ND L18fontscorrected FIN.qxd 7/26/2004 5:29 PM Page 1 · 2015. 9. 4. · 2 Board of Directors 4 Highlights 6 Chairman’s Letter 10Managing Director’s Message 12Joint Managing Director’s

2 Board of Directors

4 Highlights

6 Chairman’s Letter

10 Managing Director’s Message

12 Joint Managing Director’s Message

14 Chronicle of 20 Years

22 Management Discussion & Analysis

37 Financial Highlights & Key Ratios

38 Economic Value Added Statement

40 Directors’ Report

48 Corporate Governance Report

64 Annexure II & III to Director’s Report

69 Auditors’ Report

70 Annexure to Auditors’ Report

72 Balance Sheet,Profit & Loss Account

and Cash Flow Statement

76 Schedules

CONTENTS

ND_L18fontscorrected FIN.qxd 7/26/2004 5:29 PM Page 1

HERO HONDA

Annual Report 2003–2004

2

BRIJMOHAN LALL MUNJAL CHAIRMAN

PAWAN MUNJAL MANAGING DIRECTOR

AKIO KAZUSA JOINT MANAGING DIRECTOR

SHINICHI NAKAYAMA WHOLE–TIME DIRECTOR With effect from May 9, 2003

SATYANAND MUNJAL NON EXECUTIVE DIRECTOR

OM PRAKASH MUNJAL NON EXECUTIVE DIRECTOR

SATYA PAUL VIRMANI NON EXECUTIVE & INDEPENDENT DIRECTOR

MAHENDRA PAL WADHAWAN NON EXECUTIVE & INDEPENDENT DIRECTOR

OM PRAKASH GUPTA NON EXECUTIVE & INDEPENDENT DIRECTOR

SATOSHI TOSHIDA NON EXECUTIVE & INDEPENDENT DIRECTOR

KOJI NAKAZONO NON EXECUTIVE & INDEPENDENT DIRECTOR with effect from April 1, 2004

NARENDRA NATH VOHRA NON EXECUTIVE & INDEPENDENT DIRECTOR

PRADEEP DINODIA NON EXECUTIVE & INDEPENDENT DIRECTOR

GEN. (RETD.) VED PRAKASH MALIK NON EXECUTIVE & INDEPENDENT DIRECTOR

YUKIHIRO AOSHIMA NON EXECUTIVE & INDEPENDENT DIRECTOR upto April 1, 2004

KAZUMI YANAGIDA EXECUTIVE DIRECTOR upto April 24, 2003

BOARD OF DIRECTORS


3TECHNICAL AND FINANCIALCOLLABORATORSHONDA MOTOR CO., LTD.

1–1 MINAMI AOYAMA

2–CHOME, MINOTO–KU

TOKYO 101–8556, JAPAN

REGISTERED AND CORPORATE OFFICE 34, COMMUNITY CENTRE,

BASANT LOK, VASANT VIHAR,

NEW DELHI 110 057

TEL: 011-2614 2451, 2614 4121

FAX: 011-2615 3913

www.herohonda.com

DHARUHERA PLANT 69 K.M. STONE

DELHI–JAIPUR HIGHWAY

DHARUHERA, DISTT. REWARI

HARYANA 121 006

TEL: 01274-242 131–135

FAX: 01274-242 399

GURGAON PLANT 37 K.M. STONE

DELHI–JAIPUR HIGHWAY

SECTOR 33–34, INDUSTRIAL AREA

GURGAON

HARYANA 122 001

TEL: 0124-2372 123–130

FAX: 0124-2373 141–142

SR. VICE PRESIDENTSATUL SOBTI MARKETING & SALES

K. K. AGRAWAL OPERATIONS

VICE PRESIDENTSK. K. MALHOTRA MATERIALS

N. N. AKHOURI HRM

RAVI SUD FINANCE

S. R. BALASUBRAMANIAN INFORMATION SYSTEMS

COMPANY SECRETARYILAM C. KAMBOJ

AUDITORSA.F.FERGUSON & CO.CHARTERED ACCOUNTANTS

9, SCINDIA HOUSE, KASTURBA GANDHI MARG

NEW DELHI–110 001

PRINCIPAL BANKERSPUNJAB NATIONAL BANKCITIBANK N.A.THE BANK OF TOKYO—MITSUBISHI LIMITEDABN AMRO BANK N.V.HDFC BANK LIMITEDSTANDARD CHARTERED BANKICICI BANK LIMITEDHSBC LIMITED

COMMITTEE OF DIRECTORSAUDIT COMMITTEEM. P. WADHAWAN CHAIRMAN

O. P. GUPTA PRADEEP DINODIA

SHAREHOLDER'S GRIEVANCE COMMITTEEO. P. GUPTA CHAIRMAN

PRADEEP DINODIA KAZUMI YANAGIDA upto April 24, 2003

M. P. WADHAWAN with effect from September 30, 2003

REMUNERATION COMMITTEES. P. VIRMANI CHAIRMAN

N. N. VOHRA GEN. (RETD.) VED PRAKASH MALIK


4 COMPLETION OF 20 GLORIOUS YEARS of Growth,Leadership and Value Creation.

2.07 MILLION Hero Honda motorcycles soldduring the year.

HERO HONDA SPLENDOR continues to be the largestselling two-wheeler model in the world for the fourthyear in a row.

THE NO.1 two wheeler company in the world for thethird year in a row.

OPBT GREW by 14.6 % from Rs.792 Crore to Rs.907Crore. Operating margin (OPBT as a percentage ofnet sales) increased from 15.5%in 2002-03 to15.6% in 2003-04.

