MARKET SHARE

OF

HERO CYCLES

TABLE OF CONTENTS

Declaration 3

Acknowledgement 4

The Indian Cycle Industry 5

The beginning 6

Profile 7

Vision & Mission 8

Career 9

Company Profile 10

Hero Group Companies 11

Hero Group 13

Quality 15

Milestones 16

Hero Cycle continues on Growth 21

Joint Ventures 25

Key Financial Indicators 27

Growth in revenue 28

Movement of Return on Equity 29

Rating 30

History Of Bicycles 33

The lndian Cycle IndustryBicycle was seen in India in the year 1890. Import of cycles, however, started in 1905 and continued for more than 50 years. Complete ban on imports was announced by the Government in July, 1953, but cycle kept on simmering in the country till 1961. In 1890, selling price of an imported bicycle was arround Rs. 45/-; in 1917, during the First World War the price jumped to Rs. 500/- but dropped considerably, month by month and came down to Rs. 35/- or so (U. K. makes) and Rs. 15/- or so (Japanese models).

It would be interesting to mention that in 1919, five persons in Punjab imported cycles and used them on The Mall, Simla. These included one Bishop, Two military men and two contractors including S. Pala Singh Bhogal (Grand Father of Mr. M.S. Bhogal of Ludhiana). Under special permission of the Governor, they were allowed to use cycles on 'The Mall' only for one hour in a day. They imported B.S.A. Cross Bar Cycle from U.K. and it used to be a kind of Mela at that particular hour on the Mall in Simla, the scene watched by hundreds of people everyday. Later, a firm was formed under the name of Singh & Co. with shops on Railway Road, Jalandhar and Bazar Vakillan, Hoshiarpur, which imported bicycles in the year 1930 onwards.

The Beginning

We look over our shoulders, we see the past. We use it to make a better present and a beautiful tomorrow, as tomorrow isn’t just another day, it’s another chance for us to better ourselves and to excel.

Hero Cycles is a product of this philosophy. The philosophy that instills commitment, team work and foresight. Hero’s colossal journey started before independence. The four Munjal brothers, hailing from a small town called Kamalia, now in Pakistan, are the men who are behind the mission. Brotherhood apart, what knit the men together was the wealth of will, integrity, ambition & determination. In the year 1944, they decided to start a business of bicycle spare parts in Amritsar. Its is modest beginning and the next 3 years saw the business grow rapidly.But the dark clouds of partition eclipsed their plans of the future. With renewed vigour and optimism, the operational base was shifted to Ludhiana. By 1956, the brothers had began manufacturing key components of bicycles and as a logical way forward, began to assemble the entire cycle at their manufacturing plant in Ludhiana. In the early days, the plant had a capacity for 25 cycles per day. Over the next few years, the Bicycle Unit started growing in stature and size, attracting skilled engineers, technocrats, administrators and entrepreneurs. From a modest beginning of mere 639 bicycles in the year 1956, Hero Cycles products over 18500 cycles a day today, the highest in global reckoning. With the 48% share of the Indian market, this volume has catapulted Hero in the ‘Guinness Books of World Records’ in 1986 and edge over global players is being maintained since then.A tiny acorn has now become a mighty Oak. From cycle to two - wheelers was a natural step, and the Hero Group came into being. The Hero Group, today, is a vast conglomerate of companies, either in the form of collaborations, joint ventures or fully owned subsidiaries, with more than Rs. 10000 Crore turnover annually. Hero Group, besides being the world’s largest manufacturers of bicycles, motorcycles and chains to this date, has diversified into newer segments like Information Technology, IT Enabled Services and Financial Services.

Profile"Hero", the brand name symbolizing the steely ambition of the Munjal brothers, came into being in the year 1956. From a modest manufacturer of bicycle components in the early 1940's to the world's largest bicycle manufacturer today, the odyssey was fueled by one vision - to build long-lasting relationships with everyone, including workers, dealers and vendors. This philosophy has paid rich dividends through the years.

Hero, a name synonymous with two wheelers in India is today a multi-unit, multi-product, geographically diversified Group of companies. Through fully integrated operations, the Munjals roll their own steel, make critical components such as free wheels for their bicycles, and have the foresight to simultaneously diversify into myriad ventures, like product designing, IT enabled services, finance and insurance, just to name a few.

Like every success story, Hero's saga contains an element of spirit and enterprise; of achievement through grit and determination, coupled with vision and meticulous planning. Throughout its success trail, the Hero Group and its members have displayed unwavering passion of setting higher standards for themselves and delivering simply the best to their customers.

The Hero Group philosophy is: "To provide excellent transportation to the common man at easily affordable prices and to provide total satisfaction in all its spheres of activity." Thus apart from being customer-centric, the Hero Group also provides its employees with a fine quality of life and its business associates with a total sense of belonging.

"Engineering Satisfaction" is the prime motive of the Hero Group and it has become a way of life and a part of the work culture of the Group. This is what drives the Group to seek newer vistas, adopt faster technology and create quality driven products to the utmost satisfaction of customers, partners, dealers and vendors.

Today the Hero Group has a number of accolades and achievements to its credit … yet consumer requirements and newer technologies provide fresh challenges every day, and at Hero the wheels of progress continue to turn ... 

Vision"We, at the Hero Group are continuously striving for synergy between technology, systems and human resources to provide products and services that meet the quality, performance, and price aspirations of the customers. While doing so, we maintain the highest standards of ethics and societal responsibilities, constantly innovate products and processes, and develop teams that keeps the momentum going to take the group to excellence in everything we do."

  

The Mission Statement"Its our mission to strive for synergy between technology, systems and human resources, to produce products and services that meet the quality, performance and price aspirations of our customers. While doing so, we maintain the highest standards of ethics and societal responsibilities. "

This mission is what drives us to new heights in excellence and helps us forge a unique and mutually beneficial relationship with all our stakeholders. We are committed to move ahead resolutely on this path, shown to us by visionaries like Mr. Satyanand Munjal, Mr. Om Prakash Munjal, the late Mr. Dayanand Munjal and late Mr. Raman Kant Munjal. Mr Brijmohan Lall Munjal, Chairman & MD - THE HERO GROUP.

