFERENT.
WHAT MAKES THEM MEMORABLE, ARE THE PEOPLE WE CELEBRATE WITH.
• Sales :
Despite a slow down in the two
wheeler industry, the annual sales
of the Company grew at 0.01 per
cent. Hero Honda clocked sales
volume of 3,337,142 units in 2007-
08 compared to 3,336,756 units in
2006-07. In value terms total sales
(net of excise duty) increased by
4.4 per cent to Rs.10332 crores
from 9900 crores in 2006-07.
• Profitability :
The Company's earnings before
interest depreciation and taxes
(EBITDA) margins increased from
11.9 per cent in 2006-07 to 13.1 per
cent in 2007-08 and the Operating
profit (PBT before other income)
increased by 16.0 per cent from
Rs.1056 crores in 2006-07 to
Rs.1225 crores in 2007-08. The
improvements on the margins was
accomplished through better sales
realisations and effective cost
rationalisation measures which
included better control over
Material cost, Marketing cost,
Overheads apart from sharp focus
on operational efficiencies.
• Other Income :
Other income marginally declined
by 2.3 per cent from Rs. 190 crores
in 2006-07 to Rs.185 crores in
2007-08.
• Cash Flows :
Despite the nominal growth in sales
turnover, better efficiencies in the
working capital management has
improved the cash flow from
operations from Rs 625.05 crores
to 1211.78 crores. Cash flows
before working changes have also
improved from Rs 1227.60 crores
to Rs 1392.56 crores on account of
better EBITDA margins.
The Company spent a total of
Rs.781 crores in investing activities,
which included capacity expansion
and investment in financial assests.
There was also an outflow of
Rs. 432 crores on account of liberal
dividend outflows.
• Capital Expenditure :
During the year the Company
incurred a capital expenditure of
Rs.375 crores. The funds were
used towards setting up of new
plant at Haridwar in Uttrakhand. The
aggregate capital outlay for the new
production facility is estimated at
Rs.460 crores which has been
funded over the last two financial
years.
• Raw Material Costs:
Due to softening metal prices
particularly Aluminum & Nickel in
s e c o n d h a l f o f t h e y e a r
accompanied with better sales
realisation in comparison to the
previous year the share of material
costs has reduced the overall cost
structure. Raw material costs as a
percentage of total sales declined
from 72.5 per cent in 2006-07 to
71.6 per cent in 2007-08.
• Current Asset Turnover:
This ratio, which shows sales as a
proportion of average current
assets, marginally decreased from
11.4 to 11.2, on account of higher
average inventory & bank balance.
DEBT STRUCTURE
Hero Honda has been a debt free
company for the last 7 years. The
unsecured loan of Rs.132 crore from
the state government of Haryana on
account of sales tax deferment, is
interest free and has no holding costs.
Net interest payment by the company
has been negative during the last few
years.
2425
OPBT - PBT before other income PBT - Profit before tax PAT - Profit after tax
PATOPBT
RESULTS
AND
FINANCIAL
ANALYSIS
DIVIDEND POLICY
Over the years, the Company has
consistently followed a policy of paying
high dividends, keeping in mind the
cash-generating capacities, the
expected capital needs of the business
and strategic considerations. For 2007-
08, the board has recommended a
dividend of 950 per cent which is higher
than 850 per cent declared in the
previous year. The payout ratio has for
the year been pegged at 45.9 per cent
vis-a-vis 46.3 per cent in the previous
year.
WORKING CAPITAL MANAGEMENT
Hero Honda has always endeavored to
efficiently use the various components
of working capital cycle. Despite the
adverse conditions in the two wheeler
industry, the Company has been able
to effectively control the receivable and
inventories enabling it to continue to
operate on negative working capital.
As a part of its cost rationalization drive,
the Company aggressively availed
cash discounts from vendors by
making payments before due dates.
This not only helped us improve
operating profit margins but also
allowed the Company to deploy the
surplus funds in the core business.
NOTES ON WORKING CAPITAL :
The average of inventory, receivables and payables have been taken for the calculations of inventory period , operating and cash cycle.
Table 1: WORKING CAPITAL MANAGEMENT & LIQUIDITY RATIOS
2005-06 2006-07 2007-08
Operating Cycle (Days) 14.9 17.9 21.2
Current Ratio 0.74 0.84 0.68
Inventory Period (Days) 10.5 10.4 11.9
Cash Cycle (Days) (23.9) (12.2) (10.6)
Acid Test Ratio 0.54 0.59 0.45
Table 2: Key Indicators of Profitability
2006-07 2007-08
OPBT/Sales (%) 10.7 11.9
PBT/Sales (%) 12.6 13.6
ROACE (%) 51.6 49.0
OPBDIT/Sales (%) 13.1
PBIT/Sales (%) 12.4 13.3
PAT/Sales (%) 8.7 9.4
ROAE (%) 38.3 35.5
11.9
Net Cash Flow From Operations(Rs. in Crores)
03-04 04-05 05-06 06-07 07-08
800
600
400
200
1000
0
1200
1400
12
53
97
110
76
81
090
7
72
8
10
56
85
8
04-05 05-06 06-0703-04 07-08
12
25
96
8
1200
900
600
300
0
PROFITS(Rs. in Crores)
1500
WITH EVERY STEP, WE EMBRACE THE WINDS OF CHANGE.
AT EVERY BEND, WE RIDE UPON THE GROUND OF OPTIMISM.
FOR US, LIFE IS A CELEBRATION.
OPERATIONS, REACH
& SUPPLY CHAIN“Price is what you pay. Value is what you get”
Manufacturing
Hero Honda commissioned its third,
plant at Haridwar during the year, with an
initial installed capacity of 500,000 units.
With this new capacity expansion,
HHML now has an overall annual
capacity of 4.5 million two wheelers.
With this, the Company has become a
global-scale manufacturer.
The Haridwar complex is the largest of
the three Hero Honda plants, spanning
about 275 acres.
The plant has lean manufacturing and
practices that ensure efficiency. It is
connected with vendors through
conveyors so that the material can
avoid multiple handling and is delivered
on time.
The Haridwar plant is one of the
greenest automobile plants in the
country. Effluents are minimised, and
there is zero discharge on liquid
effluents. All waste is treated and
consumed within the factory.
The plant has 70 per cent of its area as
green open spaces, and approximately
45,000 square metres of the plant roof
area is being converted into a green
roof.
Vendor Management
Vendor management is critical to Hero
Honda, as nearly 73 per cent of the
production is currently made up of
material cost. During the year, the
company managed an average cost
reduction of Rs. 343 per vehicle despite
volatility in metal prices.
A national network of 256 vendors
- including 36 ancillaries - forms the
backbone of its plant operations.
To improve plant efficiencies and
inventory turns, Hero Honda has
extended "Just in Time” (JIT) beyond
the shopfloor. Vendors are also making
critical investments in quality and
capacity in collaboration with the
Company. For example, the online
vendor connectivity program has made
rapid progress. Three years ago, the
Company had only 46 vendors
connected online to the company's
factories. By the end of 2008-09, it is
estimated that 72 per cent of the
vendors and their supplies would be
connected online.
Around 100 ancillaries will be setting up
their manufacturing base in Haridwar
over the next two years to ensure a fully
integrated supply chain. To begin with,
40 ancillaries will set up their facility in
the Industrial Parks that are being
specially developed for Hero Honda
ancillaries. During 2008-09, Hero
Honda plans to work with vendors to
develop new vendor production
facilities. 3PL service providers have
also been identified for the Haridwar
plant— a first for any two-wheeler
company in India.
2829
3031
As part of an ongoing exercise aimed at
quality control, members of senior
management visited vendor premises
for top quality audits. This has resulted
in the reduction of rejection parts per
million (PPM) by 20 per cent.
During the year, the company launched
a collaborative cost improvement
program with vendors. In this
programme the processes and
methods are continuously toned so that
the material cost can be managed
better. Hero Honda is also evaluating
horizontal deployment of third party
logistic services providers (3PL) to
manage costs along the supply chain
better.
In 2008-09, the Company plans to
further study and tactfully optimise its
supply chain. As part of this plan, raw
materials will be optimised so that the
best possible cost advantages accrue
to the company.
Distribution Network
The company has a conscious strategy
of penetrating new markets and
unrepresented territories through its
distribution network which is made up
of dealers, authorized representatives,
stockists and SSPs. In March 2001, the
company had 826 such customers
points in India. By March 2008, this
number went up to over 3500. On an all
India basis, 50 dealers, 150 SSPs, 267
dealers representatives and 45 city
work agents were added. All the four
marketing zones of the Company
showed a uniform increase in new
customers points during the year in
review.
Rural Network
During the year, Hero Honda's
ambitious rural connect program— Har
Gaon, Har Aangan also got underway. A
total of 18,000 villages were covered
out of the targeted 23360 villages with a
population of 5,000 people. In all, more
than 100,000 opinion leaders in these
villages were approached. The rural
initiative was carried out by 500
specially trained rural sales executives
at the dealership level.
PEOPLE AND ENVIRONMENT“Pupils should not be taught. Instead, they should be
provided conditions in which they can learn.”
The Human Touch
Hero Honda is continuously making
efforts to create a talent pipeline and to
develop potential leaders.
The Company encourages regular
feedback for phasing-in process
improvement and aligning employee's
goals with business objectives. The
detailed feedback process entered its
fourth year in 2007-08 through the
“Gallup Q12 Employee Engagement
Study”. The findings from Gallup have
already helped managers in building
mutual trust and foster teamwork. In the
process, this is helping make Hero
Honda a better workplace.
At Hero Honda's new plant at Haridwar,
a number of best practices have been
put in place. A flatter organization
structure has been created, policies
and guidelines have been framed and
communicated, and job rotation was
made mandatory for level migration. An
assessmen t cen t re was a l so
introduced to evaluate competency
during level migration.
During the year, an i-LEAP (Individual
Learning Excellence and Award
Program) was started for recognising
the best training projects, and to identify
internal trainers. A number of new in-
house programs were also rolled out, in
order to augment and upgrade existing
work-related and technology-related
skills.
Hero Honda has traditionally enjoyed
excellent industrial relations. Union
elections during the year went off
smoothly and the union body was
formed amicably. To ensure smooth
functioning at the plant, shop floor in-
charges were empowered to deal with
grievances and discipline issues. At
another level, a biometric attendance
monitoring systems (to avoid proxy
punching) has been started.
Information Systems
A number of key technology initiatives
were either initiated or completed in
2007-08. The application infrastructure
of the organization was extended to
support business processes at the new
production facility at Haridwar. This is
expected to be operational in 2008-09.
During the year, the organisation's entire
n e t w o r k w a s r e v a m p e d a n d
redundancies were built to support
business users. The IT team also
deployed applications for sending real
time business alerts related to
production, sales, service notifications
automatically from the system using
SMS technology. This helped business
users immensely.
This real time system was also used by
business partners to manage their
dispatches and outstandings. To
improve productivity, a number of
applications with work flow capabilities
were developed or enhanced. Also
during the year, the entire information
security policies of the organization
were revamped in order to mitigate
risks.
A new eco-friendly state-of-the-art data
centre was set up and Hero Honda
migrated to a new technology
architecture that included blade servers
and virtualization. This would help
consolidate servers and storage as well
as reduce complexity.
To help Hero Honda prepare for the
future, two major strategic initiatives are
being planned for 2008-09. The first is
Product Li fecycle Management
software. This will help the company in
managing the increase of complexity of
a diverse product portfolio and help
reduce cost and time for developing
new models. The new software is also
expected to improve and scale up
design-level collaboration with vendors
on an on-line basis. The software is also
expected to reduce warranty costs.
The second initiative comprised of
rolling out a Dealer Management
System software across the front end of
the supply chain. This will help Hero
Honda connect with its entire dealer
network. Once the project is complete,
it is expected to improve customer
service and supply chain performance
extensively.