MARKET SHARE INCREASEDTO 48% in motorcycles, 4%gain over the previous year.

OVER 1 MILLION UNITS OFSPLENDOR sold during FY2003 - 04

HIGHLIGHTS OF THE YEAR 2003-2004

TOTAL INCOME PROFIT AFTER TAX ROACESALES VOLUME

In Lacs In Rs. Crores In Rs. Crores In %


RETURN ON AVERAGE EQUITY (ROAE) was at 72.9%in 2003-04.

OPBDIT GREW by 14.7% from Rs. 854Crore in 2002-03 to Rs. 979 Crore in2003-04. OPBDIT as a percentage ofnet sales increased from 16.7 per centto 16.8 per cent during the sameperiod.

NFO 2003 TOTAL CUSTOMERSATISFACTION (TCS) Awards forSplendor and CD100SS

POST TAX PROFIT (PAT) GREW by 25.4%from Rs. 581 Crore to Rs. 728 Crore in 2003-04.

RETURN ON AVERAGE CAPITAL EMPLOYED (ROACE) was at 92.8% in 2003-04.

ROAE EARNINGS PER SHARE(on face value of Rs. 2.00 per share)

EVA/CAPITAL EMPOYED NET CASH FLOW FROMOPERATIONS

5

In % In Rs. In % In Rs. Crores

5 MILLIONTH MOTORCYCLE rolledout at Dharuhera plant

RANKED NO. 3 among Indian Companies by Review200 for the third consecutive time by Far EasternEconomic Review; only Indian automobile companyto ever make it to the list.


IHAVE BEEN USING the annual report

as an appropriate medium to

communicate the performance and

progress of your Company and also

unveil the future plans of the

Company.

Making sustained progress through

investments and improvements in

its functioning is the hallmark of a

company, which is well managed

and is committed to its vision and

purpose. In this regard, I am

pleased to inform you that Hero

Honda in the year 2003–2004

completed 20 years of its existence

and during the year added new

milestones to its already existing

long list of achievements so far.

In the year under review, Hero

Honda sold over 2 million

motorcycles and recorded a 23%

growth over last years' 1.68 million

sales. Not only that, your

Company's sales growth was higher

than the industry average of 14%.

Your company also improved its

market share to 48% and 37% in

motorcycles and two–wheelers

respectively. What is more important

to note is that for the third year in a

row, the Company retained its

number one position as the single

largest two–wheeler manufacturer in

the world. Splendor, the world's

largest selling brand, for the fourth

consecutive year not only retained

its position but also achieved the 1

million sales mark. With 5 new

launches during the year, the entire

product range gave a fresh and

contemporary image to the

customers.

It is equally satisfying to note that

the financial results, which are

considered to be the best in the

industry for the year, reflect both the

sides of the Company's

performance. That is, they reflect

the revenue earned through sales

and also the efficiency with which

resources were managed in the

process of creating wealth for

shareholders.

Hero Honda's sales increased by

CHAIRMAN’S LETTER

HERO HONDA


6

BRIJMOHAN LALL

CHAIRMAN

Dear Members,


7

14.3 per cent from Rs.5,102

Crore in 2002–03 to Rs.5,832

Crore in 2003–04. Cost of raw

materials as a percentage of

total sales increased from 68.0

per cent in 2002–03 to 69.1

percent in 2003–04, owing to a

change in sales mix and higher

steel prices (during the latter

part of the fiscal year).

A continuous focus on cost

management and operating

efficiency has enabled the

company to marginally improve

its OPBDIT margin from 16.7

per cent in 2002–03 to 16.8 per

cent in 2003–04. Operating

profit (PBT before other income)

grew by 14.6 per cent from

Rs.792 Crore in 2002–03 to

Rs.907 Crore in 2003–04.

Operating profit margin

improved marginally from 15.5

per cent in 2002–03 to 15.6

percent in 2003–04. Profit after

tax (PAT) went up by 25.4 per

cent from Rs.581 Crore in

2002–03 to Rs.728 Crore in

2003–04. Other Income rose from

Rs.92.9 Crore in 2002–03 to

Rs.165.0 Crore in 2003–04.

Return on average capital

employed (ROACE) of the

Company was 92.8 percent in

2003–04, while return on average

equity (ROAE) was 72.9 per cent

in 2003–04. Above all, your

Company continues to be a debt

free company.

We feel quite happy at these

results. At the same time we are

making continuous efforts to

reduce costs further through

efficiency and productivity, so that

we are able to offer products at a

reasonable price and realize better

profits. We are not alone in this

endeavour. All the vendors,

suppliers and dealers and other

associates have been contributing

their bit to achieve the goals of the

Company and we acknowledge

their continuous co-operation in

sustaining our leadership position.

Most important of all is the support

20Y E A R S

We are proud of the fact that Hero Honda is one of the most

successful two-wheeler joint ventures of Honda world wide. Not

only will the 20 years of relationship be cemented further, Honda

is committed to providing full support to Hero Honda. Be it

advance engine technology, new product introductions or any

other related area of the partnership.

S. TOSHIDAMANAGING DIRECTOR, CEO REGIONAL OPERATIONS (ASIA OCEANIA)HONDA MOTORS CO. LTD, JAPANJune 2, 2004

FOR THE THIRD YEAR IN A ROW, THECOMPANY RETAINED ITS NUMBERONE POSITION AS THE SINGLELARGEST TWO–WHEELERMANUFACTURER IN THE WORLD.SPLENDOR, THE WORLD'S LARGESTSELLING BRAND, FOR THE FOURTHCONSECUTIVE YEAR NOT ONLYRETAINED ITS POSITION BUTACHIEVED THE 1 MILLION SALESMARK


and co-operation we have been

recieving from our JV Partner,

Honda Motor Co., Japan and Hero

Cycles, Ludhiana, from time to

time. You will be pleased to know

that the technical collaboration

between Honda and Hero Honda

has been extended for another 10

years, that is, up to 2014, which

will ensure continuous flow of

world class technology and

technical assistance for our

products and processes. As in the

past, the combination of business

understanding of Hero Honda and

technology of Honda Motor

Company will certainly provide us

a competitive advantage.

