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 Industry
Bicycle 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 Companies

Hero 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 Group

The 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 Steel
The 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. 

Quality
Quality 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."

Milestones
Hero'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.

Hero Cycles ties up with National Bicycle Industries, part of

Matsushita Group to manufacture high-end bicycles.
2002
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.

HeroITES, a division of HeroCorporate Service Limited

2004 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
 Hero Group celebrates Golden Jubilee year since
2006 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 CM

Speaking 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 2009-10

Highest 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 1,285.0 1,490.5 1,701.8
Income (OI)
OPBDIT 50.8 111.6 183.7
Profit After 66.3 57.7 300.3
Tax (PAT)
Net Cash 82.5 74.3 317.5
Accruals
Total Debt 253.8 241.5 268.3
Tangible Net 599.3 674.0 952.9
worth
OPBDIT/OI 4.0% 7.5% 10.8%
PAT/OI 5.2% 3.9% 17.6%
PBIT/Average 12.6% 14.9% 34.6%
(TD+TNW+D
TL)
Total Gearing 0.42 0.36 0.28
OPBDIT/Inter 2.42 3.93 9.79
est & Finance
Charges
(GCF+ 2.39 2.78 6.21
Interest)/Intere
st
NCA/Total 33% 31% 118%
Debt
Total 5.0 2.2 1.5
Debt/OPBDIT
A
Debtor days 53 56 55
Inventory 35 22 24
days
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 Industry
Innovation 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- Scotland Kirkpatrick Macmillan is traditionally credited with a
1840 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- 1843 France Alexandre Lefebvre is credited with a rear-drive
Drive Bicycle 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- 1851 England Willard Sawyer exhibits his four-wheeled, crank-driven
Wheeler vehicle at the Great Exhibition and subsequently
becomes established as a Velocipede manufacturer.
Boneshaker 1864 France J. Townsend Trench documents his purchase of a
Bicycle 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 1870 England W. H. J. Grout patents the radially spoked, nipple
Wheel 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 1878 England Scott and Phillott patent the first practicable epicyclic
Gearings change-speed gear fitted into the hub of a front-
driving bicycle.
 Folding 1878 England Grout patents a folding High Wheeler, the first
Highwheeler "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 1896 England William Reilly patents a two-speed hub gear. His later
Gearing 3-speed version was put into production by Sturmey
Archer in 1902.
Butted Frame 1897 England Alfred M. Reynolds takes out a patent on "butted"
Tubes 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 1915 Italy Bianchi produced a folding bicycle for the Italian Army
Mountain Bike 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- USA Introduction by Schwinn of the balloon tire and
1934 "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 1970 USA The movie On Any Sunday by Bruce Brown debuts.
Motocross) 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 1974 USA Teledyne markets the first titanium bike that was
Titanium produced in any quantity (Speedwell of England had
Frame/Fork 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 1975 USA Gary Klein displays his welded and heat-treated
Frames/Bikes 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 1978 USA Specialized introduce the first high-quality foldablr
Folding Clincher clincher tire (the Turbo) which launches the demise of
Tire the tubular.
Aerodynamic 1980 East Introduction of aerodynamic bicycles with a stable
 Road/Track Germany construction. Culminated in the American "Super Bike"
Bicycles at the 1984 Los Angeles Olympics.
Mass-Produced 1981 USA The specialized Stumpjumper mountain bike is
Mountain Bike 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 1983 USA Avocet launch the first electronic cyclometer (bike
Computer 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 1987 USA Paul Turner demonstrates a full suspension bicycle
Mountain Bike 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- 1989 USA Hanz Scholz designs the Bike Friday "World Tourist". A
Performance reasonably compact folding bicycle that matches the
Folding Bike performance of conventional touring machines.
Integrated 1990 Japan Shimano introduces integrated brake/gear levers.
Brake/Shift
Levers
Electric 1993 France Mavic markets their ZAP electronic shifting. Ceases
Derailleurs production in 2001. Possible future follow-up by
Campangnolo. Browning Research had invented a
prototype electronic system in 1974.
Hydraulic Disc 1994 USA Sachs (SRAM) introduces Power Disc, the first mass-
Brake 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 2002 Italy Champagnolo offers a 30-speed derailleur drivetrain
Derailleur with the Record 3-x-10a adrivetrain.
Drivetrain