Environment
For a number of years, Hero Honda has
b e e n o n e o f I n d i a ' s m o s t
environmentally sustainable firms. The
company believes that to create a
sustainable enterprise, it is critical to
3233
strike the right balance between
business, mankind and nature.
The Company has ensured complete
compliance with al l applicable
env i ronmenta l regulat ions and
practices. For its efforts, Hero Honda
was awarded for Safety Performance
and Best working condition and
Canteen facilities in the plant by the
Government of Haryana for 2007. The
Company has also been nominated for
the Green Manufacturer of the year
under the TERI Corporate Award
Scheme.
A green vendor development program
w a s l a u n c h e d o n t h e Wo r l d
Environment Day June 5, 2007. A green
charter was released giving specific
guidelines to the vendors and
suppliers. A total of 31 vendors were
selected in the first phase and in all, 256
vendors will be covered and certified as
green vendors over a period of 5 years.
Each vendor will initiate EARN programs
in the areas of pollution prevention,
waste reduction, water conservation,
energy conservation and statutory
compliances. Each vendor will be
evaluated and certified cluster wise.
During the year, an environmental plan
to reduce hazardous waste from the
pol lut ion control faci l i t ies was
developed. As much as 30% of sludge
generated was reduced through a
sludge decanter system. The company
also increased the conversion rate of
paint sludge into useful primer from 15
MT to 25MT per month.
Hero Honda has also successfully
developed primer from the waste paint
sludge, which used to be incinerated
earlier. This development has been
demonstrated to the state authorities,
and the Company is seeking
authorization to use this practice on a
regular basis. The converted primer has
already been used on the products,
wh ich has passed a l l qua l i ty
parameters.
To fulfill its commitment towards water
conservation, a recycling plant of 400KL
per day capacity with reverse osmosis
technology has been installed which
recycles the sewage effluent into the
process at the Haridwar plant. A similar
project has also under progress at the
Dharuhera plant and this is likely to be
completed in 2008.
The plant has been improved by adding
a forced draft ventilation system. An
additional local exhaust system was
provided in the weld shop and vehicle
testing area to minimize the effects of
airborne contaminants. Electrostatic
precipitators were also installed in the
machine shop to capture the aerosoles
at source and prevent exposure of the
workmen.
Since the state of Haryana is one of the
driest in the country, Hero Honda has
always emphasized heavily on ground
water recharging. During the year, 2
more injection wells were added,
covering an additional area of 4500 Sq
metres. In all, Hero Honda now as 25
injection wells in the plants. Also during
the year, an exhaustive feasibility study
was conducted to extend the Rain
Water Harvesting Scheme for Roads
and other pucca surfaces in the plants.
The project will be executed in 2008-09.
Hero Honda Motors takes considerable pride in its community relationships, especially ones at the grassroots that have evolved over time. The Company has played a pivotal role in bringing an economically and socially backward region in Dharuhera, Haryana, into the national economic mainstream through direct interventions in education,
healthcare, vocational training, creation of social and physical infrastructure, and environment management.
Most of the group's social enterprises – including the Rural Development Centre-- are planned and executed by the Raman Kant Munjal Foundation.
To help local people, especially women, Hero Honda has set up a vocational training centre which runs a 6 months Diploma Course for Tailoring, Embroidery and carpet weaving, etc. During the year in review, the Centre was upgraded. It now trains 50 girls per batch up from 25 & the duration of the course was increased from six months
to 9 months. The Centre has also been equipped with modern machines to prepare the girls for the Garment Export Industry, where placement is 100%.
Also during the year, women from four villages near the factory at Dharuhera benefitted from food-processing
courses conducted at the Centre.
In February 2007, the Foundation had set up a computer training & learning centre in partnership with Microsoft. A total of 8 to 10 batches (boys and girls) are run simultaneously consisting of 18-20 students per batch. Till date, close to 400 students have been trained at the centre.
To enhance the value of rural youth in the job market, a spoken English course was started during the year. Currently the course is being run in three Batches during the day. It is proposed to train approx 120 students per year. The Foundation will make an effort to
SOCIAL RESPONSIBILITY“Life laughs at you when you are sad; smiles at youwhen you are happy. But life salutes you when you
make others happy.”
3637
place them with BPO/Call Centres, provided the students also have the requisite computer training.
A vocational centre for boys is expected to start during 2008-09 and will run on the lines of an ITI. The centre will provide training in Fitter, Welding, Carpentry and Plumbing & Electrician Trades. It is planned to train approx. 50 students every year, and efforts will be made to accommodate them in g roup companies.
The Foundation also runs an Adult Literacy Program, a marriage facilitation service for underprivileged girls, besides doorstep healthcare programs and medical camps for the local population. A graduate teacher from the targeted village is appointed to teach the elders. Approx 650 people have benefited from this scheme spread over 20 villages.
In every CSR Project undertaken, the Foundation always involves either a local NGO preferably the village itself or panchayat members not only during execution but also for subsequent sustainability/maintenance of project. In certain areas such as computer learning by rural youth Udyan Care, a reputed NGO has been made a partner in association with Microsoft.
In Projects like Hygiene, Sanitation & Safe Drinking Water, Local Government Representatives such as Block Development Off icers are also involved.
EV/Yr. End Capital Employed (Times) 6.3 5.4 5.9 4.5 3.6
DIRECTORS’ REPORT
On behalf of the Board, I take immense pleasure on presenting the 25th Annual Report of the Company. The report is being presented along with the
Audited Statement of Accounts for the financial year ended March 31, 2008.
FINANCIAL RESULTS
For the year ended
March 31, 2008 March 31, 2007
Gross Sales 12,038.53 11,542.04
Net Sales and other Income 10,517.22 10,089.81
Profit before Finance charges
and Depreciation 1,534.79 1,362.89
Less: Finance charges (35.81) (22.99)
Depreciation 160.32 139.78
Profit before tax (PBT) 1,410.28 1,246.10
Less: Provision for tax
- Current 436.81 375.81
- Deferred 1.20 9.42
- Fringe Benefit Tax (FBT) 4.39 2.98
Profit after tax (PAT) 967.88 857.89
Add: Balance of profit brought forward 1,594.78 1,224.05
Balance available for appropriation 2,562.66 2,081.94
Appropriations
Dividend
- Proposed Final 379.41 339.47
Corporate Dividend Tax 64.48 57.69
Transfer to General Reserve 97.00 90.00
Balance carried to Balance Sheet 2,021.77 1,594.78
Dividend (%) 950 850
Basic and Diluted Earnings Per Share (EPS) (Rs.) 48.47 42.96
(Rupees in crores)
4243
A N N U A L R E P O R T 0 80 7
4445
BUSINESS PERFORMANCE
Your Company defied a process of de-growth in the industry and
achieved cumulative sales of 33,37,142 units of two-wheelers. In the
process, Hero Honda consolidated its leadership position in domestic
two-wheeler market with more than 52 per cent market share. The
Company successfully launched seven new models including
variants during the year under review.
On the financial front, total income (net of excise duty) of the Company
grew by 4.2 per cent from Rs. 10, 090 crores in previous year to
Rs. 10,517 crores during 2007-08. The Company posted a net profit
(PAT) of Rs. 968 crores, compared to Rs. 858 crores in the previous
fiscal, a growth of 13 per cent. Despite the increasing pressure on
inputs, your Company was able to maintain EBIDTA margins at 13.1
per cent, compared to 11.9 per cent in the previous year.
During the year, Hero Honda also retained, for the seventh year in a row,
its position as the World's Number One Two Wheeler Company. During
2007-08, your Company achieved another landmark of reaching
cumulative sales of 20 million bikes.
In the course of the year, your Company launched new models
(including variants) including Splendor NXG, Hunk, New Super
Splendor, New Passion Plus, Commemorative Splendor+ and a
refreshed version of Pleasure.
A detailed discussion on the business performance and future outlook
has been given in the chapter on Management Discussion & Analysis
Report.
DIVIDEND
Few manufacturing companies in the Indian corporate sector have a
better dividend pay out record than Hero Honda. We have
recommended a Dividend of 950 per cent i.e. Rs.19 per equity share of
Rs. 2 aggregating to Rs. 379.41 crores (exclusive of corporate
dividend tax) for your approval for the financial year ended March 31,
2008. The dividend, if approved, will be paid to the eligible members
well within the stipulated period.
Our dividend policy is in line with our strong and consistent belief that if
funds are not re-invested for capital investments, they should be
optimally distributed to shareholders.
TRANSFER TO GENERAL RESERVE
A sum of Rs. 97 crores have been transferred to the General Reserve of
the Company. This reaffirms the inherent financial strength of the
Company.
NEW MANUFACTURING FACILITY AT HARIDWAR
Your Company inaugurated its third plant - the "Shrine of Technology" in
the holy city of Haridwar in Uttarakhand. The plant has an initial
production capacity of 0.5 million units which would be scaled up to a
million units by 2008-end. The total capital outlay on the new
manufacturing facility has been around Rs. 375 crores. The new plant
will employ flexible production techniques enabling production of
different models in the Company's portfolio. In addition to
manufacturing for the domestic market, the plant will also cater to
export requirements.
MATERIAL CHANGES AND COMMITMENTS
No material changes and commitments affecting the financial position
of the Company have occurred between April 1, 2008 and the date on
which this Report has been signed.
BOARD OF DIRECTORS
During the period under review, Mr. Tatsuhiro Oyama resigned from
directorship on May 11, 2007 and Mr. Takashi Nagai was appointed as
an Additional Director in Non-Executive Category on May 11, 2007.
Further, Dr. Vijay Laxman Kelkar has resigned from directorship on
December 31, 2007.
Mr. Satoshi Matsuzawa was appointed as an Alternate Director to Mr.
Takashi Nagai w.e.f. April 24, 2008. Mr. Yutaka Kudo, Whole-time
Director of the Company resigned from both the offices i.e. Director &
Whole-time Director w.e.f. May 31, 2008. Mr Sumihisa Fukuda was
appointed as an Additional and Technical Director in the whole-time
employment of the Company in his stead on June 1, 2008. Mr. M.
Damodaran was appointed as an Additional Director in the Non-
Executive and Independent Category w.e.f. June 16, 2008. Mr.
Narinder Nath Vohra has resigned from Directorship w.e.f. June 24,
2008.
The Board place on record their sincere appreciation and gratitude for
the work put in by the out going members, and wishes them a
rewarding and satisfying career ahead. The Directors also welcome
the new members on the Board and wish them a successful and fruitful
tenure with the Company.
At the ensuing Annual General Meeting, Ms. Shobhana Bhartia,
Mr. Sunil Bharti Mittal, Mr. Masahiro Takedagawa and Mr. Pradeep
Dinodia will retire by rotation and being eligible, offer themselves for
re-appointment in terms of provisions of Articles of Association of the
Company. The brief resume/details relating to Directors, who are to be
appointed and re-appointed has been furnished after the Explanatory
Statement to the Notice of the ensuing Annual General Meeting.
Your Directors recommend their re-appointment at the ensuing Annual
General Meeting.
DIRECTORS' RESPONSIBILITY STATEMENT
To the best of their knowledge and belief and according to the
information and explanations obtained by them, your Directors make
the following statement in terms of Section 217(2AA) of the Companies
Act, 1956:
1. that in the preparation of the annual accounts for the year ended
March 31, 2008, the applicable accounting standards have been
followed;
2. that appropriate accounting policies have been selected and
applied consistently and judgements and estimates that are
reasonable and prudent have been made so as to give a true and
fair view of the state of affairs as at March 31, 2008 and of the profit of
the Company for the financial year ended March 31, 2008;
3. that proper and sufficient care has been taken for the maintenance
of adequate accounting records in accordance with the provisions
of the Companies Act, 1956 for safeguarding the assets of the
Company and for preventing and detecting fraud and other
irregularities;
4. that the annual accounts for the year ended March 31, 2008 have
been prepared on a going concern basis.