Career

Hero has continuously strived for synergy between technology, systems and human resources, to provide products and services that meet the quality, performance and price aspirations of its customers. While doing so, it has maintained the highest standards of ethics and social responsibility, has constantly innovated products and processes and developed teams that keep the momentum in order to take the Group to new heights.

In the forefront of the two-wheeler and auto-components industry in India, the Hero Group is driven by the vision of providing technologically advanced and affordable transport solutions. In doing so its employs and scouts for state-of-the-art technology and systems. 

At Hero, new management strategies, techniques and manufacturing processes are constantly adapted. The work culture at the Hero Group revolves around building relationships - be it with workers, vendors or dealers. All those who come to work within the fold of the Hero Group are offered job security and growth opportunities, both personally and professionally.

Company Profile

Incorporated in 1966, Hero Cycles Limited (Hero Cycles) is the oldest company of the Hero Group of companies. Till the recent restructuring of the businesses amongst the four tranches of the Munjal family, the company was closely held with shareholding equally divided among the four families of the firstgeneration of Munjals. Hero Cycles’ main business activities include manufacturing of

bicycles, cold rolled (CR) strips and auto components with bicycles contributing over 58% of its revenues.

Hero Cycles has a manufacturing capacity of 55 lac bicycles annually, with facilities located in Ludhiana and Mangli in Punjab. The company also has 135,000T CR mill, and an auto-component manufacturing facility located at the same facility in Ludhiana. Post the family settlement, Mr. O.P Munjal & family own 100% stake in the company. For 2009-10, the company reported a net profit of Rs. 300.3 crore on a turnover of Rs. 1,707.8 crore compared to Rs. 57.7 crore and Rs. 1,490.5 crore, respectively

Hero Group CompaniesHero Group ranks amongst the Top 10 Indian Business Houses comprising 18 companies, with an estimated turnover of US$1.8 billion during the fiscal year 200-2004.

Hero Cycles Limited

Hero Honda Motors Limited

Hero Cold Rolling Division

Hero Motors Limited

Hero Exports

LO GO

Majestic Auto Limited

Rockman Cycle Industries

LOG O

Highway Cycle Industries

LOG O

Sunbeam Auto Limited

LOGO

Munjal Auto Industries Limited

Munjal Showa Limited

Munjal Castings

Munjal Auto Components

Hero Global Design

Hero Corporate Services Limited 

Hero ITES

Hero Mind mine

Hero Soft

Munjal e-systems

Easy Bill Limited.

The Hero GroupThe Hero Group has done business differently right from the inception and that is what has helped us to achieve break-through in whatever product category we have ventured in. The Group's low key, but focussed, style of management has

earned the plaudits amidst investors, employees, vendors and dealers, as also worldwide recognition.

The growth of the Group through the years has been influenced by the number of factors:

The Hero Group through the Hero Cycles Division was the first to introduce the concept of just-in-time inventory. The Group boasts of superb operational efficiencies. Every assembly line worker operates two machines simultaneously to save time and improve productivity. The fact that most of the machines are either developed or fabricated in-house, has resulted in low inventory levels.

In Hero Cycles Limited, the just-in-time inventory principle has been working since the beginning of production in the unit and is functional even till date. The vendors bring in the raw material and by the end of the day the finished product is rolled out of the factory. This is the Japanese style of production and in India, Hero is the first company to have mastered the art of the just-in-time inventory principle.

Men of SteelThe success of the Hero Group lies in the determination and foresight of the Munjal brothers, who shared their vision with their workers and led the Group to

a position where its name has become synonymous with top-quality two wheelers.

The flame kindled by the Munjal brothers in 1956 with the flagship company Hero Cycles; Mr. Satyanand Munjal, Mr. Brijmohan Lall Munjal and Mr. O. P. Munjal continue to carry the torch and are actively involved in the day-to-day operations of the Hero Group.

The saga is being continued with the same zeal by the second and third generations of the family and by the large working force of the Hero Group. The spirit of enterprise which dominates the progress of the Group is characteristic of the land where it all began - the City of Ludhiana, in Punjab - home to some of lndia's finest workers and entrepreneurs.

The Hero Group is a thriving example of three generations of a family working and striving together to ensure quality, satisfaction and extensive growth. 

QualityQuality at Hero is attained not just by modern plants and equipment and through latest technology, but by enforcing a strict discipline. At the Group factories, attaining quality standards is an everyday practice - a strictly pursued discipline.

It comes from an amalgamation of the latest technology with deep-rooted experience derived from nearly four decades of hard labour.

It is an attitude that masters the challenge of growth and change - change in consumers' perceptions about products and new aspirations arising from a new generation of buyers. Conformance to quality at Hero begins on the shop floor. Every worker ensures at each stage of manufacturing that any of the faulty products are not allowed to go through further manufacturing and distribution cycles.

Today quality is ensured from steel processing to the finished product. Each component goes through numerous tests at the stages of design, raw material procurement and, of course, during the manufacturing process.

Constant technology upgradation ensures that the Group stays in the global mainstream and maintains its competitive edge. With each of its foreign collaborations, the Group goes onto strengthen its quality measures as per the book. The Group also employs the services of independent experts from around the world to assist in new design and production processes.

Nevertheless, in this race to acquire the most modern techniques and technologies and to collaborate with the most advanced players in the market, the core competence continues to be derived from the Group's philosophy - "To Engineer Satisfaction."

 

MilestonesHero's success saga contains an element of spirit and enterprise; of achievement through grit and determination, coupled with vision and meticulous planning.