Customer is the purpose of our

enterprise. In order to build a

lasting relationship with customers,

Hero Honda started what is now

popularly known as the “Hero

Honda Passport Program”. Under

this scheme, every customer of

Hero Honda, past or present is

eligible to enroll as a member.

Passport holders are in a way

special members of the Hero

Honda extended family; they will

have an opportunity to promote

Hero Honda products and in turn

reap the benefits of their

relationship with the company

under the scheme. They can send

referrals to purchase our products,

buy components at authorized

dealers and accumulate points.

Every transaction makes them

eligible for incentives and gifts

depending on aggregate scores. As

of date, there are about 1.5 million

passport holders, which is 50%

higher than last year's enrolment.

In order to serve the customer in

every nook and corner of the

country, the Company has been

expanding its network of

dealerships and service points.

Today a customer has over 1700

contact points for enquiry,

purchase, and service of Hero

Honda products that include 545

dealers and 385 SSPs. In the

coming years, we would like to

extend this facility at Taluq levels

also. For the last few years, spare

parts business has been

developed as a profit center, which

for the year under review

contributed a turnover of Rs.275

Crores. In order to establish on line

connection with the dealers and

communicate with them on real

time basis, network infrastructure

is being put in place.

Similarly your Company has 256

suppliers that include 36

ancillaries. They work with us in

tandem and have been delivering

supplies without hiccups for our

expanding capacities, which is

today rated at 2.8 million vehicles

per annum. The continuous

expansion in quick succession

HERO HONDA


Chairman’s Letter

THE COMBINATION OF BUSINESSUNDERSTANDING OF HEROHONDA AND TECHNOLOGY OFHONDA MOTOR COMPANY WILLCERTAINLY PROVIDE US ACOMPETITIVE ADVANTAGE

PASSPORT HOLDERS ARE IN AWAY SPECIAL MEMBERS OF THEHERO HONDA EXTENDED FAMILY;THEY WILL HAVE ANOPPORTUNITY TO PROMOTE HEROHONDA PRODUCTS AND IN TURNREAP THE BENEFITS OF THEIRRELATIONSHIP WITH THECOMPANY

8


would not have been possible for

us without their solid support.

Hero Honda has been able to

achieve direct on line facility with

15 vendors to begin with and we

have plans to achieve 50%

coverage in the current fiscal itself.

In order to increase efficiency,

supply chain management,

supplier relationship management

modules of SAP ERP are extended

to our suppliers. Initially a few

suppliers (ten) have been chosen

for this purpose, and the scheme

will be extended to others in a

phased manner. We have also

been continuously extending

technical assistance to our

suppliers to enable better quality

compliance and for effecting cost

reduction.

We are very much aware of your

unstinted support all along for this

organization and its efforts, which

are directed at creating wealth and

profit. We do not believe in holding

the surplus beyond requirement

and thus have been distributing

them in the form of dividend. We

are happy that we have been able

to declare every year an increasing

rate of dividend for our

shareholders. For the fiscal year

2003–04, your Board of Directors

has recommended a total of

1000% dividend, including the

500% Special Interim Dividend

already paid to the Share holders.

It gives me great satisfaction to

share with you the fact that our

employees are quite committed to

organizational growth and the

organization treats them and their

families as stakeholders. Our

productivity has been showing

steady improvement from our

4000 plus member strong team. It

has been our endeavour to train

them for better productivity and

skill improvements.

Hero Honda as a corporate citizen

is engaged in community and

social development activities

around its plants. It has been a

satisfying experience to see the

marked changes in the quality of

people of the region due to these

programs.

Coming to the perspective, we feel

that Hero Honda has a great role

to play in the Indian two–wheeler

industry, the second largest in the

world. Current macro economic

trends and demographic factors

promise sustained growth in

demand. No doubt there are

challenges of increased

competition, rising prices of raw

materials and services and

discerning choice of customers,

which need continuous attention.

There is a need to think and act in

an innovative manner to discover

new avenues of growth and

efficiency. With our capabilities

built over the years and with the

assistance of Honda Motor

Company, we will be able to face

these challenges and create new

milestones as we march ahead.

Once again, thank you for your

continuous support, for which we

all at Hero Honda are truly

grateful.

Yours Sincerely

Brijmohan Lall

CHAIRMAN HERO HONDA MOTORS LTD.

9

20Y E A R S


HERO HONDA


10

Dear Members,

IT HAS BEEN AN EVENTFUL TWENTY

YEARS since the day Honda Motor

Co. of Japan and Hero Group of

India entered into a Joint Venture

agreement. Hero Honda has

traversed many milestones to

become the World's No.1 Two-

Wheeler Company. Powered by

partnerships - between Honda and

Hero Group to begin with, the

Company has extended the

collaborative spirit to its ancillaries,

vendors, suppliers, distributors,

shareholders, employees and other

stakeholders.

Management of partnerships has

been our strength. This is borne out

by the fact that Hero Honda has

emerged as one of the best

performing companies in the

country. Honda considers Hero

Honda amongst its most thriving

ventures across the world. Our

relationship with our collaborator

has been excellent throughout. It is

appropriate to recount that this

partnership has been responsible

for the introduction of India's first

four-stroke motorcycle CD-100,

which even today is a legend. It is a

matter of great pleasure to inform

you that Honda has renewed its

technical collaboration with Hero

Honda for another 10 years, that is,

up to 2014.