MANAGEMENT DISCUSSION & ANALYSIS REPORT
A detailed chapter on, 'Management Discussion and Analysis'(MDA),
pursuant to Clause 49 of the Listing Agreement forms part of this
Report.
CORPORATE GOVERNANCE
At Hero Honda, it is our firm belief that the essence of Corporate
Governance lies in the phrase 'Your Company'. It is 'Your' Company
because it belongs to you - the shareholders. The Chairman and
Directors are 'Your' fiduciaries and trustees. Their objective is to take the
business forward in such a way that it maximises 'Your' long-term value.
Your Company is committed to benchmark itself with global standards
for providing good Corporate Governance and has put in place an
effective Corporate Governance System which ensures that the
provisions of Clause 49 of the Listing Agreement are duly complied
with.
The Board has also evolved and adopted a Code of Conduct based
on the principles of Good Corporate Governance and best
management practices being followed globally. The Code is available
on the website of the Company www.herohonda.com. A report on
Corporate Governance along with the Auditors' Certificate on its
compliance is annexed hereto as Annexure - I.
INTERNAL CONTROL SYSTEMS
Hero Honda has a proper and adequate system of internal controls.
This ensures that all assets are safeguarded and protected against
loss from unauthorised use or disposition and those transactions are
authorised, recorded and reported correctly.
An extensive programme of internal audits and management reviews
supplement the process of internal control. Properly documented
policies, guidelines and procedures are laid down for this purpose.
The internal control system has been designed so as to ensure that the
financial and other records are reliable for preparing financial and other
statements and for maintaining accountability of assets.
The Company also has an Audit Committee, comprising of three
Independent, Non-Executive and professionally qualified Directors,
who interact with the Statutory Auditors, Internal Auditors, Cost Auditors
and Auditees in dealing with matters within its terms of reference. The
Committee mainly deals with accounting matters, financial reporting
and internal controls. During the year under review, the Committee met
nine times.
AUDIT COMMITTEE RECOMMENDATION
During the year there was no such recommendation of the Audit
Committee which was not accepted by the Board. Hence, there is no
need for the disclosure of the same in this Report.
RISK MANAGEMENT SYSTEM
Your Company follows a comprehensive system of Risk Management.
Your Company has adopted a procedure for assessment and
minimization. It ensures that all the Risks are timely defined and
mitigated in accordance with the well structured risk management
Process. The Audit Committee reviews periodically the risk
management process.
RATINGS
The rating agency ICRA Limited, has reviewed and reaffirmed the
ratings assigned to the Company for its Non-convertible Debenture
Programme as LAAA indicating the highest credit quality, A1+ for its
Non-fund based facilities and LAAA to Fund based facilities. These
ratings indicate the highest credit quality carrying lowest credit risk.
Another rating agency CRISIL reviewed and assigned AAA/Stable
rating to the bank loan and P1+ rating to the Cash Credit Limit & Letter
of Credit Limit Facility.
Further, CRISIL also has reaffirmed the 'GVC 1' rating assigned to the
Company for the third consecutive time. This governance and value
creation (GVC) rating indicates that the company's capability with
respect to creating wealth for all its stakeholders while adopting sound
corporate governance practices is the highest. The rating reflects the
high standards of corporate governance practised by your Company.
A N N U A L R E P O R T 0 80 7
4647
FIXED DEPOSITS
During the year under review, the Company has not accepted any
deposit under Sections 58A and 58AA of the Companies Act, 1956
read with the Companies (Acceptance of Deposits) Rules, 1975.
AUDITORS
M/s. A. F. Ferguson & Co., Chartered Accountants, New Delhi, Auditors
of the Company will retire at the conclusion of the ensuing Annual
General Meeting and being eligible, offer themselves for re-
appointment. The Company has received a certificate from the
auditors to the effect that their re-appointment, if made, would be in
accordance with Section 224(1B) of the Companies Act, 1956.
The Board recommends their re-appointment.
AUDITORS' REPORT
The observations of Auditors in their report, read with the relevant notes
to accounts are self explanatory and therefore do not require further
explanation.
COST AUDITORS
The Board has re-appointed M/s. Ramanath Iyer & Co., Cost
Accountants, New Delhi, as the Cost Auditors of the Company under
Section 233B of the Companies Act, 1956 for the financial year
2008-09 and necessary application for obtaining the requisite approval
has been filed with the Government. The Cost Auditors' Report for
2007-08 will be forwarded to the Central Government in pursuance of
the provisions of the Companies Act, 1956.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION,
FOREIGN EXCHANGE EARNINGS AND OUTGO
Information required under Section 217(1)(e) of the Companies Act,
1956, read with Companies (Disclosure of Particulars in the Report of
the Board of Directors) Rules, 1988 is given as per Annexure - II and
forms an integral part of this Report.
LISTING
The shares of your Company are presently listed on Bombay Stock
Exchange Limited (BSE) and National Stock Exchange of India Limited
(NSE). The delisting application, was in-principle approved by the
Committee of the Calcutta Stock Exchange Association Limited, the
formal approval is awaited and is expected to be received in due
course of time.
PERSONNEL
As on March 31, 2008 the total number of employees on the records of
the Company were 4321.
Your Directors place on record their appreciation for the significant
contribution made by all employees, who through their competence,
dedication, hard work, co-operation and support have enabled the
Company to cross new milestones on a continual basis.
A detailed note is given in the chapter "Human Resource Management"
of Management Discussion & Analysis, which forms part of this Annual
Report.
PARTICULARS OF EMPLOYEES
Information of Particulars of Employees as required under Section
217(2A) of the Companies Act, 1956 read with the Companies
(Particulars of Employees) Rules, 1975 forms an integral part of this
Report. As per the provisions of Section 219(1)(b) of the Companies
Act, 1956, the Report and Accounts are being sent to the shareholders
of the Company excluding the statement of particulars of employees
under Section 217(2A) of the Companies Act, 1956. Any shareholder
interested in obtaining a copy of such statement may write to the
G.M. Legal & Company Secretary at the Registered Office of the
Company.
ACKNOWLEDGMENT
It is our strong belief that caring for our business constituents has
ensured our success in the past and will do so in future. Your Directors
acknowledge with sincere gratitude the co-operation and assistance
extended by the Central Government, State Government(s), Financial
Institution(s), Bank(s), Customers, Dealers, Vendors and Ancillary
Undertakings. The Directors also place on record their appreciation for
the valuable assistance and guidance extended to the Company by
Hero Cycles Limited and Honda Motor Co., Ltd., Japan and for the
encouragement and assurance, which our collaborator has given for
the growth and development of the Company.
The Board, also, takes this opportunity to express its deep gratitude for
the continued co-operation and support received from its valued
shareholders.
For and on behalf of the Board
Brijmohan Lall Munjal
Chairman
New Delhi
July 29, 2008
ANNEXURE - I TO DIRECTORS' REPORT
CORPORATE GOVERNANCE REPORT
Philosophy on 'Code of Corporate Governance'
Hero Honda's philosophy of Corporate Governance stems from its belief that the Company's business strategy and plans should be consistent with the welfare of all its stakeholders, including shareholders. Good Corporate Governance practices enable a Company to attract financial and human capital and leverage these resources to maximize long-term shareholder value, while preserving the interests of multiple stakeholders, including society at large.
Corporate Governance rests upon the four pillars of: transparency, full disclosure, independent monitoring and fairness to all, especially to minority shareholders. Hero Honda has always strived to promote Good Governance practices, which ensure that:
• A competent management team is at the helm of affairs;
• The Board is strong with an optimum combination of Executive and Non-Executive (including Independent) Directors, who represent the interest of all stakeholders;
• The Board is effective in monitoring and controlling the Company's affairs;
• The Board is concerned about the Company's shareholders; and
• The Management and Employees have a stable environment.
We believe that the essence of Corporate Governance lies in the phrase "Your Company". It is "Your" Company because it belongs to you - the shareholders. The Chairman and Directors are "Your" fiduciaries and trustees. Their objective is to take the business forward to maximise "Your" long-term value.
The Securities and Exchange Board of India (SEBI) has specified certain mandatory governance practices, which are incorporated in Clause 49 of the Listing Agreement of Stock Exchanges.
Hero Honda is committed to benchmark itself with the best standards of Corporate Governance, not only in form but also in spirit. This section, along with the section on 'Management Discussion & Analysis' and 'General Shareholder's Information' constitute Hero Honda's compliance with the Clause 49 of the Listing Agreement.
BOARD OF DIRECTORS
Composition of the Board
As on March 31, 2008, the Company's Board of Directors consisted of fifteen Directors. Four Directors, including the Chairman, are Executive; four are Non-Executive and seven are Non-Executive and Independent. The fifty per cent of the Board consists of Independent Directors including Dr. Vijay Laxman Kelkar, Non-Executive and Independent Director, who resigned from the directorship of the Company w.e.f. December 31, 2007, the vacancy has been filled within the prescribed 180 days with the appointment of Mr. M. Damodaran, as Non-executive and Independent Director, therefore the composition of the Board is in consonance with the Clause 49. Details of the composition of the Board, number of meetings held during their tenure and attended by them etc., are given in Table 1.
A N N U A L R E P O R T 0 80 7
Number of Board Attendance at Number of Committee Number of Committee Number of outside Meetings held during last AGM Memberships Chairmanships held Directorships heldhis/her tenure and (including Chairman
Name of Director attended by him/her ships) held
Held Attended (excluding Private Companies, Foreign Companies andSection 25 Companies)
Executive Directors
Mr. Brijmohan Lall Munjal 6 6 Yes None None 8
Mr. Pawan Munjal 6 6 Yes None None 1
Mr. Toshiaki Nakagawa 6 6 Yes None None 1
Mr. Yutaka Kudo 6 6 Yes None None 1
Non-Executive Directors
Mr. Om Prakash Munjal 6 Nil No None None 10
Mr. Sunil Kant Munjal 6 5 Yes None None 14
Mr. Masahiro Takedagawa 6 3 Yes 1 None 2
1Mr. Tatsuhiro Oyama 1 Nil N.A. None None 1
2Mr. Takashi Nagai 5 Nil No None None Nil
Non-Executive and
Independent Directors
Mr. Narinder Nath Vohra 6 3 Yes 2 1 1
Mr. Pradeep Dinodia 6 6 Yes 7 5 8
Gen. (Retd.) Ved Prakash Malik 6 4 Yes 4 None 3
Mr. Analjit Singh 6 2 No None None 12
Dr. Pritam Singh 6 3 Yes 3 None 5
3Dr. Vijay Laxman Kelkar 5 2 Yes 4 None 13
Ms. Shobhana Bhartia 6 2 No 2 2 14
Mr. Sunil Bharti Mittal 6 1 No None None 8
TABLE 1: DETAILS ABOUT COMPANY'S BOARD OF DIRECTORS / ATTENDANCE RECORD DURING FINANCIAL YEAR 2007-08 Four Directors namely Mr. Brijmohan Lall Munjal (Executive Chairman in the whole-time employment of the Company), Mr. Pawan Munjal (Managing Director & CEO), Mr. Om Prakash Munjal (Non-Executive Director) and Mr. Sunil Kant Munjal (Non-Executive Director) belong to the promoter family of the Hero Group, which owns 26 per cent equity in the Company. Four Directors namely Mr. Toshiaki Nakagawa (Joint Managing Director), Mr. Yutaka Kudo (Whole-time Director), Mr. Masahiro Takedagawa (Non-Executive Director) and Mr. Takashi Nagai (Non-Executive Director) are nominees of Honda Motor Co., Ltd., Japan, which too, owns 26 per cent equity in the Company. Apart from these, the rest of the Board constitutes of Non-Executive and Independent Directors.
Board Meetings
During 2007-08, the Board of Directors met 6 (six) times on May 11, 2007; May 31, 2007; July 24, 2007; September 18, 2007; October 18, 2007 and January 31, 2008.