1956 Hero Cycles Limited is established.

1961 Rockman Cycles Industries Limited established,

which is today the largest manufacturer of bicycle chains and hubs.

1963 It pioneered bicycle exports from India - a foray into the international market.

1971 Highway Cycles was set up to meet the demands of Hero Cycles. It is today the largest manufacturer of single speed and multi-speed freewheels.

1975 Hero Cycles Limited became the largest manufacturer of bicycles in India.

1978 Majestic Auto Limited was formed and the Hero Majestic Moped was introduced.

1981 Munjal Castings established.

1984 Hero Cycles Limited established in joint venture with Cycles of Japan, to manufacture motorcycles.

1985 Munjal Showa Limited established to manufacture shock absorbers and struts and is today among the top two shock absorber manufacturing companies in India.

1985 The 100 cc Hero Cycles Motorcycle arrived and by 1988 was the No. 1 among all motorcycles in India.

1986 Hero Cycles Limited entered the Guinness Book of Records as the largest bicycle manufacturer in the World.

1987 Hero , a division of Majestic Auto Limited set up in collaboration with Steyr Daimler Puch of Austria.

1987 Gujarat Cycles Limited, now known as Munjal Auto Industries Limited was established to manufacture and export state-of-the-art bicycles and allied products in its fully automated plant at Waghodia.

1987 Sunbeam Auto Limited, earlier a unit of Highway Cycles Limited, established as an ancillary to Hero Cycles. It is the largest die casting plant in India.

1988 Introduced "Hero Puch" from Hero Limited. This revolutionary machine immediately set new records of petrol efficiency and usable power in 50 - 65 cc machines.

1990 Hero Cold Rolling Division established and is one of the most modern steel cold rolling plants.

1991 Hero Cycles receives National Productivity

Council's Award.

1991 Hero Cycles receives the Economic Times - Harvard Business School Association Award against 200 contenders.

1992 Munjal Showa Limited receives National Safety Award.

1993 Hero Exports established as the International Trading Division for Group and non-Group products.

1993 Hero becomes Indias largest exporter of two wheelers

1995 Hero Corporate Services Limited as the service segment for the Hero Group Companies, ancillaries, suppliers, dealers and other associates.

1996 - Hero Winner, a large-wheeled scooter was introduced by Hero Limited with a choice of 50 cc and 75 cc engines.

1996 Munjal Showa Limited receives British Council's National Safety Award.

1998 - Hero Briggs and Stratton Auto Private Limited was set up to produce 4-stroke two-wheeler engines in various cubic capacities.

1998 Munjal Auto Components established to manufacture gear shafts and gear blanks for motorcycles.

2000 The Hero Group diversifies into IT and IT enabled services through its service segment - Hero Corporate Services Limited. 

2000-2001

Hero Cycles emerges as the market leader in motorcycles with sales of over a million motorcycles and a strong market share of 47%. 

2001 Hero Global Design established to offer engineering services in CAD/CAM/CAE related to New Product Development, Design, Engineering and Manufacturing.

2002

Hero Cycles ties up with National Bicycle Industries, part of Matsushita Group to manufacture high-end bicycles.

2002 Fastener World Established.

2002 Easy Bill Established to offer utility bill collection & retail services.

2003 Tie up with Livebridge Inc., USA.

2004 Tie up with Bombardier - Rotax GmbH for scooter engines.

2004 Tie up with Aprilia Scooters, Italy.

2004 Hero Cycles continues as the World's largest manufacturer of two-wheelers with annual sales volume of 2.07 million motorcycles and a market share of 48%.

2004 Retail Insurance business established.

2004 HeroITES, a division of HeroCorporate Service Limited hived off as a division of new company Hero Management Service Limited.

2005 HeroITES strengthens its relationship with ACS,USA,USD 5.0 billion market cap and Fortune 500 company.

2006 Hero Cycles enters the scooter segment, launches 100cc "Pleasure"

2006 Hero Cycles crosses a unit sales threshold of 3.0 million motorcycles

2006Hero Group celebrates Golden Jubilee year since inception.It was commemorated by sales of over 15 million motorcycles & over 100 million bicycles.

Today, Hero Group comprises of 20 companies, 300 ancillary suppliers, deep market penetration with over 5,000 outlets, 23,000 + employee and has a turnover of US$ 3.20 billion (FY 2006).

Racing ahead: Hero group sells 10th crore bicycle

TO most Ludhianvis, Hero is not just a brandname. It is a business house that, along with some other mega houses, have given Ludhiana the kind of clout it has on the commercial and industrial map of the country today. So the news that Hero, the world’s largest manufacturer of bicycles since 1986, completes a record of selling 10 crore bicycles, it is as much a celebration for Ludhiana, as for the Hero group.

The 10th crore bicycle was auctioned for Rs 10 lakh by the group, revealed Chairman of Hero Cycles Brij Mohan Munjal. The company also organised a function at Hotel Park Plaza to mark the completion of 50 years. The cheque of Rs 10 lakh was presented to CM Captain Amarinder Singh, who was the chief guest on the occasion. The management did not divulge who had purchased the bicycle for Rs 10 lakh.

Speaking on the occasion, Minister Harnam Das Johar said, ‘‘Brij Mohan used to do accounts work for me in the 1950s. I feel happy that today, the family has a name on the world map.’’

Munjal, on his part, had this to say: ‘‘During the days when I handled accounts for Johar Sahab, he taught me business skills, which have stood me in good stead. I also used to visit Tulsi Das Jetwani Ji, another city industrialist who is now in his 90s, for seeking answers to my queries.’’ Jetwani, sitting amongst the spectators, stood up to acknowledge what Brij Mohan Munjal said. .

Noted Om Parkash Munjal, Co-Chairman and CEO of the company, ‘‘The company was started by my three brothers and me. Today, even our third generation is working with us and contributing to expand the group. In a few years, the fourth generation will join us too. Today, more than 5 lakh families are associated with us, and we are committed to our workforce of 4,000 workers and a strong network of dealers.’’