From the very beginning, Hero

Honda created ancillaries to

manufacture critical components for

motorcycles to ensure overall

efficiency. In today's modern

manufacturing system, companies

are increasingly dependent on

outsourcing and thus partnerships

have become all the more

important. As a result of our good

supply chain policies, ancillaries are

now able to supply components

directly on-line for assembly.

Our customer interface highlights

another dimension of successful

partnership. Dealers as our partners

carry on the spirit of Hero Honda to

the customers. With many of them,

we enjoy a special relationship

because they have been associated

THE POWER OF PARTNERSHIP

PAWAN MUNJAL

MANAGING DIRECTOR

Managing Director’s Message


11

20Y E A R S

Hero Honda is an example of an ideal partnership

where core competencies of two organizations have

come together to create a world leader. With our

combined strengths and the resolve for constant

improvement, Hero Honda will continue to dominate

the two-wheeler market.

BRIJMOHAN LALLCHAIRMAN, HERO HONDA MOTORS LTD

with us for generations. Through

them we extend the "Joy of Selling"

experience to the customer for our

products. In terms of customer

satisfaction and relationship

management, our Passport

Program has been unique in

creating a feeling of privilege as

well as loyalty among our valued

customers.

People working for the organization

are our creative assets. They are

the "lifeline" of the organization, as

they run our plants, and oversee

every aspect of the corporate

function. If our company is

efficient, it can be attributed to the

capability and dedication of our

people. We partner with them and

their families to make the

enterprise a happy work place.

The Customer is our valued

partner. In interacting with him

and in trying to provide products

and services to him we have learnt

a great deal about the market's

needs. His preference of our

products has been a continuous

inspiration for us to do even better

in terms of creating technologically

and performance-wise superior

products - one after another.

Our partnership with the

community around our

manufacturing facilities is in the

shape of projects covering rural

development, education and

health to raise the quality of life of

people. Under the aegis of Raman

Munjal Grameen Vikas Kendra

Hero Honda has established a

modern hospital and a senior

secondary school and vocational

training center in Dharuhera to

serve the community.

Finally our efforts have been

continuous in creating wealth for

investors. This, after all, is the

partnership that underwrites and

underlines all our corporate

relationships. Our record in this

regard is very noteworthy that the

company has almost always paid

dividends, which are increasing on

year-to-year basis. Our

performance and consistent

growth has resulted in a market

cap of over Rs.10000 Crores

during 2003-04 for your Company.

It is our firm belief that

partnerships are capable of

meeting challenges that may come

in the way of realizing the vision of

organization. They tend to pool the

skills, spread the ownership of the

task and reduce the risk.

Partnerships have achieved

unbelievable feats and won the

hearts of millions. The key to

success is being together as one

spirit. The two-decade track record

of your Company just proves that

point.

I take this opportunity to thank all

of you for reposing your

confidence in Hero Honda, which

has prospered through an array of

meaningful partnerships. Your

company would like to devote its

experience and energy to taking

the organization to new heights

and make Hero Honda a World-

Class Enterprise - a symbol of

great partnership.

Pawan Munjal

MANAGING DIRECTOR

HERO HONDA MOTORS LTD.


IT IS A GREAT PLEASURE for me to

address all of you on the occasion

of successful completion of 20

years of Hero Honda.

Honda follows a time-tested

philosophy of being closer to the

customer. That is Honda wants to

take production to wherever there is

a market. Where customer exists -

markets exist. On this principle

Honda came to India and entered

into a Joint Venture with Hero

Group in 1984. It was conceived as

the best combination of Honda's

technology and manufacturing

processes and Hero Group's

exceptional work culture and

understanding of Indian market. It

is a matter of great satisfaction that

the JV today is considered to be a

great success story.

A major thrust of Honda in India is

to promote indigenization of not only

components and parts but also to

create managerial capabilities for it.

This process would create jobs in

the society and through training we

raise the skills. In this respect Hero

Honda has done quite well.

Following the indigenization of

parts, the effort now is to indigenise

the technology. In other words, we

need to create technologies

appropriate for Indian condition and

Indian customer. For this purpose

local Honda R&D and Hero Honda

facilities are strengthened. It has

enabled us to respond to the

market requirements quickly and

come up with the launch of models

in quick succession. We are also

able to continuously observe the

needs of Indian customer and

translate them into product

features.

For Hero Honda, a customer is not

just an end user but also includes

all other stakeholders such as

dealers, vendors, employees etc.

Our goal has always been to exceed

the customer expectation in terms

of performance, quality, service,

safety and welfare. Hero Honda

employees know who is the

customer for them. They are quite

CUSTOMER IS TRUE VALUE

HERO HONDA


12

AKIO KAZUSA

JOINT MANAGING DIRECTOR

Dear Members,

Joint Managing Director’s Message


13

motivated. That is why the

company is able to become No.1

two wheeler company in India.

Our next step is to work for

recognition of Hero Honda in Asia

and Globally. Honda would like to

promote this objective of Hero

Honda and make it truly world-

class, not just in terms of volume

but also in terms of quality, cost

and management.

Corporate governance is a well-

recognized value in Hero Honda.

The code of transparency in

whatever we do will help build the

trust of all our associates. Another

area where our focus is high is

corporate social responsibility. It is

an obligation, which Hero Honda

has proactively taken up. For

example, we produce products,

which are environment friendly.

We promote safety education and

also social innovation. This is

Honda Motors global strategy as

well.