The longest gap between any two Board Meetings was for a period of 3 months and 13 days.
Directors' Attendance Record and Directorships / Committee Memberships
Details are given in Table 1.
As per Clause 49 of the Listing Agreement entered into with the Stock Exchange(s), an Independent Director means a Non-Executive Director who;
• apart from receiving director's remuneration, does not have any material pecuniary relationships or transactions with the Company, its promoters, its directors, its senior management, its holding Company, its subsidiaries or associates which may affect independence of the director;
• is not related to promoters or persons occupying management positions at the board level or at one level below the board;
• has not been an executive of the company in the immediately preceding three financial years;
• is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company and has not been a partner or an executive of any such firm for the last three years and the legal firm(s) and consulting firm(s) that have a material association with the entity.
• is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the Director;
• is not a substantial shareholder of the Company i.e. owning two percent or more of the block of voting shares.
None of the Director on the Board holds the office of Director in more than 15 companies nor are they members in Committees of the Board in more than 10 Committees or Chairman of more than 5 Committees.
Notes:1. Mr. Tatsuhiro Oyama has resigned from his Directorship on May 11, 2007. 2. Mr. Takashi Nagai was appointed as an Additional Director on the Board w.e.f. May 11, 2007.3. Dr. Vijay Laxman Kelkar has resigned from the Directorship on December 31, 2007.4. Mr. Yutaka Kudo has resigned from his Directorship and Whole-time Directorship on May 31, 2008.5. Mr. Narinder Nath Vohra has resigned from the Directorship on June 24, 2008.
Further, there are no pecuniary relationships or transactions between the Independent Directors and the Company, except for the sitting fees drawn by the Non-executive Directors and sitting fees and commission drawn by the Non-executive and Independent Directors for attending the meeting of the Board and its Committee(s) thereof.
Shareholding of Non-Executive Directors
Name of the Director Category No. of shares held
Mr. Om Prakash Munjal Non-Executive 25,000Director
Mr. Sunil Kant Munjal Non-Executive 32,500Director
Apart from the above, none of the Non-Executive (including Independent) Directors hold any shares (as own or on behalf of other person on beneficial basis) in the Company.
Information Supplied to the Board
Board members are given agenda papers along with necessary documents and information in advance of each meeting of the Board and Committee(s). However, in case of business exigencies or urgency of matter, the resolutions are passed by way of circulation. In addition to the regular business items, the following items/ information are regularly placed before the Board to the extent applicable:
• Annual operating plans and Budgets, Capital budgets and updates;
• Purchase and disposal of major fixed assets;
• Quarterly and half yearly results of the Company;
• Minutes of the Audit Committee, Shareholders' Grievance Committee, Remuneration Committee and Committee of Director's meetings;
• Information on recruitment and remuneration of senior management just below the Board level including appointment or removal of CFO and Company Secretary;
• Any material defaults in financial obligations to and by the Company, or substantial non-payments for goods sold by the Company;
• Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems;
• Transactions that involve substantial payment towards goodwill, brand equity or intellectual property;
• Materially important show cause, demand, prosecution and penalty notices;
• Details of quarterly foreign exchange exposures and steps taken by the management to limit the risks of adverse exchange rate movement;
• Sale of material nature, of investments and assets, which are not in the normal course of business;
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• Details of Joint Ventures and Agreements or variations thereof;
• Quarterly Statutory Compliance Report;
• Non-compliance of any regulatory, statutory nature or listing requirements and shareholder's service such as non-payment of dividend, delay in share transfer etc.;
• Investments strategy/plan;
• Any issue which involves possible public or product liability claims of substantial nature, including any judgment or order which may have passed strictures on the conduct of the Company or taken an adverse view regarding another enterprise that can have negative implications on the Company; and
• Significant labour problems and their proposed solutions. Also, any significant development in Human Resources/Industrial Relations front like signing of Wage Agreement, implementation of Voluntary Retirement Schemes etc.
Code of Conduct
We at Hero Honda have laid down a code of conduct for all Board members and senior management of the Company. The code of conduct is available on the website of the Company www.herohonda.com. The code has been circulated to all the members of the Board and senior management and they have affirmed compliance with the code of conduct. A declaration signed by the Chief Executive Officer (CEO) to this effect is attached to the Annual Report.
Risk Management
We at Hero Honda have established an effective risk assessment and minimization procedures, which are reviewed by the Board periodically. There is a structure in place to identify and mitigate various risks faced by the Company from time to time.
BOARD LEVEL COMMITTEES
AUDIT COMMITTEE
The genesis of Hero Honda's Audit Committee can be traced back to the Audit Sub-Committee, constituted in 1987. Since then it has been dealing with matters prescribed by the Board of Directors on a case to case basis. In general, the primary role/objective of the Audit Committee is to review the financial statements of the Company, strengthen internal controls & look into all transactions having monetary implications on the functioning of the Company. The nomenclature, constitution and terms of reference of the Committee were revised on January 16, 2001 and an Audit Committee was set up as per the provisions of the Section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement of the Stock Exchange(s).
As on March 31, 2008, the Committee had four Non-Executive and Independent Directors in accordance with the prescribed guidelines. Mr. Pradeep Dinodia, a leading Chartered Accountant, is the Chairman of the Committee. The other members are Dr. Pritam Singh,
Gen.(Retd.) Ved Prakash Malik and Mr. Narinder Nath Vohra, all learned personalities in their respective fields. The members of the Committee have adequate knowledge in the field of finance, accounting, and law. The role and "terms of reference" of the Audit Committee includes the following:
• Overseeing
- the Company's financial reporting process and disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible.
• Recommending
- the appointment, re-appointment, replacement and removal of the statutory auditor, fixation of audit fees and approving payments for any other services.
• Reviewing
- with the management the annual financial statements with primary focus on matters required to be included in the Directors' Responsibility Statement, changes, if any in accounting policies and practices and reasons thereof, compliance with accounting standards and guidelines of stock exchange(s), major accounting entries, qualifications in draft audit reports, related party transactions & the going concern assumption.
- with the management, the quarterly financial statements before submission to the board for approval.
- the adequacy of internal control systems and the internal audit function and reviewing the Company's financial and risk management policies.
- the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board.
- the reports furnished by the internal auditors, discussion with internal auditors on any significant findings and ensuring suitable follow up thereon.
- Directors' overseas traveling expenses.
- foreign exchange exposure.
• Complying
- with the provisions of listing agreement laid down by the Stock Exchange(s) and legal requirements concerning financial statements.
• Discussing
- with external auditors before the audit commences, of the nature and scope of audit. Also post audit discussion to ascertain any area of concern.
• Looking
- into the reasons for substantial defaults in the payments to the shareholders (in the case of non-payment of declared dividends) and creditors.
The Sr. Vice President & CFO, Internal Auditors, Statutory Auditors and Cost Auditors attend the meetings of the Committee on the invitation of the Chairman. Mr Ilam C. Kamboj, G.M. Legal & Company Secretary acts as the Secretary of the Committee.
During the year, 9 (Nine) meetings of the Audit Committee were held on April 09, 2007; April 23, 2007; May 11, 2007; July 24, 2007; September 18, 2007; September 28, 2007; October 18, 2007; December 14, 2007; and January 29, 2008 in due compliance with the stipulated provisions. The attendance record of members of the Audit Committee is given in Table 2.
TABLE 2: DETAILS OF THE AUDIT COMMITTEE
Name of committee Position No. of meetings No. of meetingsmember held held during attended
his tenure
Mr. Pradeep Dinodia Chairman 9 9
Gen. (Retd.) V.P. Malik Member 9 7
Dr. Pritam Singh Member 9 7
Mr. N.N.Vohra Member 9 7
REMUNERATION COMMITTEE
The Company had set up a Remuneration Committee on January 16, 2001 to review and recommend the payment of annual salaries, commission, and finalise service agreements and other employment conditions of Executive Directors. The Committee takes into consideration the best remuneration practices being followed in the industry while fixing appropriate remuneration packages.
As on March 31, 2008, the Committee had three Non-Executive and Independent Directors as its members in accordance with the prescribed guidelines. Gen. (Retd.) Ved Prakash Malik, is the Chairman of the Committee. The other members are Mr. Narinder Nath Vohra and Mr. Pradeep Dinodia. Mr. Ilam C. Kamboj, G.M. Legal & Company Secretary acts as the Secretary of the Committee.
During the year the committee did not meet, as there was no business to transact.
Remuneration Policy
Remuneration paid to Executive Directors
The remuneration paid to Executive Directors is recommended by the Remuneration Committee and approved by the Board of Directors, in the Board meeting, subject to the subsequent approval by the shareholders at the general meeting and such other authorities, as the case may be.
At the Board meeting, only the Non-Executive and Independent Directors participate in approving the remuneration paid to the Executive Directors. The remuneration is fixed considering various factors such as qualification, experience, expertise, prevailing remuneration in the corporate world and the financial position of the Company. The remuneration structure comprises of Basic Salary, Commission, Perquisites and allowances, Contribution to provident fund and other funds. Besides these, a fixed commission @ 1 per cent of net profit computed in accordance with Section 198 of the Companies Act, 1956, is paid as per the terms of appointment.
As of now, the Company does not have any Employee Stock Options Plans (ESOPs). Term of appointment of Executive Director is 5 (five) years. Further, no notice period and severance fee is applicable for the above-mentioned Executive Directors.
Remuneration paid to Non-Executive Directors
The Non-Executive Directors of the Company are paid sitting fees of Rs. 16,500 for each meeting of the Board, Audit Committee, Remuneration Committee and Shareholders' Grievance Committee attended by them.
However, in addition to the sitting fees, Non-executive and Independent Directors shall be entitled to remuneration by way of commission upto 0.10 per cent of profits of the Company for every
thfinancial year as approved by the members at their 24 Annual General Meeting held on July 24, 2007.
Tables 3 and 4 gives details of remuneration paid to Directors. During 2007-08, the Company did not advance any loans to any of its Directors.
TABLE 3: REMUNERATION TO EXECUTIVE DIRECTORS
Executive Directors Salary* (Rs.) Commission Fixed ** (Rs.) Total (Rs.)
Mr. Brijmohan Lall Munjal 97,99,178 14,78,25,000 15,76,24,178
Mr. Pawan Munjal 95,32,492 14,78,25,000 15,73,57,492
Mr. Toshiaki Nakagawa 41,91,795 14,78,25,000 15,20,16,795
Mr. Yutaka Kudo 34,29,869 14,78,25,000 15,12,54,869
Notes:* Salary includes Basic Salary, Perquisites and allowances, Contribution to provident and other funds.** Total Commission is calculated @ 1% of the net profit calculated in accordance with Section 198 of the Companies Act, 1956.
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TABLE 4: REMUNERATION TO NON-EXECUTIVE DIRECTORS
Non-Executive Directors Sitting fees (Rs.) Commission (Rs.) Total (Rs.)
Mr. Sunil Kant Munjal 82,500 N.A. 82,500
Mr. Pradeep Dinodia 3,13,500 11,50,000 14,63,500
Mr. N.N. Vohra 2,31,000 7,50,000 9,81,000
Gen.(Retd.) V.P. Malik 1,81,500 6,50,000 8,31,500
Dr. Pritam Singh 2,14,500 6,13,000 8,27,500
Mr. Analjit Singh 33,000 1,00,000 1,33,000
Ms. Shobhana Bhartia 33,000 1,00,000 1,33,000
1Dr. Vijay L. Kelkar 33,000 1,00,000 1,33,000
# #Mr. Sunil Bharti Mittal Nil Nil
#Mr. Masahiro Takedagawa Nil N.A. Nil
No sitting fee was paid to Mr. Om Prakash Munjal, Mr. Tatsuhiro Oyama (Director upto May 11, 2007) & Mr. Takashi Nagai (Director w.e.f. May 11, 2007) as they did not attend any of the meetings of the Board held during the financial year 2007-08.