It was revealed at the function that Hero now has 200 models of cycles, and their daily production is nearly 1,650 cycles. Talking about the labour unrest at the units, Brij Mohan Munjal said that while some external forces are spoiling the industry environment, the administration is trying to ensure that the workers are a satisfied lot, and are not misguided.

More than 600 industrialists from Ludhiana and outer cities had come to attend the function. While many were seen searching for seats, others were seen standing throughout the function. DC A K Gupta, Municipal Commissioner S K Sharma, SSP A S Rai, the entire Munjal family and many others were also seen on the occasion.

To celebrate the day, the management gave 150 cycles to needy persons all over the state, as per the list presented by the chairmen of the various Improvement Trusts in the state.

Reliance will be okayed, says CMSpeaking at the function, the CM categorically said that the Reliance project will be okayed within this week, come what may. The CM said, ‘‘Let people shout. By december 31, all will come to know the benefits of this project themselves, as it is going to boost the economy of small farmers.

 

Hero cycles has sold 4 lakhs unit in the month of October

Hero Cycles Ltd. said on Monday that its cycle sales were up 23.02% last month at 302,000 units, representing a jump of 23.02% compared to the corresponding month last year. The company had sold 245,475 bikes in October 2009. 

The world's largest motorcycle maker registered yet another precedent for the Indian two-wheeler industry in October by recording retail sales of over 4 lakh units. This is the first time any Indian two-wheeler company has clocked retail sales of 4 lakh units.

The company's sales during October is up 13.5% compared with the previous month (September), when the company had recorded sales of 266,071 units. 

Hero Cycles's cumulative sales for the period April-October 2005 has registered a significant growth of 17.87% over the corresponding period in the previous year. The company's cumulative sales tally has thereby increased to 1,731,992 units, a jump from 1,469,394 units in 2009. 

With the recent launch of Achiever towards the end of October and the forthcoming launch of Pleasure in mid-November, the company is confident of continuing its upward movement in sales, Hero Cycles said. 

The company's festive promotion, which offers Rs1001 off on each of its models has met with huge success across the country, it added.

 

Hero Cycles Continues on the Growth Path, Demonstrates Consistent Growth in Q1

PTI, New Delhi - JuNE,18, 2010

Q1 result highlights:· Total turnover up by 15 %; Net Profit increases by 7.6 %· Volume sales increases by 13%· EPS shows consistent growth at 7.6% · Glamour, the new offering in the premium executive segment, introduced in South India

New Delhi, July 18th 2005: Hero Cycles, the ‘World No. 1’ motorcycle manufacturer today announced its first quarter results for the FY 2009-10, demonstrating consistent growth quarter over quarter. 

The company recorded an increase of 13% in its sales volume during the quarter, as compared with sales during the corresponding quarter in the last FY. The

company sold 6,87,567 motorcycles during April-June 2009, as compared with 6,09,123 motorcycles during April-June 2008. 

Hero Cycles sold over 200,000 units for each of the months in the quarter, having established the benchmark for the industry in the previous FY.

TOTAL TURNOVER (sales turnover plus other income, net of excise) grew to Rs. 2007.63 crore, a significant growth of 15% over Rs. 1745.21 crore recorded in the corresponding period last year. NET SALES (Income from Operations) showed a remarkable growth of 14.8 % over the corresponding period, from Rs.1722.28 crores to Rs. 1977.06 crores.

PROFIT AFTER TAX (PAT) increased to Rs. 204.45 crore, an impressive growth of 7.6 % over last year’s Rs. 190.07 crore. The PROFIT BEFORE TAX went up to Rs. 298.12 crore, registering a increase of 3.5% over Rs. 288.04 crore recorded in the corresponding period last year.

OPERATING MARGIN (EBIDT) for the first quarter saw a marginal decline of 1.8 % i.e 14.8%, as compared with 16.6 % in the corresponding period last year. The reduction in EBIDT margin is very marginal considering the impact of steel price increase in April 2009 and disruption of production due to constraints in supplies of some components during the quarter. Announcing the results, Mr. Brijmohan Lall, Chairman, Hero Cycles Ltd., said,“With the first quarter ending, I feel we have made a good beginning to the current financial year. Our consistent growth performance in the last quarter demonstrates our continued efforts to deliver the best products and service to our customers. We are confident that with the support of our customers and business associates we would be able to continue on the growth path in the coming months as well.”

Mr. Pawan Munjal, Managing Director, Hero Cycles Ltd., said, “During the last quarter we focused on consolidating our undisputed leadership in the executive segment, with the launch of Glamour, our new 125 cc offering. The model, which has been launched in only South India so far, has been really appreciated by our customers. We will continue to launch Glamour in the other regions in the coming months.” “Super Splendor, which was launched in March this year has also received a very encouraging response from our customers. In the first four months of its launch the company has already sold 150418 units”, he added. 

During the first quarter of the FY 2005 – 06 the company also established a landmark figure of over 2 million members for the Hero Cycles Passport Programme- its unique CRM initiative, making it Asia’s biggest CRM programme.

HERO CREATES NEW PERFORMANCE RECORDS

Sells over 2 million motorcycles in 2009-10Highest turnover in the Indian two-wheeler industry.

Total Turnover for the year up by15 % to Rs 5997 crores. Profit After Tax (PAT) for the year increases by 25% Total motorcycle sales for the year up by 23%; Q4 sales up by 50% World No.1 for the third year in a row 5 successful model launches drive 4% growth in market share to 48% Announces 500% final dividend, Total dividend 1000% for the year. Market capitalization crosses Rs.10,000 crores mark

Hero cycles Ltd., the ‘World No.1’ cycles company, today announced outstanding financial results for the year 2009-10, firmly establishing its world leadership for the third year in a row.

