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Introduction
In April 2009, India-based Hero Honda Motors Limited (Hero Honda) announced that it was planning to
develop a low-priced motorcycle. The company said that the motorcycle would be launched specifically
for rural consumers and was likely to be priced between Rs. 12,500 and Rs. 15,0005. Pawan Munjal
(Munjal), Managing Director and Chief Executive Officer of Hero Honda, said, "This (a low-price bike) has
been on our horizon for a long time but we haven't been able to come up with a solution till now. But
this is not the end and we hope to come up with a solution... we continue to work on this.͟

Introduction Contd...

Munjal said that although the new motorcycle would be made available at a low cost, the company
would not compromise on its quality and safety. He said, "Whatever we bring should certainly have a
significant price advantage. Just because we have an enhanced rural focus, it does not mean that rural
customers can be offered products which do not stand the test of performance or durability. In fact,
rural customers need sturdier vehicles (than urban ones)."7

Started in 1984, Hero Honda was the result of a joint venture between Japan-based Honda Motor
Company Limited (HMCL) and the India-based Hero Group.

Hero Honda started its journey with the launch of Hero Honda CD-100 motorcycle, the first four-stroke
motorcycle to be launched in the Indian market. By the early 2000s, Hero Honda had firmly established
its presence in the Indian two-wheeler market.

In late 2007, Hero Honda started paying importance to expanding its presence in rural India. It felt that
rural India had the potential to be a large market for two-wheelers (Refer to Exhibit I for a note on the
Indian Rural Market)...

Excerpts

The Indian Two Wheeler Industry

The history of the Indian two-wheeler industry can be traced back to the mid-1900s. In 1952, Enfield
India Limited (Enfield) started manufacturing motorcycles. In 1955, Automotive Products of India (API)
began manufacturing scooters in the country...

About Hero Honda

The history of Hero Honda dates back to 1984, when Hero Group entered into a joint venture with
Japan-based HMCL, to manufacture motorcycles. HMCL was to provide technical support to the
company. In the joint venture, HMCL and the Hero Group each held a 26 percent equity stake...

Hero Honda's Rural Thrust

The global financial crisis of 2008-09 resulted in a credit crunch, rising unemployment, declining income,
and turmoil in the stock markets across the world. The Indian automobile industry also had been
battling with the crisis since early 2008...

RURAL NETWORK

During the financial year 2007-2008, the rural network of Hero Honda covered 18,000 of the targeted
23,360 villages with a population of more than 5,000 across India. The company also announced its plan
to cover 100,000 villages of the total 600,000 villages in India by the end of the financial year 2008-09...

DISTRIBUTION

Hero Honda followed a "Hub and Spoke System" in distributing its products in rural areas. The company
gave a dealership to one dealer who would take care of a district...

PROMOTION

Hero Honda promoted its products aggressively during festive seasons in different regions of India as
sales during festive season was generally higher compared to the rest of the year...

RETAIL FINANCE

The growth of the Indian two-wheeler industry was highly dependent on the availability of retail finance.
According to analysts, lack of financing could result in a decline in sales..

Excerpts Contd...

The Road Ahead

At a time when most of the automobile manufacturers had to decrease production, Hero Honda
increased its production capacity at its Haridwar manufacturing plant from 2,000 units per day to 3,000
units per day in January 2009. It took advantage of the tax benefits offered by the government to
companies for establishing manufacturing plants in hill states like Uttarakhand. Hero Honda was not
required to pay excise duty to the government for the first 10 years and income tax for the first five
years of production at its Haridwar plant...

Exhibits

Exhibit I: A Note on the Indian Rural Market

Exhibit II: Financial Performance of Hero Honda (2008-09)

Exhibit III: Advertisement of Hero Honda Pleasure

Exhibit IV: Financial Highlights of Hero Honda (2003-2007)

Exhibit V: Market Share of Hero Honda (2004-08)

Exhibit VI: Comparison of Financial Results of Hero Honda and Bajaj Auto (Q3 FY 2008-09)

Exhibit VII: Market Share of Leading Players in the Indian Two Wheeler Industry (FY 2008-09)