# Mr. Sunil Bharti Mittal & Mr. Masahiro Takedagawa have opted not to receive sitting fees which were accrued to them on account of attending the meetings of the Board.
1 Dr. Vijay Laxman Kelkar has resigned from the Directorship w.e.f. December 31, 2007.
SHAREHOLDERS' GRIEVANCE COMMITTEE
This Committee, constituted on January 16, 2001, specifically looks into redressal of shareholders' and investors' grievances arising out of issues regarding share transfers, dividends, dematerialisation and related matters. As on March 31, 2008, the Committee had three Non-Executive and Independent Directors in accordance with the prescribed guidelines. Mr. Narinder Nath Vohra, is the Chairman of the Committee. The other members are Dr. Pritam Singh and Mr. Pradeep Dinodia. Mr. Ilam C. Kamboj, G.M. Legal & Company Secretary acts as the Secretary of the Committee.
The Company has an efficient system of dealing with investors' grievances. The Chairman and the Managing Director & CEO of the Company take personal interest in all matters of concern for investors as and when necessary. The Company Secretary being the Compliance Officer carefully looks into each issue and reports the same to the Shareholders' Grievance Committee. In the meetings of the committee the status of all shareholders' complaints, requests etc. alongwith letters received from all statutory authorities were reviewed.
During the year, 4 (four) meetings of the Shareholders' Grievance Committee were held on April 09, 2007; July 24, 2007; October 18, 2007 and January 29, 2008.
Details of shareholders complaints and their status are given in the section on "General Shareholder's Information". The attendance record of members of the Shareholders' Grievance Committee is given in Table 5.
TABLE 5: DETAILS OF SHAREHOLDERS' GRIEVANCE COMMITTEE
Name of committee Position No. of meetings No. of meetingsmember held held during attended
his tenure
Mr. N.N. Vohra Chairman 4 4
Mr. Pradeep Dinodia Member 4 4
Dr. Pritam Singh Member 4 3
COMMITTEE OF DIRECTORS
Apart from these Committees, the Company also has a Committee of Directors. As on March 31, 2008, the Committee comprised of Mr. Brijmohan Lall Munjal, Chairman; Mr. Pawan Munjal, Managing Director & CEO; Mr. Toshiaki Nakagawa, Joint Managing Director; Mr. Yutaka Kudo, Whole-time Director, Mr. Ravi Sud, Sr. Vice President & CFO and Mr. Ilam C. Kamboj, G.M. Legal & Company Secretary as its members.
Constituted in 1985, the Committee deals with matters delegated by the Board from time to time.
This Committee meets whenever required. During the year under review 4 (four) meetings of the Committee were held.
SHARE TRANSFER COMMITTEE
This Committee was constituted on January 31, 2007 as a measure of Good Corporate Governance practice and to streamline the work related to share transfer etc. which was earlier approved by the Committee of Directors. Mr. Ravi Sud, Sr. Vice President & CFO and Mr. Ilam C. Kamboj, G.M. Legal & Company Secretary are its members.
This Committee meets whenever required. During the year under review 35 (thirty five) meetings of the Committee were held.
DISCLOSURES
Related Party Transactions
The Company follows the following policy in disclosing the related party transactions to the Audit Committee:
a) A Statement in the Summary form of transactions with related parties in the ordinary course of business is placed periodically before the Audit Committee.
b) There are no material individual transactions with related parties, which are not in the normal course of business and which are not on an arm's length basis.
Disclosures on materially significant related party transactions that may have potential conflict with the interest of the company at large.
There are no materially significant transactions made by the Company with its promoters, Directors or Management or relatives etc. that may have potential conflict with the interest of the Company at large.
Accounting Treatment in preparation of Financial Statements
The guidelines/accounting standards laid down by the Institute of Chartered Accountants of India (ICAI) have been followed in preparation of the financial statements of the Company. Compliances by the Company
There has neither been any non-compliance of any legal provision of applicable law, nor any penalty, stricture imposed by the stock exchanges or SEBI or any other authorities, on any matters related to capital market during the last three years.
Insider Trading
In compliance with the SEBI regulation on prevention of insider trading, the Company has instituted a comprehensive code of conduct for its management, staff and relevant business associates. The code lays down guidelines, which advises them on procedures to be followed and disclosures to be made, while dealing with shares of the Company and cautioning them on consequences of non-compliances.
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5455
Year Time, Day, Date & Location Summary of Resolutions Passed 2006-07 10:30 A.M.
Tuesday, July 24, 2007,Airforce Auditorium, Subroto Park, Dhaula Kuan, New Delhi 110010
2005-06 04:30 P.M.Thursday, September 14, 2006,Airforce Auditorium, Subroto Park, Dhaula Kuan, New Delhi 110010
2004-05 10:00 A.M.Tuesday, August 23, 2005,Airforce Auditorium, Subroto Park, Dhaula Kuan, New Delhi 110010
GENERAL BODY MEETINGS
Details of Annual General Meeting (AGM)
Location, date and time of general meetings held during the last three years and Ordinary and Special resolutions passed thereat are given in Table 6.
Pursuant to the provisions of Section 192A of the Companies Act, 1956, there was no matter as required to be dealt by the Company to be passed through postal ballot.
TABLE 6: DETAILS OF AGM'S
CEO & CFO CERTIFICATION
Certificate from Mr. Pawan Munjal, Managing Director & CEO and Mr. Ravi Sud, Sr. Vice President & CFO in terms of Clause 49(V) of the Listing Agreement for the year under review was placed with the Board of Directors of the Company in their meeting held on April 24, 2008. A copy of the same certificate on the financial statements for the financial year ended March 31, 2008 and the Code of Conduct is given along with this Report.
APPOINTMENT AND RE-APPOINTMENT OF DIRECTORS
Ms. Shobhana Bhartia, Mr. Sunil Bharti Mittal, Mr. Masahiro Takedagawa and Mr. Pradeep Dinodia, Directors of the Company, retire by rotation at the ensuing Annual General Meeting (AGM) and being eligible, offer themselves for re-appointment.
Further, since the last AGM, Mr. Sumihisa Fukuda and Mr. M. Damodaran were appointed as Additional Directors on the Board of the Company and has been proposed to be appointed as Directors by the shareholders at the ensuing AGM of the Company.
The brief resume of the said Directors proposed to be appointed and re-appointed is given alongwith the Notice of the AGM being sent along with the Annual Report.
MEANS OF COMMUNICATION
The Company has regularly sent, both by post as well as by fax (within 15 minutes of closure of the Board meeting) the annual audited as well as quarterly un-audited results to both the Stock exchanges, BSE & NSE, after they are taken on record by the Board of Directors.
The Company's half yearly results (period ended September 30, 2007) and annual results (year ended March 31, 2008) have been published in English, Hindi and other Regional newspapers (viz. The Times of India, The Economic Times, Hindustan Times, Financial Express, The Mint, Navbharat Times, Mumbai Mirror and Financial Times).
Results for the quarter ended June 30, 2007 and December 31, 2007 have been published in English, Hindi and other Regional newspapers (viz. The Economic Times, The Times of India, The Hindustan Times, Financial Times, Mumbai Mirror, Bangalore Mirror, Ahmedabad Mirror, Financial Express and Jansatta). Further, the Company's quarterly, half yearly and annual results have also been sent to the individual shareholders of the Company. Results for each quarter, half year and annual results for the year ended March 31, 2008 have been displayed on the Company's website www.herohonda.com. The website also displays official news releases and distribution schedule, as required by Clause 35 of the Listing Agreement.
Moreover, pursuant to Clause 51 of the Listing Agreement, financial information like annual and quarterly financial statements and shareholding pattern etc. are available on the SEBI web-site www.sebiedifar.nic.in. The Company Secretary being the Compliance Officer ensures the correctness and authenticity of the information filed in the said website.
During the year ended March 31, 2008, various presentations were made to analysts and Institutional investors. Further, the Management Discussion & Analysis (MDA) Report, throwing light on the operations, business performance, financial and other important aspects of the Company's functioning forms part of this Annual Report.
Ordinary Resolutions• Appointment of Mr. Yutaka Kudo as Director and Whole-time Director.• Appointment of Mr. Takashi Nagai as Director.
Special Resolution• Payment of commission to Non-Executive Independent Director(s).
Ordinary Resolutions• Appointment of Mr. Sunil Bharti Mittal as Director.• Appointment of Mr. Toshiaki Nakagawa as Director and Joint Managing Director.• Appointment of Mr. Masahiro Takedagawa as Director.• Re-appointment of Mr. Pawan Munjal as Managing Director.
Special Resolutions• Re-appointment of Mr. Brijmohan Lall Munjal as Chairman and Director in the
Whole-time employment of the Company.• Keeping of Registers/Returns/ Documents at the Registered Office.
Ordinary Resolutions• Appointment of Mr. Analjit Singh as Director.• Appointment of Dr. Pritam Singh as Director. • Appointment of Ms. Shobhana Bhartia as Director.• Appointment of Dr. Vijay Laxman Kelkar as Director.• Appointment of Mr. Miki Yamamoto as Director and Joint Managing Director.• Appointment of Mr. Takao Eguchi as Director and Whole-time Director.• Appointment of Mr. Motohide Sudo as Director.
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GENERAL SHAREHOLDER'S INFORMATION
Annual General Meeting
Date: September 25, 2008
Day: Thursday
Time: 11:00 A.M.
Venue: Airforce Auditorium, Subroto Park,
Dhaula Kuan, New Delhi 110010
Financial Calendar
Financial year: April 1 to March 31
For the year ended March 31, 2008 results were announced on:
First quarter ended June 30, 2007 July 24, 2007
Second quarter and half year ended September 30, 2007 October 18, 2007
Third quarter ended December 31, 2007 January 31, 2008
Fourth quarter and year ended March 31, 2008 April 24, 2008
For the year ending March 31, 2009, results will be announced on: (Tentative and subject to change)
First quarter ending June 30, 2008 July, 2008 (4th week)
Second quarter and half year ending September 30, 2008 October, 2008 (3rd week)
Third quarter ending December 31, 2008 January, 2009 (3rd week)
Fourth quarter and year ending March 31, 2009 April, 2009 (3rd week)
Book closure
The dates of book closure are from Thursday, September 11, 2008 to Thursday, September 25, 2008 (both days inclusive).
Dividend payment
The Board of Directors has recommended 950 per cent dividend for the financial year 2007-08. The dividend, if approved by shareholders at the ensuring AGM shall be paid to those shareholders whose names appear on the Register of Members as on Thursday, September 25, 2008. In respect of shares held in electronic form, the dividend will be payable to the beneficial owners of the shares as on the closing hours of business on Wednesday, September 10, 2008 as per the details furnished by the Depositories for this purpose.
Listing on Stock Exchange
As on March 31, 2008, the securities of the Company are listed on the following exchanges:
1. Bombay Stock Exchange Limited, (BSE) based at Phiroz thJeejeebhoy Towers, 25 Floor, Dalal Street, Mumbai 400 001; &
2. National Stock Exchange of India Limited, (NSE) based at
Further, the Company had applied for delisting of its shares from The Calcutta Stock Exchange Association Limited (CSE) and complied with the procedural formalities for the same immediately after the approval received from the shareholders, but the final approval of the same is still awaited. However, the in-principal approval has been received after the grant of approval by the De-listing Committee of the CSE.
Listing Fees
Listing fees for the year 2008-09 has been paid to the stock exchanges, wherein the equity shares of the Company are listed (i.e. BSE & NSE) within the stipulated time.
Stock Codes
The Company's stock codes at the primary exchanges are:
Stock Code Reuters Code Bloomberg
BSE 500182 HROH.BO HH IN
NSE HEROHONDA HROH.NS NHH IN
Stock Market Data
The Company's market capitalisation is included in the computation of the BSE -100, BSE - 200, BSE - 500, BSE Sectoral Indices, S&P CNX Nifty, S&P CNX 500 and CNX 100. Monthly high and low quotations as well as the volume of shares traded at the National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE) is given in Table 7.