Completion of 20 years is a great

occasion to celebrate. It is also a

time-point to look back at our past

performance and reassess our

future goals. In the coming years

Honda and Hero Honda will work

together in the area of technology,

quality and cost in making the

enterprise a World No. 1 in all

respects. Honda's recent renewal

technical understanding is a

reassurance to our long-standing

cordial relationship with Hero

Honda in all its endeavors.

With best wishes,

Akio Kazusa

JOINT MANAGING DIRECTOR

HERO HONDA MOTORS LTD

20Y E A R S

Hero Honda has been accorded the

status of Superbrand in the Motorcycle

category in India.


HERO HONDA


Hero Honda Motors Limited

It is a fulfilling experience to present a

portrayal of an outstanding performance,

especially so as it coincides with the 20th

founding anniversary of the Company.

Hero Honda is today one of the country's

“Most Trusted and Admired Automotive

Brands”.

There are three distinct areas where Hero

Honda's performance can be regarded as

a benchmark, namely technology, growth

and wealth creation. Since 1991 the

company has shared the wealth it created

with investors in a continuously increasing

manner. From 1999-2000, it has steadily

declared three-digit dividends, and in

2003-04, Hero Honda would be proposing

a total dividend of 1000%. Is any further

statement at all required, one may well

query. While the rankings, performance

indicators backed by figures and spate of

recognitions amply indicate our current

standing, it is the built-up brand strengths

and the sizeable base of loyal customers

that ensure us a strong foundation for our

future success.

20 Yearsof Growth, Leadership

and Value Creation1992HONORARY MEMBERSHIPINDIAN INSTITUTE OF INDUSTRIALENGINEERING

AWARDS &RECOGNITIONSTO MR. BRIJMOHAN LALL,CHAIRMAN

14

WHILE THE RANKINGS, PERFORMANCE

INDICATORS BACKED BY FIGURES AND SPATE

OF RECOGNITIONS AMPLY INDICATE OUR

CURRENT STANDING, IT IS THE BUILT-UP

BRAND STRENGTHS AND THE SIZEABLE BASE

OF LOYAL CUSTOMERS THAT ENSURE US A

STRONG FOUNDATION FOR OUR FUTURE

SUCCESS.


15

On the occasion of completing two decades,

a nostalgic stroll down the memory lane

would help us to recall the zeal, respect the

values and reaffirm the policies that have

taken the organisation past many impressive

milestones.

A QUICK REWIND When a Company takes less than two

decades to become the World's Largest Two-

Wheeler Manufacturing Company ( on 1st

April, 2002), then it's a history that's worth

recounting. More so, when it has stayed as

World No. 1 for three consecutive years!

The first page of this history got written on

24th January, 1984 when a collaboration

agreement brought together two world

leaders: Honda, the international automotive

leader from Japan, and the Hero Group, an

established volume-manufacturing

conglomerate and the world's leading

bicycle makers. This partnership of two

decades, marked by cordial ties and mutual

understanding, has recently been renewed

up to the year 2014.

27th May ‘85

FIRST MOTORCYCLEROLLS OUT

1994BUSINESSMAN OF THE YEARBUSINESS INDIA GROUP OF PUBLICATIONS

1995NATIONAL AWARDOUT STANDING CONTRIBUTION TO THEDEVELOPMENT OF INDIAN SMALL SCALEINDUSTRY

9th June ‘87

100,000TH MOTORCYCLE24th August ‘88

200,000TH MOTORCYCLEMAJOR MILESTONES

On the Baisakhi day of 13th April, '84, the

Foundation Stone was solemnly placed

following a havan and prayers at the site.

Towards the end of November 1984, the

public issue of shares was oversubscribed by

over ten and half times. In February 1985,

there were over seven and a half lakh bookings

for India's first 100 cc 4-stroke motorcycles.

Commencement of commercial production

took place on 27th May, 1985, the day the first

motorcycle rolled out. It is a matter of pride

that within a year of starting work on the Plant,

the first delivery could take place on 14th

June. The CD 100 soon became the sought

after bike made famous by its

memorable campaign with its inimitable by-line

"Fill it. Shut it. Forget it." By the end of 1985,

the plant was producing well over 6000

motorcycles a month.

While it continues to be very much a concern

even today, spiralling petroleum costs had

caused an alarm in the 1980s. Only better fuel

economy could provide the much-sought

solution. The launch of the four-stroke, fuel

WHILE IT CONTINUES TO

BE VERY MUCH A

CONCERN EVEN TODAY,

SPIRALLING PETROLEUM

COSTS HAD CAUSED AN

ALARM IN THE 1980S.

ONLY BETTER FUEL

ECONOMY COULD

PROVIDE THE MUCH-

SOUGHT

SOLUTION. THE LAUNCH

OF THE FOUR-STROKE,

FUEL-EFFICIENT, 100CC

MOTORCYCLE MADE A

PERCEPTIBLE IMPACT IN

THE COUNTRY.


HERO HONDA


Chronicle of 20 years

efficient, 100 cc motorcycle made a

perceptible impact in the country. Riding

strongly on its proven fuel economy and

performance, Hero Honda was expanding

distribution network and at the same time

rapidly adding to its plant infrastructure.

The brand was well on its way to the

position of market leadership.

ROLL CALL OF HONOURSAs a true industry leader, it has numerous

and diverse achievements in its portfolio.

Besides being the first 100 cc motorcycle

to enlist in the BSF ( on 27th October,

1988) and the Air Force (29th October,

1991), and to serve with numerous State

Police forces, Hero Honda holds records

among others, the World's Largest Selling

Model for four successive years for the

Splendor since 2000.

