Page |1

CORPORATE FINANCE PROJECT ON HERO

MOTO CORP

Submitted to

Dr. PANKAJ GUPTA

Submitted by
Saikiran Janjanam
 Page |2

Table of Content

Chapter No. Report Section Page

No.

1 Introduction 3

2 Industry Analysis 4

3 Corporate Governance Analysis 5

4 ESG Ratings 7

5 Risk & Return Analysis 8

6 Measuring Investment Returns 9

7 Dividend Policy 10

8 Conclusion

.
 Page |3

ABOUT HERO MOTORS

Hero Motocorp Ltd, formerly Hero Honda, is an Indian motorcycle and scooter manufacturer based in New
Delhi, India. The company is the largest two-wheeler manufacturer in the world, and also in India. Hero Honda
started its operations in 1984 as a joint venture between Hero Cycles of India and Honda of Japan. In 2010,
when Honda decided to move out of the joint venture, Hero Group bought the shares held by honda
In June 2012, Hero MotoCorp approved a proposal to merge the investment arm of its parent Hero Investment
Pvt. Ltd. with the automaker. This decision came 18 months after its split from Hero Honda.
"Hero" is the brand name used by the Munjal brothers for their flagship company, Hero Cycles Ltd. A joint
venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda
Motors Limited at Dharuhera, India. Munjal family and Honda group both owned 26% stake in the Company.
The name of the company was changed from Hero Honda Motors Limited to Hero MotoCorp Limited on 29
July 2011. The new brand identity and logo of Hero MotoCorp were developed by the British firm Wolff
Olins. The logo was revealed on 9 August 2011 in London.
On 21 April 2014, Hero MotoCorp announced their plan on a ₹254 crore (US$35 million) joint venture
with Bangladesh's Nitol-Niloy Group in the next five years to set up manufacturing plant in Bangladesh. The
plant started production in 2017. Hero MotoCorp owns the 55% of the manufacturing plant and rest 45% is
owned by Niloy Motors
Hero MotoCorp has five manufacturing facilities based at Dharuhera, Gurgaon, Neemrana, Haridwar
and Halol under Green Field stage. These plants together have a production capacity of 76 lakh+ 2-wheelers
per year. Hero MotoCorp has a sales and service network with over 6,000 dealerships and service points across
India.
It is reported that Hero MotoCorp has five joint ventures or associate companies, Munjal Showa, AG
Industries, Sunbeam Auto, Rockman Industries and Satyam Auto Components, that supply a majority of its
components.
The company has a stated aim of achieving revenues of ₹64,000 crore (US$8.9 billion) and volumes of 10
lakh two-wheelers by 2016–17. This in conjunction with new countries where they can now market their two-
wheelers following the disengagement from Honda. The present share value of Hero MotoCrop is 299.60.
 Page |4

CEO BIO
Mr. Pawan Kant Munjal, B.E. (Mech.), serves as the Managing Director and Chief Executive Officer of Hero
MotoCorp Limited. Mr. Munjal is responsible for day to day management of the affairs of Hero MotoCorp
Limited. He serves as Works Executive of Majestic Auto Ltd. He serves as a Member of Executive Board and
Member of Governing Board of Indian School of Business. He has been Chairman of Hero MotoCorp Limited
since June 1, 2015 and served as its Vice Chairman from August 5, 2014 to June 1, 2015. He has been an
Executive Director of Hero MotoCorp Limited since April 1, 1986. Mr. Munjal serves as a Non-Executive
Director of Hero Honda Fin lease Ltd. He serves as Director at Hero Future Energies Limited. He serves as a
Member of the Board of Governors at Indian Institute of Management, Lucknow. He is a Member of the
Development Council for Automobile & Allied Industry (DCAAI) and Board of Trade (BOT) constituted by
the Government of India. Mr. Munjal is on the Governing Council of All India Managing Association (AIMA).

INDUSTRY ANALYSIS
Threat of new entrants: High
There are absolute high barriers to entry in this industry, making the threat of new entrants High. Very few
new players or entrepreneurs are capable of venturing into the automotive industry because it requires a high
capital investment to set up manufacturing facilities and a distribution network.
Threat of substitutes: Low
The threat of substitutes on the other hand does exist. Increasing fuel prices have been pushing some urban
drivers to use public transportation.
Bargaining power of Suppliers: Moderate
The power of suppliers is mitigated by the number of existing potential suppliers in this industry, but switching
costs are high because establishing part designs and specification requires a fair initial investment
Bargaining power of Customers: Moderate
Buyer power refers to the ability of individual customers to negotiate prices that extract profit from the seller.
Private individuals, commercial companies and governments are the primary buyers of motor vehicles
Competitive Rivalry: High
in the automotive industry has become much more intense as Firms compete on both prices and non-price
dimensions.
 Page |5

CORPORATE GOVERANANCE ANALYSIS

MANAGEMENT AND STOCKHOLDERS

Sl.No Name Position Salary & Age Tenure

Perquisites
1 Pavan Munjal Chairman 754 M 64
2 Niranjan Gupta CFO 26M 47 2 yrs
3 Surendra Vice- - 62 -
Chhabra president of
Corporate
Finance
4 Markus Chief - - 4.5 yrs
Braunsperger Technology
Officer
5 Vijay Sethi Chief - - 3.8yrs
Information
officer
6 Vikram Head of BR 63M 63 2.7 yrs
7 Sanjay Bhan Head of Sales - - 0.7 yrs
& After Sales