The year 2008-09 has been yet another year of landmark achievements for Hero Cycles, especially the feat of selling over 2 million motorcycles in a single year, which has not been achieved in the two-wheeler industry so far. With this accomplishment, Hero Cycles has been able to double its annual sales of motorcycles, in a short period, from 1 million in 2007-08 to over 2 million in 2008-09.

The company’s Total Turnover (sales turnover plus other income, net of excise) grew to Rs. 5997 crore, a growth of 15% over Rs. 5195 crore recorded in 2006-07. This is the highest turnover ever recorded in the history of the Indian two-wheeler industry.

The company’s Profit After Tax (PAT) soared to Rs. 728 crore, a growth of 25% over previous year’s Rs. 581 crore. The Profit Before Tax went up to an impressive four digit figure of Rs. 1072 crore, moving up from Rs. 885 crore, registering a remarkable increase of 21%.

Widely acknowledged as one of the most investor-friendly companies, the company announced a final dividend of 500%. Thus. with the interim dividend of 500% paid earlier, the total dividend for the year is also a four digit figure of 1000%

The Operating Margin was an impressive 15.56%, versus 15.52 % in the previous fiscal. The improvement in operating margin reiterates the company’s continued and dedicated efforts towards cost rationalization, higher indigenisation, better working capital management and improved manufacturing efficiencies.

The company’s volume sale of 20,70,147 motorcycles during the year, marks a splendid jump of 23 % over previous year’s sale of 16,77,535 cycles.

Buoyed by the tremendous response received by all its new models launched during the previous financial year, the company has ended the year with 48% market share in motorcycles - a remarkable increase of 4 per cent over preceding fiscal. The company’s market share in the two-wheeler category has also increased to 37 %, an increase of 4 %.

The performance of the company in the fourth quarter of the FY 2003-04 was also par excellence. The motorcycle sales for the period January - March 2004 grew by a remarkable 50 per cent as compared with the corresponding period in

the previous FY. The company sold 5,92,718 motorcycles in the quarter, significantly up from 3,96,193 units sold during January - March 2003.

The Total Turnover of the company for the same period also zoomed 38% from Rs. 1248 crore in the fiscal 2002-03 to Rs.1724 crores. While the Profit After Tax during the quarter registered a splendid jump of 42%, from Rs. 149 crores during January - March 2003 to Rs. 211 crores during the same period, the Profit Before Tax showed an impressive upward trend, growing 41% from Rs. 221 crores during the last quarter of 2002-03 to Rs. 311 crores during the same period in 2003-04.

Commending the company’s excellent performance and the achievement of the 2 million plus sale milestone, Mr. Brijmohan Lall, Chairman, Hero Cycles Ltd., said, “This landmark achievement could not have been possible without the excellent support of our esteemed stake holders and customers and especially our very efficient and resourceful supply chain. The support of our partners Cycles Motor Co., Ltd., Japan and Hero Cycles Ltd., have greatly helped in our success. It has always been our endeavor to offer enhanced value to our stakeholders by adhering to world standards.”

Enthused by the world record performance Mr. Pawan Munjal, Managing Director, Hero Cycles Ltd., said, “The key reason for our success has been our continuous pursuit of pro-actively delivering value and delight to our customers. This achievement once again demonstrates our intrinsic capability to comprehend changing customer needs and fulfilling them with matching products. With the voluminous success of CD-Dawn, Splendor+ and Passion Plus, we have ended the year with an undisputed leadership in the entry and executive segments - the core of the Indian motorcycle industry. Ambition135 has strengthened our position in the premium segment.”

Talking about the company’s future plans, he added, “We are committed to continue our world class performance, by delivering even better value to the customers in the years ahead by offering products with the latest technology, styling and performance. Several new and exciting product launches are lined up for the future.”

 

Technology Related Partnerships/ Alliances and Joint Ventures

Hero entered a joint venture for technical and financial participation with one of the world's largest automotive makers, Honda Motor Company Limited of Japan, in 1984 for the manufacture of 100cc motorcycles in India.

Hero's quest for a low-budget, fuel-efficient and environment-friendly two-wheeler led Hero to enter into a Technical Collaboration with Steyr Daimler Puch of Austria in 1987 for the manufacture of the 65cc, Porsche-design mini-motorcycles.

Munjal Showa Limited was formed in Technical and Financial Collaboration with Showa Corporation, Japan, to design, develop and manufacture of front forks, shock absorbers, struts and gas struts.

Sunbeam Auto Limited has set-up a state of the art piston manufacturing facility in technical collaboration with M/S Cycles Foundry Company Limited of Japan, the pioneers in the world for manufacturing high-strength lightweight pistons used in light, powerful fuel-efficient engines.

Munjal Auto Industries Limited has a joint venture with the State-owned Gujarat Industrial Investment Corporation, to cater to the needs of the overseas market.

Hero Cycles CR Division was set up in consultation with MECON, Asia's largest engineering consultants and in Technical Collaboration with Wean United, USA.

Hero Cycles Cold Rolling Division has also entered into a technical collaboration withKawasaki Steel Corporation, Japan for the improvement of production yield, elimination of defects, reduction of customer returns and enhancement of maintenance operations against certain predetermined targets.

 Alliances

Over the years, Hero Group has strengthened its joint ventures, forged profitable relationships with its partners and allied itself with some of the best players in the market. Technology assimilation through wide sourcing has been and will continue to be an integral part of the progression of the Hero Group.