On 9th May, 1991, the Company bagged

the coveted Economic Times - Harvard

Business School award for Good Corporate

Performance coinciding with economic

liberalization initiative in the country.

WHILE ITS PRODUCTS

HAVE BEEN WINNING

ACCLAIM, THE

COMPANY HAS ALSO

WON EQUALLY

SIGNIFICANT

RECOGNITION IN MANY

SOFTER AREAS THAT

ARE ASSOCIATED WITH

ITS PEOPLE, THEIR

SAFETY AND WELFARE,

QUALITY AND

PRODUCTIVITY AND

ENVIRONMENT.

16

2000SIR JEHANGIR GHANDY MEDALINDUSTRIAL PEACEXLRI, JAMSHEDPUR

1998BUSINESS LEADER OF THEYEARBUSINESS BARON

1997DISTINGUISHEDENTREPRENEURPHD CHAMBERS OF COMMERCE & INDUSTRY

20th Aug ‘90

400,000TH MOTORCYCLE29th May ‘91

500,000TH MOTORCYCLE30th Sept ‘89

300,000TH MOTORCYCLE


The Company's Chairman, Mr.Brijmohan Lall

has received dozens of prestigious awards,

and notable among the recent honours have

been Ernst & Young's Entrepreneur of the

Year (2001), MMA-Business Leadership

Award(2002) and the AIMA's Lifetime

Achievement Award for Management

(2003), all indicative of quality of

management and its leadership.

While its products have been winning

acclaim, the Company has also won equally

significant recognition in many softer areas

that are associated with its people, their

safety and welfare, quality and productivity

and environment. These awards include, for

Industrial Safety ( longest accident free

period - Haryana State Labour Dept.), Best

Working Conditions, Best First Aid

Arrangements, Best Maintenance of

Environment, Best Performance in

Automobile Sector ( National Safety

Council), National Productivity Award from

the Vice President of India (24th August,

2000)and the National Trophy on Quality

Circles ( Confederation of Indian Industry -

CII ). Quality Circles had been inaugurated

at the Plant in 1986 and the same year, the

Butterfly Circle of Paint Shop had bagged

the World Convention Trophy at Japan.

Other laurels such as the 3 Leaves Award of

the Centre for Science and Environment

(CSE) and Outlook Magazine's `Value Creator

of the Year Award 2003' speak for Hero

23rd Nov. ‘94

1 MILLIONTHMOTORCYCLE ROLLS OUT

17th April ‘98

2 MILLIONTHMOTORCYCLE

13th Dec. ‘99

3 MILLIONTHMOTORCYCLE

Honda's corporate sensitivity and responsible

citizenship.

WELL REMEMBEREDIn the course of this journey, there has also

been anguish, the poignant times. Mid-1991

was such a time when Mr.Raman Kant Munjal

departed and in early August, Mr.Soichiro

Honda passed away. Both of them had played

a pivotal role in the strengthening and success

of the partnership. Their zeal and belief

produced results and has been inspiration to

us all, over the years. Raman Kant Vidya

Mandir (school) opened on 2nd July '92,

Raman Munjal Charitable Hospital inaugurated

by Mr.Satyanand Munjal on the same date in

1999, the Raman Munjal Lecture Series

organised in August 2002, all cherish his

memory. And indeed all the Company's

milestones are but monuments in tribute to

their spirit.

WE SIMPLY MADE IT !The priority given and investments made in

safety, standards and environmental conditions

have been directly translating into productivity

accomplishment as well as production records.

17

L2001ENTREPRENEUR OF THE YEARERNST & YOUNG

2002ENTREPRENEUR OF THEYEARBUSINESS STANDARD


HERO HONDA


18


On 9th June, '87, the 1,00,000th motorcycle

was produced.

The 2,00,000th motorcycle was produced on

24th August, 1988, within fifteen months of

the first lakh, indeed a remarkable rise!

Bhoomi Poojan ceremony for the Second Plant

was performed on 13th April, 1995, and the

daily production fast progressed to touch a

thousand bikes daily within a year.

In the year 2003-04, Two Million Hero Honda

Motorcycles were rolled out in a single year, a

new production record.

Along the journey, the volumes have been

escalating steadily as the Hero Honda brand is

discerning towards changing customer trends

and offers contemporary features and

aesthetics in its every new offering. Today, it

can speak of a 54% motorcycle market share

(42% of the Two-wheeler market). Together,

Hero Honda and Honda's Indian subsidiary,

HMSI are targeting a share of over fifty percent

of the Indian two-wheeler market.

As the Company embarks on its third decade,

more interesting developments are on the

anvil. Two new bikes will be launched during

the current fiscal, heralding the entry of the

next generation motorcycles in the country.

CORPORATE EXCELLENCEWith the commissioning of the 2nd plant in

Gurgaon, in early 1997, Hero Honda now has

the capacity to manufacture more than Two

27th April ‘01

#1 IN INDIATWO WHEELER COMPANY

1ST APRIL ‘02

WORLD #1TWO WHEELER COMPANY

20th Dec. ‘2000

SPLENDOR SINGLE LARGEST

SELLING TWO WHEELER IN THE WORLD

AS THE COMPANY

EMBARKS ON ITS

THIRD DECADE, MORE

INTERESTING

DEVELOPMENTS ARE

ON THE ANVIL. TWO

NEW BIKES WILL BE

LAUNCHED DURING

THE CURRENT FISCAL,

HERALDING THE ENTRY

OF THE NEXT

GENERATION

MOTORCYCLES IN THE

COUNTRY.


