Hero Moto will defer investments, save cash

NEW DELHI: The country’s top two-wheeler maker Hero MotoCorp has decided to defer planned investments for capacity additions due to the coronavirus pandemic, and has sought an immediate tax relief from the government in terms of GST rate cut and relaxations in electric vehicle launch mandates.
Pawan Munjal, chairman and CEO of Hero Moto-Corp, said the company has gradually resumed production at its factories in India, Bangladesh and Colombia (in Latin America), though the output is limited to begin with. However, he said that while the company conserves cash, it will not be cutting jobs or salaries.

“The plants are not fully functional as yet, as we are working in single shift, with a smaller number of people. We are not operating all assembly lines, and are maintaining a safe distance. This naturally brings down our production and productivity,” Munjal said at the opening session of TOI Dialogues, a unique leadership summit (The topic for Tuesday’s TOI Dialogues was business continuity in the times of Covid).

Hero MotoCorp had said a few months ago that the company was looking to invest as much as Rs 10,000 crore towards model launches, new technologies, and capacity augmentation. Munjal said that some of these investments may now be deferred. “We are paying salaries, and taking care of our overheads in a shutdown when we are not making any revenues. The most important thing for the organisation now is to conserve cash. Cash is very precious, and so investments do take a back seat.”

Munjal said that investments that were already in progress would be completed. “… we haven’t stopped that. But where we did not start, we definitely stopped… We will definitely defer expansion in Halol (Gujarat) plant and new investments in Andhra Pradesh facility.”

The company does not see the need to produce more when demand is expected to stay weak. “For this fiscal, the total sales will probably be lower than what we had expected previously. Thus, why would we go there and put in investments that will stand still and give no returns?”

Apart from a cut in GST, Munjal said that the government should also look at reducing dividend tax. “People will then have the ability to give higher dividends and put more money in the hands of the consumers.”