Key Financial Indicators

† Net Sales 1,285.0 1,490.2 1,701.8 Operating Income (OI)

1,285.0 1,490.5 1,701.8

OPBDIT 50.8 111.6 183.7 Profit After Tax (PAT)

66.3 57.7 300.3

Net Cash Accruals

82.5 74.3 317.5

Total Debt 253.8 241.5 268.3 Tangible Net worth

599.3 674.0 952.9

OPBDIT/OI 4.0% 7.5% 10.8% PAT/OI 5.2% 3.9% 17.6% PBIT/Average (TD+TNW+DTL)

12.6% 14.9% 34.6%

Total Gearing

0.42 0.36 0.28

OPBDIT/Interest & Finance

2.42 3.93 9.79

Charges (GCF+ Interest)/Interest

2.39 2.78 6.21

NCA/Total Debt

33% 31% 118%

Total Debt/OPBDITA

5.0 2.2 1.5

Debtor days

53 56 55

Inventory days

35 22 24

Creditor days

56 45 42

GROWTH IN REVENUE

GROWTH IN NET PROFIT

MOVEMENT OF RETURN ON EQUITY

Rating

Key Rating Considerations

Credit Strengths

Leading market position in the domestic bicycle market with an estimated 34% share

As the oldest and largest bicycle manufacturer, Hero Cycles’ business profile is characterised by strong brand equity, competitive cost structure and well entrenched dealership network

Financial profile remains strong as it benefits from the considerable portfolio of liquid investments and free cash flow generation of bicycle business

Divestment of a relatively less profitable, Cold Rolled (CR) strips business could help improve profitability indicators going forward and reduce working capital borrowings.

Credit Challenges Bicycle business is characterised by relatively low margins; competitive pressures from small unorganised player and Chinese imports remain

Increasing support to weaker group companies given its role as a holding company for Hero and its affiliates

Rating Rationale

The rating takes into account Hero Cycles’ leadership position in the domestic bicycle market, its strong financial profile supported by healthy cash flow generation, comfortable capital structure and strong liquidity position aided by a large portfolio of liquid investments. In addition to being the market leader, Hero Cycles is also the most cost competitive and profitable bicycle company among the organized players. Its large scale of operations, backward integration and strong brand identity supports its strong business position. Besides, bicycles business, which accounts for over 55% of its revenues, the company also generates business from processing of Cold-Rolled (CR) strips and manufacturing of auto components. Being the oldest company of the Hero group, Hero Cycle was also positioned as the investment holding company for several entities of the group. However, as part of the family settlement, the company is in the process of transferring its stake in most of the investee companies (except Hero and Hero Financial Services) in addition to the CR strips division to other sections of the Munjal family. As a result of the divestment, although the company’s investment income is likely to be lower going forward, the hive-off of the relatively low margin – CR Strips business would aid in improvement in the operating profitability of the company.

Hero Cycles has also been supporting some of the weaker entities of group which have been in the investment phase. These investments are likely to continue going forward given the capital expenditure and investment plans of the investee company.

Scale, Diversification and Market Position: Hero Cycles is the oldest company of the over Rs. 12,500 crore Hero Group, which commenced cycle manufacturing as its first commercial facility. Over the years, the company has also provided start-up capital to several group companies and as a result was positioned as one of the holding companies for several group entities including Hero Cycles Limited or HHML (rated LAAA, IrAAA & A1+ by ICRA), Munjal Auto (rated LAA-/Stable & A1+ by ICRA), Majestic Auto (rated LA- & A1+ by ICRA), Hero (LA/Stable & A1 by ICRA), Munjal Showa and Highway Industries among others. Traditionally, the company has generated business from three segments viz. manufacturing of bicycles, cold-rolled (CR) strips and auto components. In 2009-10, bicycles were the largest contributor to the company’s turnover, at 58%, followed by CR strips (36%), and auto rims and components (6%). In terms of profitability, bicycles division has even larger contribution, with the CR strips business generally being a low margin business for the company.

After the family restructuring which has recently been concluded, Hero Cycles’ investment profile has undergone a change. As part of the family settlement, the company has transferred stake in most of group companies including investments in listed entities such as HHML at book value to the other three sections of the Munjal family, which have been managing those business. Additionally, as part of the restructuring exercise, the CR strips business is also being transferred to Mr. B.M. Munjal & family. The company’s shareholding now vests with Mr. O.P. Munjal and his family members who have operationally been managing the company along with Hero (and its subsidiaries). Post restructuring, Hero Cycles will be positioned as pure bicycle manufacturer and holding stake in two group companies –Hero Financial Services Limited, Hero and subsidiaries/JVs of Hero with Munjal Kiriu being the major one.

As the oldest and the largest manufacturers of bicycles in the country, Hero Cycles is positioned as the market leader in the domestic bicycle market with a market share of around 34%. The company’s leadership in the bicycles market (estimated at ~1.5 crore bicycles per annum) stems from its large size (51 lacs cycles sold in 2009-10), strong brand name and wide distribution network. Within the bicycle industry, Hero Cycles has been a clear leader in the standard segment, with ~50% bicycle sales in that segment. However, since 2005-06, the company has been concentrating on the comparatively higher margin and fast growing specials segment by re-orienting its marketing and product development efforts. It has regularly launched new products across categories and age groups in this segment. Revenue Growth & Profitability Indicators: In terms of performance of core operations, the company’s bicycle sales after remaining stagnant in 2007-08 and 2008-09 grew by 13.6% in 2009-10 driven by increasing thrust on specials segment and higher orders from State Governments to meet requirements of various initiatives such as the Surv Siksha Abhiyaan. The operating profitability, which also mirrored the trend in volume sales in 2006-07 and 2007-08, has

improved substantially in the last two years owing to improvement in realisations and softening of input prices. Improvement in margins has also been supporting by increasing share of special segment bicycles, which according to the management account for now 35-40% of the volumes.