19

Million units. Keeping abreast of global

technological advancements, the Gurgaon

plant is among the most modern motorcycle

manufacturing facilities in the world. Hero

Honda has earned the ISO 9001 quality

management certification, the ISO 14001 for

environmental systems and OHSAS 18001 for

work safety ( Occupational Health and Safety

Assessment Series).

ERP-based decision making implemented

across HHML serves as an industry

benchmark. We are one of the Asian referrals

for ERP-SAP modules.

Small wonder then that these initiatives have

resulted in Hero Honda being voted as the

Most Respected Automobile Company in the

BusinessWorld magazine's poll, and also in

receiving the "Company of the Year" award for

Corporate Excellence from The Economic

Times! The customer's verdict reigns supreme.

Customers too have voted in the NFO Total

Customer Satisfaction Awards 2003, with

Splendor and CD 100 respectively winning in

the entry and executive segments.

While the Company gains wide recognition for

its product and service quality, a lesser known

facet is its community activities. Providing

hand-pumps to villages of the vicinity in water-

scarce southern Haryana, establishing of

schools and hospitals, conduct of specialised

health camps etc. have been some of them.

HERO HONDA'S COMMONWEALTHMany among our large and growing fraternity

of Dealers have had a long association with us,

and they equally cherish the Company's history

and share our values. Spanning across the

nation, they number over 1000, including

Sales and Service Points. With their respective

Service extensions also taken into account, the

service points would add up to over 1700.

Whether raising service standards or extending

the influence of Hero Honda's Customer

Relationship programmes (HH Passport) in

their region, they play a key role in retention of

market-share. It is a matter of pride to state

that the Passport Programme, which went

national in 2001, has crossed the One and half

million membership mark. This initiative offers

unique privileges to Hero Honda customers

WHETHER RAISING

SERVICE STANDARDS

OR EXTENDING THE

INFLUENCE OF HERO

HONDA'S CUSTOMER

RELATIONSHIP

PROGRAMMES IN THEIR

REGION, THEY PLAY A

KEY ROLE IN RETENTION

OF MARKET-SHARE.

2002BUSINESS LEADERSHIP AWARDMADRAS MANAGEMENT ASSOCIATION

2002GIANT’S INTERNATIONALAWARDBUSINESS & INDUSTRYGIANTS INTERNATIONAL

15TH JAN. ‘03

CROSSES OVER CUMULATIVE 7MILLION SALES MARK FIRST

INDIAN COMPANY

NOV. ‘03

SELLS OVER 2 LAC UNITS IN ASINGLE MONTH WORLD RECORD


HERO HONDA


20


and strives to maintain an enduring

relationship with them.

If customer is viewed as queen bee, the entire

value chain represents the beehive- a

collective effort of all the stakeholders with

uniform structure and uniform essence.

However it is worthwhile to mention that

maximum cell count is of our vendors and

suppliers who form the major portion of the

value chain and have been the foundation to

the size Hero Honda has grown in these 20

glorious years.

YOUTHFUL AND FUTURE-ORIENTEDIndia's first premium sports motorcycle,

Karizma launched on 15th May '03, has won

the BBC Wheels `Bike of the Year 2003'

Award. Two more motorcycles with the new

technology from Honda will be launched

during this fiscal. In addition, a scooter is to be

launched in the niche segment, again with

technology provided by Honda.

The brand's association with young charismatic

personalities such as India's most successful

cricket captain, Sourav Ganguly and the

dashing cine figure of Hrithik Roshan also

target the imagination of the youth. Team

Ambition comprising Saurav, Kaif, Yuvraj, and

Sehwag is in sync with young aspirations and

communicate the brand's values among this

audience.

Other ways to bond with the youth segment

2004

GVC LEVEL 1CORPORATE GOVERNANCECRISIL

2003

BIKE MAKER OF THE YEAROVERDRIVE MAGAZINE

March ‘04

WORLD #1 COMPANY FORTHE 3RD CONSECUTIVEYEAR

THE BRAND'S

ASSOCIATION WITH

YOUNG CHARISMATIC

PERSONALITIES SUCH

AS INDIA'S MOST

SUCCESSFUL CRICKET

CAPTAIN, SOURAV

GANGULY AND THE

DASHING CINE FIGURE

OF HRITHIK ROSHAN

ALSO TARGET THE

IMAGINATION OF THE

YOUTH.

HERO HONDA

MOTORCYCLES HAVE

MADE A SPECTACULAR

DEBUT IN MOTORSPORT.

KARIZMA SET NEW

NATIONAL RECORDS IN

SPEED, WHICH WERE

CERTIFIED BY THE

FEDERATION OF

MOTORSPORT CLUBS OF

INDIA. THESE

LANDMARKS WERE

ACHIEVED DURING A 24

HOUR NON-STOP TRACK

RUN PILOTED BY AN

INTREPID TEAM FROM

OVERDRIVE MAGAZINE,

WHICH INCLUDED ITS

EDITOR.


21

have been to sponsor and be associated with

major cricketing events including ICC cricket

events as global partner. In Nov.'93, the five-

nation Hero Cup was to mark just the

beginning. Hero Honda is also extensively

involved in promoting golf, soccer, hockey and

other games in the country. In fact, the

domestic golfing circuit has been named the

Hero Honda Golf Tour and Hero Honda

Masters, a premium golf tournament is an

important event on the Asian PGA

Championship.

Hero Honda motorcycles have made a

spectacular debut in Motorsport. Karizma set

new national records in speed, which were

certified by the Federation of Motorsport Clubs

of India. These landmarks were achieved

during a 24 hour non-stop track run piloted by

an intrepid team from Overdrive magazine,

which included its Editor.

NEW CHAPTERS Thus, the pursuit of Excellence has taken us

towards new terrains on which Hero Honda

must script its further success in the coming

decades.