HERO HONDA’S SHARE PRICE MOVEMENT VIS A VIS NIFTY (Monthly High)
TABLE 7: SHARE PRICE DATA FOR 2007-08 (IN RS.) (SHARES OF RS. 2 PAID UP VALUE)
National Stock Exchange of India Limited, Mumbai (NSE)
Month Total High Date Volume on Low Date Volume onVolume that date that date
Table 8 lists the distribution of Shareholding by number of shares held and Shareholding Pattern in percentage (pursuant to Clause 35 of the Listing Agreement) as on March 31, 2008.
TABLE 8:
No. of shares held (Rs.2 paid up) Folios Shares of Rs. 2 paid up
Numbers % Numbers %
Upto 500 39189 79.64 3833856 1.92
501 - 1000 7634 15.51 5782140 2.90
1001- 5000 1872 3.80 3661189 1.83
5001-10000 153 0.31 1067062 0.53
10001- 50000 180 0.38 4465555 2.24
50001 and above 178 0.36 180877698 90.58
TOTAL 49206 100.00 199687500 100.00
Shareholding Pattern
Category Category of Number of Total number Number of Total shareholding code shareholder shareholders of shares shares held in as a percentage of
dematerialized form total number of shares
As a As a percentage percentageof (A+B) of (A+B+C)
(A) Shareholding of Promoter and Promoter Group
(1) Indian(a) Individuals/ Hindu 59 4044715 361365 2.03 2.03
The shares of the Company are traded in compulsory demat segment. As on March 31, 2008, 68.40 per cent of the total share capital is held in dematerialised form with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL). During the year under review, share certificates involving 5,26,11,075 shares of Rs. 2 each, were dematerialised by the shareholders. These represent 26.35 percent of the total share capital of the Company.
Outstanding GDR's/ADR's/Warrants or any Convertible Instruments Conversion Date and likely impact on equity
Not Applicable
Details of Public Funding obtained in the last three years
The Company has not obtained any public funding in the last three years.
TABLE 9: COMPLAINTS/REQUESTS RECEIVED AND REDRESSED DURING 2007-08
Sl. No Nature of Complaints / Requests Received Cleared Pending
1. Non receipt of shares 159 158 1
2. Request for issue of duplicate shares 104 104 0
3. Non receipt of dividend warrant 352 352 0
4. Change of address 354 354 0
5. Mandate cases/bank description 187 187 0
6. Miscellaneous (Shares) 2070 2070 0
Registrar & Transfer Agents
All work related to Share Registry, both in physical form and electronic form, is handled by the Company's Registrar and Transfer Agents. Company has appointed M/s. Karvy Computershare Private Limited as the Registrar & Share Transfer Agent of the Company in place of M/s. MCS Limited w.e.f. June 1, 2007.
The Share Transfers (pertaining to shares in physical mode) are approved by the Share Transfer Committee which meets regularly on a weekly/fortnightly basis. The total number of shares transferred during
(c) Central Government/ State Government(s)(d) Venture Capital Funds(e) Insurance Companies 18 14867980 14867980 7.45 7.45(f) Foreign Institutional Investors 261 49208761 49170561 24.64 24.64(g) Foreign Venture Capital Investors(h) Any Other (Foreign Banks)
i. Individual shareholders holding 47238 13885673 9186764 6.95 6.95nominal share capital up to Rs. 1 lakh.ii. Individual shareholders holding 5 1070315 65650 0.54 0.54nominal share capital in excess of Rs. 1 lakh.
TOTAL (A)+(B) 49206 199687500 136586590 100.00 100.00(C) Shares held by Custodians and against 0 0 0 0.00 0.00
which Depository Receipts have been issued
GRAND TOTAL (A)+(B)+(C) 49206 199687500 136586590 100.00 100.00
Contd... the financial year 2007-08 were 83,586 which were completed in the prescribed period. Shares under objection were returned within two weeks time.
Confirmations in respect of the requests for dematerialisation of shares are being sent to the respective depositories i.e. NSDL & CDSL expeditiously.
COMPANY'S REGISTERED ADDRESS34, Community Centre, Basant Lok, Vasant Vihar, New Delhi 110 057Tel: 011 2614 2451, 2614 4121Fax: 011 2615 3913website: www.herohonda.com
NON-MANDATORY REQUIREMENTSThe Company has not adopted the non-mandatory requirements as specified in Annexure - 3 of the Listing Agreement except clause (b) relating to Remuneration Committee.
Investors' Correspondence may be addressed toMr. Ilam C. Kamboj, G.M.-Legal & Company Secretary, e-mail: [email protected] or to the Registrar & Transfer Agents i.e Karvy Computershare Pvt. Ltd. e-mail: [email protected]
Queries Relating to the Financial Statements of the Company may be addressed toMr. Ravi Sud, Sr. Vice President & CFO, e-mail: [email protected]
For and on behalf of the Board
Brijmohan Lall
Chairman
July 29, 2008New Delhi
Investors' Services
The Company has Board Level Committees dealing with investor issues, which have been discussed in detail earlier. Table 9 lists the complaints/requests/reminders received and redressed during 2007-08. During the financial year, the Company has attended to most of the investors' grievances/correspondence within a period of 10-15 days from the date of receipt of the same.
A N N U A L R E P O R T 0 80 7
CERTIFICATE
TO THE MEMBERS OF HERO HONDA MOTORS LIMITED
We have examined the compliance of conditions of Corporate Governance by Hero Honda Motors Limited for the year ended March 31, 2008, as stipulated in clause 49 of the Listing Agreement of the said Company with stock exchanges.
The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company.
In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the abovementioned Listing Agreement.
We state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company.
For A .F. FERGUSON & CO. Chartered Accountants
Manjula BanerjiPartner(Membership no. 86423)
Place: New DelhiDate: July 29, 2008
CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER OF THE COMPANY
We, Pawan Munjal, Managing Director & Chief Executive Officer (CEO) and Ravi Sud, Sr. Vice President & Chief Financial Officer (CFO) of Hero Honda Motors Limited, to the best of our knowledge and belief certify that:
1. We have reviewed the Balance Sheet and Profit and Loss Account of the Company for the year ended March 31, 2008 and all its schedule and notes on accounts, as well as the Cash Flow Statement.
2. To the best of our knowledge and information:
a. these statements do not contain any materially untrue statement or omit to state a material fact or figures or contains statement that might be misleading;
b. these statements together present a true and fair view of the Company's affairs and are in compliance with existing accounting standards, applicable laws and regulations.
3. We also certify, that based on our knowledge and the information provided to us, there are no transactions entered into by the Company, which are fraudulent, illegal or violate the company's code of conduct.
4. We are responsible for establishing and maintaining internal controls and procedures for the Company, and we have evaluated the effectiveness of the Company's internal controls and procedures.
5. We have disclosed, based on our most recent evaluation, wherever applicable, to the company's auditors and through them to the audit committee of the Company's Board of Directors:
a. Significant changes in internal control during the year;
b. Any fraud, which we have become aware of and that involves Management or other employees who have a significant role in the Company's internal control systems;
c. Significant changes in accounting policies during the year.
We further declare that all board members and senior management have affirmed compliance with the code of conduct for the year 2007-08.
For Hero Honda Motors Ltd. For Hero Honda Motors Ltd.
CERTIFICATE OF CEO & CFO
New Delhi,April 24, 2008
Pawan Munjal Managing Director & CEO
Ravi SudSr. Vice President & CFO
6263
A N N U A L R E P O R T 0 80 7
6465
ANNEXURE - II TO DIRECTORS' REPORT
Information Under Section 217(1)(e) of the Companies Act, 1956 read
with Companies (Disclosure of Particulars in the Report of Board of
Directors) Rules, 1988 and forming part of the Directors' Report for the
year ended March 31, 2008 ;
I. CONSERVATION OF ENERGY
a) Energy conservation measures taken and their impact
- Power consumption has been reduced with the following
measures taken during the year under review:
Additional Investments and Proposals being implemented for
reduction of consumption of energy
For the reduction in power consumption the following measures has
been envisaged and planned for:
•
Hero Honda Motors Limited has always recognised the importance of
energy. Energy is a vital resource for industrialization and economic
growth but also is responsible for factors leading to climate change. By
reducing emissions, energy conservation is an important part of
lessening climate change. Energy conservation is often the most
economical solution to energy shortages and is a more
environmentally benign alternative to increased energy production.
The company has BEE trained energy managers who are continuously
working to curb the wasteful usage of energy and adopting
equipments with better energy efficiency.
• Installation of VFD on air supply unit in paint shop - saving
energy 71000 KWH/ year.
• Replacement of Fixed speed compressors with VFD
compressors in AC & Refrigeration system - saving energy
12342 KWH / year.
• Installation of VFD on cooling tower fans - saving energy in
winter season 2448 KWH / year.
• Provision of FRP fans in place of aluminum casting in cooling
towers - saving energy 264132 KWH/year.
• Replacement of low rating oil injected compressors with higher
rating oil free compressors - saving energy 51000 KWH/ year.
• Installation of real timer on FDV's - saving energy
150000 KWH / year.
• Installation of individual circuits for main machine - saving
power of AC chillers 6000 KWH/year.
BIO MASS gasifier power generating set
• Vapour Absorption machine for chillers
• Heat Recovery from Incinerator
• Heat Recovery from DG sets at HHD
• Alternate power i.e wheeling power from Electrical grid
Note: The additional investment cannot be precisely ascertained, and
is part of the Repairs and Maintainence; consumables expenditure and
investments in fixed assets.
c) Impact of measures at a) and b) for reduction of energy
consumption and consequent impact on the cost of
production of goods.
d) Total energy consumption and energy consumption per unit of
production as per Form - A given below.
FORM-A
Form for Disclosure of Particulars with respect to Conservation of
Energy
For Dharuhera Plant Current Year Previous Year
A. Power and fuel consumption per unit of production
Product Unit (Motorcycle 1672595 1598921
1. Electricity
a) Purchased
Units (KWH) 5426026 8451452
Amount (Rs.) 23,464,923 34,295,811
Rate/unit (Rs.) 4.32 4.06
b) Own generation
Through diesel generator Unit
Self (KWH) 41664025 34847158
Hired (KWH) Nil Nil
Unit per-ltr.of Diesel Oil (Cost/unit)
Self (KWH/Ltr.) 4.12 3.98
Hired (KWH/Ltr.) Nil Nil
2. Furnace Oil, LDO, HPS* etc.
Quantity (K.Ltrs) 2,067.888 1824.905
Total amount (Rs.) 41,704,620 3,02,48,767
Average Rate/Ltr. (Rs.) 20.17 16.58
B. Consumption per unit of production
1) Electricity (KWH/Motorcycle) 28.15 27.08
2) Furnace Oil, LDO, HPS etc 1.24 1.14
(Ltr./Motorcycle)
*used for the purpose of Boiler used for production of motorcycle.
It is difficult to quantify the impact of individual projects on
production as no. of equipments are being added during the
period.
For Gurgaon Plant Current year Previous year
A. Power and fuel consumption per unit of production
Product unit (Motorcycle) 1660865 1740975
1. Electricity
a) Purchased Unit (KWH) Nil Nil
Amount (Rs.) Nil Nil
Rate/unit Nil Nil
b) Own generation
Through diesel generator unit
Self (KWH) 56115270 56830801
Hired (KWH) Nil Nil
Unit per-ltr.of Diesel Oil Cost/unit
Self, (KWH/Ltr.) 4.08 4.11
Hired (KWH/Ltr.) Nil Nil
2. Furnace Oil, LDO, HPS etc.**
Quantity (K.Ltrs) 159.201 481.893
Total amount (Rs.) 4,398,916 1,10,05,176
Average Rate/Ltr. (Rs.) 27.63 22.84
B. Consumption per Current Year Previous Year
unit of production
1) Electricity (KWH/Motorcycle) 33.79 32.64
2) Furnace Oil. LDO, HPS etc. 0.10 0.28
(Ltr./Motorcycle)
**used for the purpose of hot water generator used for
production of motorcycle.