Also as part of the settlement, Hero Cycles is in the process of hiving-off its relatively low-margin CR Strips business to other family member. The impact of the same is expected to be positive both from the perspective improvement in RoCE (%) and reduction in debt levels (largely short-term associated with higher working capital requirement in that business). Capital Structure & Financial Policies: The company’s credit profile has been strong characterised by low leverage and comfortable coverage indicators. Over the years, Hero Cycles has mainly been supporting some of weak entities of group, providing both fund and non-fund support (inform of guarantees etc) to meet their growth plans. However, as a result of the family settlement, the company’s stake in HHML has been transferred to the other sections of the Munjal Family besides other investments. Thus Hero Cycles’ portfolio now comprises of investments in some of weaker group/subsidiary companies, which are currently incurring losses/marginally profitable. These entities are likely to see improvement in business profile in the medium term given the pick-up in business from existing customers and new business opportunities. The induction of established JV partners in most the businesses of Hero (Hero Cycles’ key holding now) is also a positive. Nevertheless, Hero Cycles is likely to continue supporting these entities given the capital expenditure and investments plans of the investee companies. That said, its credit profile is unlikely to deteriorate substantially given its large investment portfolio (~Rs. 560 crore as on June 10), which provides cushion to the company from the point of view of meeting investment requirements. The liquidity profile also remains comfortable marked by a large portfolio of liquid investments, stable cash flow generation, and moderate utilization of bank lines. The company’s capital expenditure requirements estimated at Rs. 20-25 crore annually can also be funded comfortably from cash flow from operations.

The History of Bicycle IndustryInnovation Year Country Details

 

1817 Germany Baron Von Drais invents the "running machine" or Laufmaschine. Patented the following year. Known in various forms as :Draisine, Draisienne, Velocipede. English version was the Hobby Horse (Denis Johnson). All have two, in-line wheels and the ability to steer.

Hand Drive 1821 England Louis Gompertz adds a hand-driven, ratchet mechanism to the front wheel of a Hobby Horse but the innovation, as with Drais' was never really followed up.

1839-1840

Scotland Kirkpatrick Macmillan is traditionally credited with a machine in which power was supplied to the back wheel via rods connected to treadle-type pedals. Thomas McCall marketed copies; an 1845 version is in the Dumfries Museum. It is questionable whether significant progress resulted from either.

Rear-Wheel-Drive Bicycle

1843 France Alexandre Lefebvre is credited with a rear-drive machine; he took it to America twenty years later and it still exists in the "History San Jose"museum (the earliest extant bicycle?).

Pneumatic Tire 1845 England R. W. Thompson invents the pneumatic tire but with no commercial follow-up.

Treadle Drive 1847 Scotland Gavin Dalzell builds a two-wheeled hobbyhorse with a treadle-drive, possibly copied from the Macmillan design.

Crank-Driven 4-Wheeler

1851 England Willard Sawyer exhibits his four-wheeled, crank-driven vehicle at the Great Exhibition and subsequently becomes established as a Velocipede manufacturer.

Boneshaker Bicycle

1864 France J. Townsend Trench documents his purchase of a velocipede from the Michaux family. Possibly the first record of a "production" front wheel, pedal-driven bicycle (but note that it was not presented untill 1895). This style became known as the "Boneshaker". Historians still debate the claim of Pierre Lallement that he had previously invented the first pedal-driven machine.

1866 USA Lallement, now in the USA, gets the backing of an investor, James Carroll, and their patent application is granted; probably the world's first public record of the pedal-powered two-wheeler.

1870 England James Starley products the "Ariel" High Wheeler (aka "Ordinary" or "Penny Farthing"). Later versions had front wheel sizes of upto 5 feet.

Wire-Spoked Wheel

1870 England W. H. J. Grout patents the radially spoked, nipple adjusted bicycle wheel (unlike prior load-bearing wheels). Some credit Meyer with this design two years previosly.

Ball Bearings 1872 German Friedrich Fischer first mass-produces steel ball bearings, patented by Jules Suriray in 1869.

Caliper Brake 1876 England Browett and Harrison patent an early caliper brake.Differential Gear 1877 England James Starley patent a differential gear; probably the

first for a bicycle but the principle was not new.

Internal Hub Gearings

1878 England Scott and Phillott patent the first practicable epicyclic change-speed gear fitted into the hub of a front-driving bicycle.

Folding Highwheeler

1878 England Grout patents a folding High Wheeler, the first "portable" bicycle.

  1879 England Henry J. Lawson patents a rear wheel, chain-driven safety bicycle, the "Bicyclette" (his earlier models were lever driven).

Chain 1880 England Thomas Humber adapts the block chain for use with his range of bicycles.

Safety Bicycle 1885 England John Kemp Starley (James Starley's nephew) markets the revolutionary Safety Bicycle (the "Rover") with a chain/rear-sprocket drive and tangentially-spoked, similar sized wheels. Includes many of the major features of modern bicycles.

Seamless Tubing 1886 Germany The Mannessman brothers are credited with the invention of the process to manufacture seamless steel tubing.

  1888 Scotland Commercial development of the pneumatic bicycle tire by Dr. John Boyd Dunlop.

  1890s France Cycles Aluminium becomes one of the earliest manufacturers of an aluminium bicycle.

Derailleur 1896 England E. H. Hodgkinson patents a 3-speed Gradient gear, a pre-cursor of the modern derailleur.

Internal Hub Gearing

1896 England William Reilly patents a two-speed hub gear. His later 3-speed version was put into production by Sturmey Archer in 1902.

Butted Frame Tubes

1897 England Alfred M. Reynolds takes out a patent on "butted" steel bicycle tubes.

Freewheel 1898 Germany First major commercialization of the freewheel by Ernst Sachs. William Van Anden had obtained the first freewheel patent in 1869.

  1910 France The first, easy-to-use derailleur is invented by Paul de Vivie (Velocio) that shifted among four gears at the pedals.

Recumbent 1914 France Peugeot markets their production recumbent bicycle. Charles Challand had exhibited his "Horizontal Bicyclette Noemale" in Geneva in 1895.

Dual-Suspension Mountain Bike

1915 Italy Bianchi produced a folding bicycle for the Italian Army with telescoping seatstays, a leaf spring at the bottom bracket, a spring fork and large profile pneumatic tires. Bianchi now calls it the first dual suspension mountain bike! There are earlier versions of military folding bicycles.