STOCKHOLDERS COMPOSITION

SHARE HOLDERS PERCENTAGE

PRIVATE COMPANIES 34%

INDIVIDUAL HOLDERS 1%

INSTITUTIONS 39%

STATE OR GOVERNMENT 1%

GENERAL PUBLIC 24%

The majority of stock is hold in the hands of Institutions followed by Private company and the least percentage
in the hands of Government & Individuals.
 Page |6

BOARD OF DIRECTORS
S.NO NAME TITLE COMPENSATION AGE TENURE
1 Vikram Head of BR ₹63M 63 2.7yrs
Kasbekar
2 Pradeep Non-Executive & ₹9M 65 18.1yrs
Dinodia Independent
Director
3 Pavan Munjal Chairman ₹754M 64 3.8yrs
4 Meleveetil Non-Executive & ₹8M 71 10.8yrs
Damodaran Independent
Director
5 Anand Burman Non-Executive & ₹2M 66 9.3yrs
Independent
Director
6 Ravi Nath Non-Executive & ₹6M 73 9.5yrs
Independent
Director
7 Suman Munjal Non-Executive ₹2M 65 8.8yrs
Director
8 Paul Edgerley Non-Executive & ₹800K 62 2.9yrs
Independent
Director
9 Shobana Non-Executive & ₹900K 58 4.1yrs
Kamineni Independent
Director
10 Jagmohan Raju Additional - - 0.4yrs
Independent Non-
Executive Director

 Average tenure and age of the Hero MotoCorp board of directors in years is 6.4 and 65 which is
more than industry average.
 Page |7

CSR (Corporate Social Responsibility)

 Programmes on Road Safety under Ride Safe India

 Programmes on Girl Child Empowerment and Education under Hamari Pari
 Programmes on Clean and Green India under Happy Earth
 Programmes to support community development under Community Care
 Programmes on using Digital for Awareness on Social Causes under Digi Aware
 School development project handover.
 Hero impact league
 Physical aid distribution
 Health check-up camp
 HIV awareness camp
 Yoga and meditation camp

ENVIRONMENT, SOCIAL & GOVERNANCE RATINGS

ESG ratings how well the companies proactively manage the environmental, social and governance issues
that are most material to their business and provide assessment of company’s ability to mitigate ESG risks.
The ESG rating is quantitative score on a scale 1-100, based on balanced score system.

COMPANY ESG SCORE Environment Social Governance

Hero Moto
Crop 62 60 54 76

Bajaj Auto Ltd 63 57 69 65

 Page |8

RISK AND RETURN

Top-Down Beta
A regression analysis was done to measure the historical performance of all the companies relative to a market
index. Weekly returns over the past two years were used and regressed against the same time period for the
Nifty500. The below table illustrates the results of that analysis.

RISK &RETURN CHARACTERISTICS

Compan Regressio Referenc Industr Industr Averag Jensen’ R2 from Standar
y n Beta e Index y y e Risk s Alpha Regressio d Error
Averag Free n of Beta
e Rate
Beta
Hero 0.38 Nifty Auto 0.79 7.23 9% 37.92% 0.001
Moto 500 (Annua
Corp l)

Bottom-Up Beta
An alternative method for evaluating beta is the ‘Bottom-Up’ approach to beta estimation that uses market
industry averages to come to a potentially more accurate value. The market value of debt and equity is
needed to calculate a beta using the bottom-up approach. The below table outlines these values for each
company:

Capital Value (In millions)

Company Value of Value of Value of Debt/Equity Levered Unlevered
Equity Debt Capital Ratio Beta Beta
Hero Moto 110646.70 2278.90 112924.60 2.05% 0.8 0.578
Corp

COST OF CAPITAL
Company Beta Cost of Equity Cost of Debt Cost of Capital
Hero Moto Corp 0.8 14.43% 2.74% 14.19

The cost of capital is lower then that cost of equity because the tax rate is not applicable for debt. The debt
of Hero Moto Crop is very low. There will be no tax on interest and cost of equity is higher then cost of
equity. Hero Moto Crop try to take increase in order to reduce weighted average cost of capital and
maximises the value of firm.
 Page |9

MEASURING INVESTMENT RETURNS

Summary of Investment Returns

Company ROC Cost ROC- EVA ROE Cost ROE- BV Equity

of WAC of COE Equity EVA
Capit C Equit
al y
Hero Moto 29.79 14.19 11.44 1933.7 31.37 14.43 16.94 11768. 1994.4
Corp % % % 1 % % % 88 01

Industry Investment Returns

Company ROC Industry ROE Industry

ROC ROE
Hero Moto 29.79% 3.63% 31.37% 7.32%
Corp

Return of capital of Hero Moto Corp is more than average industry Return on capital.
 P a g e | 10

DIVIDEND POLICY

Year Dividend Per Average Yield (%) Dividend

Share Payout
2018 95 2.994 0.51
2017 85 2.279 0.50
2016 72 2.252 0.45
2015 60 2.328 0.50
2014 60 2.227 0.56

The dividend rate of the company is constant position for the last 5 years which is very good sign for the
company the average rate of dividend pay-out is about 0.51 which indicates that the company is providing
very good rate of dividend to there share holders Dividend per share value is increasing from the last 5 years.