II. PARTICULARS AS PER FORM B
(A) Research & Development (R&D)
1 Specific areas in which R & D carried out by the Company
• New Model Technology Absorption carried out by the
company.
• Indigenisation of CKD Parts
• Multi Source Approval
• Meeting Legislative Norms
• Active Participation in deciding the needs of future
Automobile regulations in India
2 Benefits derived as a result of the above R & D activities
• Splendor NXG (100 cc - 4 Stroke), Hunk (150 cc - 4 Stroke),
Pleasure New Aesthetics, Super Splendor Cast Wheel,
Passion Plus Cast Wheel, CD Deluxe Cast Wheel, Splendor
Plus Cast Wheel and Splendor Plus Limited Edition were
launched.
• Multi source Components have been added to existing
models
• New sources added for existing models
• During the year under review 6 more items have been
localised.
• Compliance made to the Regulations
3 Future plan of action
• Launching of new Models;
• Indigenisation plan 17 more items to be localized;
• Compliance Plan for Future Regulations :-
T.A & COP for Safety Critical Components, EMC, Mass
Emission Norms (BS- IV), Safety Related Standards, E-10
compliance
4. Expenditure on R & D
(Rupees in Crores)
Year Ended Year Ended
March 31, 2008 March 31, 2007
I) Capital 19.42 8.11
ii) Recurring 18.78 17.85
iii)Total R & D expenditure 0. 37 0. 26
as a percentage of Sales
(as per P & L A/c)
B) Technology Absorption, Adaptation and Innovation
1 Efforts in brief, made India technology absorption,
adaptation and innovation
More parts development approval in India
2. Benefits derived as a result of the above efforts e.g. product
Mr. Analjit Singh NEID Acqvire Talent Services Limited
Hero Corporate Services Limited
Hero Honda Motors Limited
IDBI Limited
Malsi Estates Limited
Malsi Holdings Limited
Max Health Staff International Limited
Max Healthcare Institute Limited
Max India Limited
Max Medical Services Limited
Max New York Life Insurance Company Limited
Neeman Medical International (Asia) Limited
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Terra Planet Estates Private Limited
Trophy Estates Private Limited
Trophy Holdings Private Limited
Trophy Resorts Guest Houses Private Limited
TVP Investments Private Limited
Urban Space Consultants Private Limited
Vitasta Estates Private Limited
Ms.Shobhana Bhartia NEID Air Travel Bureau Limited
Britex India Limited
Firefly e-ventures Limited
Goldmerry Investment & Trading Co. Limited
Hero Honda Motors Limited
HT Media Limited Audit Committee
HT Music and Entertainment Limited
HTL Investment & Trading Co. Limited
Nilgiri Plantation Limited
Name of Director Status Directorship held Committee Committee Membership Chairmanship
Name of Director Status Directorship held Committee Committee Membership Chairmanship
A N N U A L R E P O R T 0 80 7
7071
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Shradhanjali Investment & Trading Co. Limited
The Hindustan Times Limited Audit Committee
Udit (India) Limited
Usha Flowell Limited
Yashovardhan Investment & Trading Co. Limited
Earthstone Holding Private Limited
Earthstone Holding (one) Private Limited
Earthstone Holding (two) Private Limited
Earthstone Holding (three) Private Limited
Mr. Sunil Bharti Mittal NEID Bharti Airtel Limited
Bharti AXA General Insurance Company Limited
Bharti AXA Life Insurance Company Limited
Bharti Enterprises Limited
Bharti Telecom Limited
Bharti Telesoft Limited
Bharti Teletech Limited
Bharti Ventures Limited
Hero Honda Motors Limited
Bharti (LM) Holdings Pvt. Limited
Bharti (SBM) Holdings Pvt. Limited
Bharti Enterprises (Holdings) Pvt. Limited
Bharti Retail (Holdings) Pvt Limited
Bharti Wal-Mart Pvt Limited
Field Fresh Foods Pvt. Limited
Mr. Meleveetil Damodaran NEID Hero Honda Motors Limited
Tech Mahindra Limited
SREI Sahaj e-Village Limited
Notes:
EC : Executive Chairman
MD : Managing Director
JMD : Joint Managing Director
TD : Technical Director
NED : Non- Executive Director
NEID : Non- Executive & Independent Director
Details of Directorships is as on July 29, 2008
Q: There is nominal growth in Topline but Profitability has increased in double digit of the Company, reasons?
A: Total Turnover during the financial year 2007-08 increased 4.24% to a record high of Rs.10,517.22 crores from Rs.10,089.81 crores during 2006-07. The Profit after tax (PAT) for 2007-08 was recorded at Rs. 967.88 crores as compared to Rs.857.89 crores in 2006-07. PAT as a percentage of Total Turnover has been increased from 8.50% to 9.20%.
The improvements on the margins was accomplished through better sales realisations and effective cost rationalisation measures which included better control over Material cost, Marketing cost, Overheads and all-round focus on operational efficiencies .
Q: What is your outlook on two wheeler industry?
A: The long term outlook for two wheelers and motorcycles in particular remains positive given the low levels of penetration which provide tremendous growth potential and a healthy GDP growth in years to come. However, our outlook for the next fiscal ie 2008-09 remains conservative driven by continued slackness in credit availability and higher financing cost and rising inflation, which erodes the purchasing power of the consumer.
Q: Last year Company has launched several new models, please appraise us the performance of these models and what about new launch during the current year ?
A: During the year 2007-08 Company has launched following new models HUNK & SPLENDOR-NXG along with several new variants and refreshes. These new models have been very well accepted by the market and now running under mass production.
There are several new and improved models in pipeline and will be disclosed in due course of time.
Q: With the hardening of interest rates, would the demand for motorcycles be affected ?
A: A sizeable segment of the two wheelers sales today happens through financing. Hence, any increase in the interest cost would adversely affect the sales growth. However, the low levels of two wheeler penetrations, rising disposable income and a favourable age demography of Indian population would help in increasing the market size. The Company has tie-ups with various preferred financers and is in the process to empanelling regional players with proven credentials to increase the penetration in smaller towns semi urban and rural areas.
Q: What is the Company strategy on exploring new markets for exports ?
A: The penetration level of two wheelers in India is still very low and it is perceived that domestic demand would continue to be robust in the foreseeable future. Therefore, the Company would focus primarily on fulfillment of the domestic demand. With the start of new manufacturing facilities at Hardwar, the Company would enhance focus on export segment as well and explore new markets in co-operation with Honda.
Q: When the New Plant at Haridwar would start, level of capacity and its impact on profitability of the Company?
A: The new plant at Haridwar has been started in April 2008 with initial capacity of 500,000 units. New plant would be using a state of the art technology with significant scalability option at relativity low investment. We plan to increase the capacities to 1,000,000 and subsequently to 1,500,000 over the coming years.Considering the excise and income tax incentive available to the new plant there would be positive impact on the profitability of the Company.
Q: What is the management's outlook on the operating margin in the coming period considering hardening of metal prices and weakening of rupee ?
A: The incessant increase in most of the input commodities ranging from Steel Aluminum Rubber etc would adversely affect the operating margins of any automobile manufacturer. However we have tried protecting our margins through various measures, which include higher sales realization, increased focus on controlling cost and operational efficiencies.
Q: What steps the Company has taken to improve corporate governance?
A: The Company is committed to benchmark itself with global standards in all areas including corporate governance. The Company's annual report contains substantial disclosures on the Board of Director, audit committee, remuneration committee, shareholders grievance committee, financial and stock performance, etc. In addition, an attempt has been made to benchmark governance with the guidelines recommended by the SEBI Committee on Corporate Governance (SEBI is the apex authority for regulating capital markets in India)
Financial results are published as per the latest Accounting Standards prescribed by the Institute of Chartered Accountants of India. The results are published in a transparent manner and there has been no non-compliance of any legal provision of applicable laws.
FREQUENTLY ASKED QUESTIONS (FAQS)
Name of Director Status Directorship held Committee Committee Membership Chairmanship
A N N U A L R E P O R T 0 80 7
Auditors' Report
Annexure to Auditors' Report
Balance Sheet, Profit & LossAccount and Cash Flow Statement
Schedules
US GAAP
7475
AUDITORS’ REPORT
TO THE MEMBERS OF HERO HONDA MOTORS LIMITED
1. We have audited the attached balance sheet of Hero Honda Motors Limited, as at March 31, 2008 and also the profit and loss account and the cash flow statement for the year ended on that date, annexed thereto. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
2. We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
3. As required by the Companies (Auditor's Report) Order, 2003, issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.
4. Further to our comments in the Annexure referred to in paragraph 3 above, we report that:
i) we have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;
ii) in our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books;
iii) the Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account;
iv) in our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statement, dealt with by this report, comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;
v) on the basis of written representations received from the Directors and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on March 31, 2008 from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;
vi) in our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:
a) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2008;
b) in the case of the Profit and Loss Account, of the profit for the year ended on that date; and
c) in the case of Cash Flow statement, of the cash flows for the year ended on that date.
FOR A.F. FERGUSON & CO.Chartered Accountants
Manjula BanerjiPartner(Membership number: 86423)
Place: New DelhiDate: April 24, 2008
(I) (a) The Company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets.
(b) As explained to us, the Company has a system of physical verification, which is designed to cover all fixed assets over a period of three years and in accordance therewith, physical verification of a major portion of fixed assets of the Company was carried out during the current year. In our opinion, the frequency of physical verification is reasonable having regard to the size of the Company and the nature of its fixed assets.
(c) In our opinion and according to the information and explanations given to us, a substantial part of the fixed assets has not been disposed off by the Company during the year.
(ii) (a) During the year, the inventories have been physically verified by the management. In our opinion, the frequency of verification is reasonable.
(b) In our opinion and according to the information and explanations given to us, the procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.
(c) On the basis of our examination of the records of inventories, we are of the opinion that the Company is maintaining proper records of inventories. The discrepancies noticed on physical verification of inventories as compared to book records were not material and have been properly dealt with in the books of account.
(iii) (a) According to the information and explanations given to us, the Company has, during the year, not granted any loan, secured or unsecured to Companies, firms and other parties covered in the registered maintained under Section 301 of the Companies Act, 1956, other than unsecured loans aggregating Rs. 240 crores granted to a Company covered in the registered maintained under Section 301 of the Companies Act, 1956. The maximum amount due during the year was Rs. 60 crores and the year end balance of loans granted was Rs. 50 crores.
(b) In our opinion and according to the information and explanations given to us, the rate of interest and other terms and conditions of the loans granted by the Company, as referred to in paragraph 4(iii)(a) of the Companies (Auditor's Report) Order, 2003 (hereinafter referred to as the Order) above, are, prima- facie, not prejudicial to the interest of the Company.
(c) According to the information and explanations given to us, the parties, to whom the loans have been granted by the Company, as referred to in paragraph 4(iii)(a) above, have been regular in repayment of the principal amount as stipulated and have been regular in payment of interest.
(d) According to the information and explanations given to us, there are no overdue amounts in respect of the loans granted as referred to in paragraph 4(iii) (a) above and interest thereon.
(e) According to the information and explanations given to us, the Company has, during the year, not taken any loans, secured or unsecured, from companies, firms and other parties covered in the register maintained under Section 301 of the Companies Act, 1956. Accordingly, paragraphs 4(iii) (f) and (g) of the Order are not applicable.