  1930 Italy Tullio Campagnolo intriduces the bicycles hub quick-release.

Recumbent 1932 France Charles Mochet designs the Velocar, a recumbent bicycle on which Francois Faure breaks both the mile and kilometer records.

  1933-1934

USA Introduction by Schwinn of the balloon tire and "streamlined" bikes which leads to rugged bikes that can take the abuse of teenage boys and which set a forty-year trend.

Mountain Bike 1938 USA Schwinn markets the "Fore-wheel" brake, "Cantilever Frame" and the "Spring Fork". Resulted in what was to be the Grandfather of today's mountain bikes.

Folding Bicycle 1939 France A. J. Marcelin petents "Le Petit Bi", a 16-inch wheeled

folding bicycle, remarkably similar to the Moulton and Bickerton of later years.

Shifter 1946 Italy Campagnolo markets the dual-rod "Cambio Corsa" gear shifter (over ten years after the prototype) widely used for atleast a decade.

Index Shifting 1949 England The Hercules Herailleur is launched; a rear derailleur with indexed shift levers. Marketed for five years.

Derailleur 1951 Italy Introduction of Campagnolo's modern Gran Sport derailleur.

  1962 England Launch of the Moulton small-wheeled bicycle with separately sprung suspension and custom tires. Competed successfully in time trials and track pursuit events.

String-Ray 1963 USA Schwinn introduces the Sting-Ray that subsequently helped launch the BMX craze.

Rear Derailleur 1964 Japan The Sun Tour Grand Prix is marketed as the first slant parallelogram derailleur, a design that has held up till the present day.

Index Shifting 1969 Japan Sun Tour launch their indexed shift lever, the Five-Speed Click, and a combined freewheel-plus-rear hub, the Unit Hub. Neither of them found a market, and were abandoned. Bayliss Wiley in England has also experimented with unit hubs as far back as 1938.

  1970 England The aluminium Bickerton portable small-wheeler is developed. Followed by the successful Brompton in 1976 and Dahon in 1980.

Bmx (Bicycle Motocross)

1970 USA The movie On Any Sunday by Bruce Brown debuts. Although it is a motorcycle documentary, a brief scene during the beginning of the movie shows kids on Sting-Ray bikes emulating motocross. This small spark eventually evolves into full-fledged, organized BMX racing by 1974.

Mass-Produced Titanium

Frame/Fork

1974 USA Teledyne markets the first titanium bike that was produced in any quantity (Speedwell of England had some Ti production frames as far back as the 1960s, welded by Lamborghini!) Litespeed brought titanium frames to a broader market in the 1980s.

  1975 USA The first carbon-tubed, metal lugged frame appears: the Exxon Graftek. Suffered from frequent frame failure. The technology was later perfected by Look, Trek and others.

Aluminium Frames/Bikes

1975 USA Gary Klein displays his welded and heat-treated aluminium frames at the International Bike show. Alan (Italy) and Vitus (France) were producing their lugged aluminium frames arround the same time. Cannondale launch their "Aluminium for the Masses" in 1983.

  1978 USA Fomac Corporation designs the Avatar recumbent. It is one of the many styles that constituted the 1980s renaissance of recumbents which included Lightning Cycle winning the HPV-RAAM relay and Easy Racers breaking the 65 mph barrier.

High-Quality Folding Clincher

Tire

1978 USA Specialized introduce the first high-quality foldablr clincher tire (the Turbo) which launches the demise of the tubular.

Aerodynamic Road/Track

Bicycles

1980 East Germany

Introduction of aerodynamic bicycles with a stable construction. Culminated in the American "Super Bike" at the 1984 Los Angeles Olympics.

Mass-Produced Mountain Bike

1981 USA The specialized Stumpjumper mountain bike is launched nationwide, capitalizing on the Marin Country vogue inspired by Calofornian icons, Gary Fisher, Joe Breeze, Tom Richey et al. (all of whom also produced earlier mountain bikes).

Electronic Cycle Computer

1983 USA Avocet launch the first electronic cyclometer (bike computer).

Moulton 1983 England Moulton launches his second generation of "space-frame" small-wheeled bicycles.

Clipless Pedals 1984 France LOOK markets their clipless pedal (following on an earlier track model launched by Cinelli in 1970; the "Death Cleats", no automatic release).

Index Shifting 1985 Japan Shimano introduces SIS indexed shifting (learning from their inferior product, the Positron, from 1977).

  1986 USA Kestrel introduces their production non-lugged, carbon fiber frame and Trek market their first lugged carbon frame.

Suspended Mountain Bike

1987 USA Paul Turner demonstrates a full suspension bicycle with front and rear shocks. Eventually becomes a partner in Rock Shox. Diversified the sport of off-road biking.

Aero Handlebars 1987 USA Scott USA manufactures the first modern aerobars, originally the brainchild of Boone Lennon. Pete Pensyres had earlier used his own clip-on style bars in setting his RAAM record.

High-Performance Folding Bike

1989 USA Hanz Scholz designs the Bike Friday "World Tourist". A reasonably compact folding bicycle that matches the performance of conventional touring machines.

Integrated Brake/Shift

Levers

1990 Japan Shimano introduces integrated brake/gear levers.

Electric Derailleurs

1993 France Mavic markets their ZAP electronic shifting. Ceases production in 2001. Possible future follow-up by Campangnolo. Browning Research had invented a prototype electronic system in 1974.

Hydraulic Disc Brake

1994 USA Sachs (SRAM) introduces Power Disc, the first mass-produced hydraulic disc brake system.

  1998 Germany Rohloff develops the Speedhub, 14 equally-spaced hub gears which are operated by a twist-grip with no overlapping ratios and a gear range as wide as a 27-speed derailleur system.

30-Speed Derailleur Drivetrain

2002 Italy Champagnolo offers a 30-speed derailleur drivetrain with the Record 3-x-10a adrivetrain.