(iv) According to the information and explanations given to us, there is
an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of inventories, fixed assets and with regard to the sale of goods. There are no sales of services during the year. Further, on the basis of our examination and according to the information and explanations given to us, we have neither come across nor have been informed of any instance of major weaknesses in the aforesaid internal control system.
(v) (a) According to the information and explanations given to us, we are of the opinion that during the year, the particulars of the contracts/arrangements referred to in section 301 of the Companies Act, 1956 have been entered in the register required to be maintained under that section.
(b) According to the information and explanations given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under Section 301 of the Companies Act, 1956, and exceeding the value of Rs. 5 lacs in respect of any party during the year, having regard to the explanation that some of services/ items purchased are of a specialized nature for which there are no alternate sources of supply to enable comparison of the prices, these have been made at prices which are reasonable to prevailing market prices at the relevant time.
(vi) The Company has not accepted any deposits from the public.
(vii) According to the information and explanations given to us, the Company has an adequate internal audit system commensurate with its size and nature of its business.
ANNEXURE REFERRED TO IN PARAGRAPH '3' OF THE AUDITORS’ REPORT TO THE MEMBERS
OF HERO HONDA MOTORS LIMITED ON THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2008.
A N N U A L R E P O R T 0 80 7
7677
(viii) We have broadly reviewed the books of account maintained by the Company pursuant to the Rules made by the Central Government for the maintenance of cost records under Section 209(1)(d) of the Companies Act, 1956 and are of the opinion that, prima facie, the prescribed accounts and records have been made and maintained. We have not, however, made a detailed examination of the records with a view to determining whether they are accurate or complete.
(ix) (a) According to the information and explanations given to us and the records of the Company examined by us, the Company has been regular in depositing undisputed statutory dues including provident fund, investor education and protection fund, employees' state insurance, income-tax, sales-tax,
wealth tax, customs duty, excise duty, cess, value added tax, Haryana local area development tax and other material statutory dues applicable to it with the appropriate authorities. We are informed that there are no undisputed statutory dues as at the year end, outstanding for a period of more than six months from the date they became payable.
(b) According to the information and explanations given to us and the records of the Company examined by us, there are no disputed dues in respect of wealth tax, customs duty and cess, which have not been deposited. The following are the particulars of sales tax, excise duty, service tax and income tax dues not deposited/deposited under protest by the Company on account of disputes as at March 31, 2008:-
(x) The Company does not have accumulated losses at the end of the financial year March 31, 2008. Further, the Company has not incurred any cash losses during the financial year ended March 31, 2008 and in the immediately preceding financial year ended March 31, 2007.
(xi) According to the records of the Company examined by us and on the basis of information and explanations given to us, the Company has not defaulted in repayment of dues to banks during the year. The Company has not taken any loans from financial institutions and has not issued debentures during the year.
(xii) In our opinion and according to the information and explanations given to us, the Company has not granted any loans and advances during the year on the basis of security by way of pledge of shares, debentures and other securities.
(xiii) According to the information and explanations given to us, the provisions of any special statute as specified under paragraph 4(xiii) of the Order are not applicable to the Company.
(xiv) In our opinion and according to the information and explanations given to us, the Company is not dealing or trading in shares, securities, debentures and other investments.
(xv) According to the information and explanations given to us, the Company has not given any guarantees during the year for loans taken by others from banks or financial institutions.
(xvi) In our opinion and according to the information and explanations given to us, the term loans have been applied for the purposes for which they were obtained.
(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that short term funds have not been used to finance long term investments.
(xviii) The Company has not made any preferential allotment of shares during the year.
(xix) The Company has not issued any debentures during the year.
(xx) The Company has not raised any money by way of public issue during the year.
(xxi) Based upon the audit procedures performed and information and explanations given by the management, we report that no fraud on or by the Company has been noticed or reported during the course of our audit for the year ended March 31, 2008.
For A.F. FERGUSON & CO.Chartered Accountants
Manjula BanerjiPartner(Membership No.: 86423)
Place : New DelhiDate: April 24, 2008
Name of the Statute Nature of dues Amount* Amount paid Period to which (Rs. in crores) under protest the amount relates dispute is pending
(Rs. in crores)
Sales Tax laws Sale Tax 1.90 1.90 1998-1999 to 1999-00 Commissioner (Appeals)
Central Excise Laws Excise Duty 0.32 - 2000-01 CESTAT
0.39 - 2002-03 to 2005-06 Commissioner (Appeals)
Service Tax 22.10 0.45 2002-03 to 2005-06 CESTAT
Income-tax Act Income Tax 5.73 5.73 2000-01 to 2001-02 Income Tax Appellate Tribunal
31.44 31.44 2001-02 to 2003-04 Commissioner (Appeals)
* Amount as per demand orders including interest and penalty wherever quantified in the order.
Forum where
The following matters have been decided in favour of the Company, although the department has preferred appeals at higher levels:
Name of the Statute Nature of the dues Amount Period to which Forum where dispute (Rs. in crores) amount relates is pending
Central Excise Laws Excise Duty 2.57 1986-87 to 1990-91 Supreme Court
Central Excise Laws Excise duty 0.32 - 2000-01 CESTAT
0.39 - 2002-03 To 2005-06 Commissioner (Appeals)
Services Tax 22.10 0.45 2002-03 to 2005-06 CESTAT
Income-tax Act Income-Tax 5.73 5.73 2000-01 to 2001-02 Income Tax
Appellate Tribunal
31.44 31.44 2001-02 to 2003-04 Commissioner (Appeals)
* Amount as per demand orders including interest and penalty wherever quantified in the order.
The following matters have been decided in favour of the Company, although the department has preferred appeals at higher levels:
Name of the Statute Nature Amount Period to which Forum where
(Rs in crores) the amount relates Department has
(various years covering preferred appeals
the period)
Central Excise Laws Excise Duty 2.57 1986-87 to 1990-91 Supreme Court
Income-tax Act Income-tax 6.43 1987-88, 1989-90, 1992-93, High Court
1993-94, 1995-96, 1996-97
0.96 1995-96, 1997-98, 2000-01 Income Tax
Appellate Tribunal
11. The Company's borrowing facilities, comprising fund based and non fund based limits from various bankers, are secured by way of
106107
A N N U A L R E P O R T 0 80 7
108109
Current service cost 2.15
Benefits paid (0.95)
Actuarial (gain)/ loss on obligation 3.59
Present value of defined benefit obligation at the end of the year 32.23
Changes in the present value of the plan asset is as follows
Fair value of plan asset at the beginning of the year 17.44
Return on plan asset 1.62
Contributions 14.12
Benefits paid -
Actuarial (gain)/ loss on obligation (0.95)
Fair value of plan asset at the end of the year 32.23
Reconciliation of the present value of defined benefit obligation and the fair value of the plan assets
Present value of defined benefit obligation at the end of the year 32.23
Fair value of plan asset at the end of the year 32.23
Net asset/(liability) as at the close of the year -
Expenses recognised in the profit and loss account
Current service cost 2.15
Interest cost 2.03
Return on plan assets (1.62)
Net actuarial (gain) / loss 3.59
Expenses recognised in the profit and loss account. 6.15
Discount rate 8.00%
Expected Rate of return on plan assets 9.10%
Note:- The estimates of future salary increases considered in the actuarial valuation take into account inflation, seniority, promotion and other relevant
factors such as supply and demand in the employment market
hypothecation of inventories, receivables, movable assets and other current assets.
12. The Company has identified parties covered under the "The Micro, Small, and Medium Enterprises Development Act, 2006” on the basis of the
confirmation received. There is no outstanding balance payable as at the close of the financial year to such parties. Further, no interest has
been paid or payable to such parties under the said Act. In the previous year amount of Rs 3.75 crores was related to small scale industrial
undertakings.
13. The unhedged foreign currency exposures as at March 31 are as under:
Purpose This Year Previous Year
Amount in Foreign Amount in Rs Amount in Foreign Amount in Rs
*The Company's products are exempt from Licensing requirements under New Industrial Policy in terms of Notification no. S.O.477(E) dated 25th July,1991.
** On triple shift basis, as certified by the management and relied on by the auditors being a technical matter.
*** Includes 175 (Previous year 243) two wheelers produced and capitalised during the year.
b) Particulars in respect of opening stock, purchases, sales and closing stock for each class of goods dealt with by the Company:
Class of goods Units Opening stock Purchases
This year Previous year This year Previous year
Quantity Value Quantity Value Quantity Value Quantity Value
(Rs. in crores) (Rs. in crores) (Rs. in crores) (Rs.in crores)
Two wheelers Nos. 14812 44.31 11915 31.43 - - - -
Spares - * 13.46 * 27.16 * - * 58.56
57.77 58.59 - 58.56
Class of goods Units Gross Sales Closing stock
This year Previous year This year Previous yearQuantity Value Quantity Value Quantity Value Quantity Value
(Rs. in crores) (Rs. in crores) (Rs. in crores) (Rs.in crores)
Central Depository Services (India) Limited (CDSL)
Phiroze Jeejeebhoy Towers,
16th Floor, Dalal Street,
Mumbai 400 023.
Tel : 022 - 2272 3333
Fax : 022 - 2272 3199 / 2272 2072
Website : www.cdslindia.com
Securities and Exchange Board of India (SEBI)
SEBI Bhavan, Plot No. C4-A,
'G' Block, Bandra-Kurla Complex, Bandra (East),
Mumbai 400 051.
Tel : 022 - 26449000 / 40459000
Fax : 022 - 26598514
Website : www.sebi.gov.in
Bombay Stock Exchange Limited (BSE)
Phiroze Jeejeebhoy Towers,
Dalal Street,
Mumbai 400 001.
Tel : 022 - 2272 1233 / 4
Fax : 022 - 2272 1919
Website : www.bseindia.com
The National Stock Exchange of India Limited (NSE)
"Exchange Plaza" Plot No. C/1,
"G" Block Bandra-Kurla Complex, Bandra (E),
Mumbai 400 051.
Tel : 022 - 2659 8100 / 8114
Fax : 022 - 22 2659 8120
Website : www.nseindia.com
HERO HONDA MOTORS LIMITEDRegd. Office : 34, Community Centre, Basant Lok, Vasant Vihar, New Delhi - 110 057
Please complete this attendance slip and hand it over at the entrance of the meeting hall.
L.F. No. No. of Shares Held
Dp.Id.* Client Id.*
Name(s) in full Father's/Husband's Name Address as Regd. with the Company
1.
2.
3.
thI/We hereby record my/our presence at the 25 Annual General Meeting of the Company being held o , 2008 at 11:00 a.m. at Airforce Auditorium, Subroto Park, Dhaula Kuan, New Delhi 110010.
Signature of the shareholder(s)/proxy**
1. 2. 3.
* Applicable for investors holding shares in electronic form** Strike out whichever is not applicableNote: Attendance slip in original should be complete in all respects.
n Thursday, September 25
ATTENDANCE SLIP
HERO HONDA MOTORS LIMITEDRegd. Office : 34, Community Centre, Basant Lok, Vasant Vihar, New Delhi - 110 057
L.F. No. No. of Shares Held
Dp.Id.* Client Id.*
I/We;Name(s) in full Father's/Husband's Name Address as Regd. with the Company
1.
2.
3.
being a member/members of Hero Honda Motors Limited hereby appoint of or failing him/her thof as my/our proxy to vote for me/us and on my/our behalf at the 25 Annual General Meeting of the Company
being held on Thursday, September 25, 2008 at 11:00 a.m. at Airforce Auditorium, Subroto Park, Dhaula Kuan, New Delhi 110010.
Signature of the shareholder(s) Signature of Proxy(s)
1. 2. 3. 1.
2.
* Applicable for investors holding shares in electronic form
Note: The proxy must be returned so as to reach the registered office of the Company not less than 48 hours before the time for holding the aforesaid meeting. The proxy need not be a member of the Company.
PROXY
No gift of any nature will be distributed at the Annual General Meeting.The members seeking gifts may excuse us.