History will continue to be made by those who

share the spirit of enterprise and look forward

to the sheer excitement, novelty and challenge

that's ahead. The success in the marketplace,

in managing products and logistics, in

relationships with customers and associates,

has always reflected in gains made by various

stakeholders and in even better yields to Hero

Honda’s investors. Hero Honda thanks its

stakeholders for their continuous support and

faith, and for sharing in the dreams as well as

its effective realisation.

2004LIFETIME ACHIEVEMENTAWARD FOR MANAGEMENTAIMA

2004

BEST VALUE CREATOROUTLOOK MONEY


HERO HONDA MOTORS LIMITED,

since its inception has

consistently created value and

maximized the returns to its share

holders. Table 1 gives the 5–year

trend in the Company's income,

profit after tax (PAT), and

profitability as measured by the

ratios of PAT to total income, return

on average equity [ROAE] and

return on average capital employed

[ROACE]. Such consistent

performance is rare in a market that

can be fluctuating and highly

competitive.

In the medium term, our business

focus will continue to be on growth

in sales and profitability thereby

ensuring gainful returns to the

shareholders' funds. For the year

2003–04, the company continued

its leadership stance by being the

world's largest two–wheeler

manufacturer for the third year in a

row. And with it, your Company's

income nearly reached Rs.6,000

Crore.

In the domestic arena, your

Company has further consolidated

its market share, which went up

from 33% and 44% in 2002–03 to

37% and 48% in 2003–04 in

two–wheelers and motorcycles

respectively. The gap between your

Company's sale of motorcycles and

that of the nearest competitor has

risen to over one million. The most

successful model, Splendor and its

HERO HONDA


22

MANAGEMENT DISCUSSION &ANALYSIS

TABLE 1 KEY FINANCIALS—INCOME, PROFIT, ROAE AND ROACE

In Rs. Crore

1999–00 2000–01 2001–02 2002–03 2003–04

Total income 2269 3191 4539 5195 5997

PAT 192 247 463 581 728

PAT as % of total income 8% 8% 10% 11% 12%

ROAE 52% 47% 72% 76% 73%

ROACE 66% 65% 95% 99% 93%


new version, Splendor+ together

have sold over a million in the year

under review.

During the year 2003–04, the

Company's sales exceeded the 2

million mark and posted a sale of

2.07 million against 1.68 million

last year – as a consequence the

customer base has accumulated

up to nearly 10 million, which is a

record for the Indian industry. The

total population of two–wheelers in

the country is estimated to be

about 45 million.

All these salient achievements

resulted in robust financial

performance all across. We are

pleased to present some of the key

financial performance parameters

of 2003–04.

• Total sales grew by 14.3 per cent

from Rs.5,102 Crore in 2002–03 to

Rs.5,832 Crore in 2003–04.

• Ratio of operating profit before

depreciation, interest and tax

(OPBDIT) to net sales increased

from 16.7 per cent in 2002–03 to

16.8 percent in 2003–04.

• OPBDIT grew by 14.7 per cent from


Rs.979 Crore in 2003–04.

• Post–tax profit (PAT) grew by 25.4

per cent from Rs.581 Crore in


2003–04.

• Return on average equity (ROAE),

measured as a ratio of PAT to

average equity during the year, was

at 72.9 per cent in 2003–04.

• Return on average capital

employed (ROACE), measured as a

ratio of PBIT to average capital

employed during the year, was at

92.8% in 2003–04.

This impressive performance has

been possible despite intense

competition in the market, and rise

in the prices of steel in latter part

of the financial year. Following is

the analysis of the two–wheeler

market in 2003–04 and the

performance of Hero Honda in

terms of marketing, operations and

financial administration and other

functions.

23

20Y E A R S

Indian two wheeler industry went through aquiet and almost an unnoticed change during1998-99. Motorcycles overtook scooters toemerge as the largest product segment

THE ECONOMIC TIMESJUNE 30, 1999


MARKET CONDITION IN 2003–04

By way of volume (numbers), two

wheelers constitute nearly 80% of

the vehicles produced in the

country although by value it could

be just one–fourth according to an

estimate. Growth in disposable

income, particularly in

middle–income groups, ease of

availability of credit at competitive

rates, decline in public transport

services, and demographic

structure of income class are the

factors that are said to be

responsible for buoyancy in

two–wheeler demand – particularly

for motorcycles. Chart A shows that

while in 1999-2000 motorcycles

accounted for 48% of

two–wheelers sold, its share in

2003–04 has gone up to 77%. In

the same period, the share of

scooters and mopeds has declined

to 16% and 7% respectively (Chart

A).

During the five–year period, i.e.

1999–2000 and 2003–04, the

Y–O–Y growth in motorcycles

peaked from 28% to 35% but

declined to 14% in the terminal

year owing to volume effect in a

continuously growing market. Also,

the scope for subsititution of

scooters and mopeds by

motorcycles is reaching to

saturation point In contrast,

scooters and mopeds growth rate

have systematically declined from

33% and 19% to 9% and (–)4%

during the above period. The

secular slow down in sale of

scooters, decline in mopeds and

high growth rate in motorcycles

has made the motorcycle segment

dominant in two–wheelers. We

believe this lead position would

continue for quite some time.

Data for last few years show that,

annually an incremental market of

6–7 lakhs is created and

incremental sale of motorcycles far

exceed the additional demand

created in two–wheeler market. In

other words, customers

increasingly prefer motorcycles to

the other two products. Realizing

the growth potential in this

category of two wheelers, all the

major manufacturers have been

targeting at it to boost their sales.

This has led to many launches

during the year. The customer also

had the benefit of discounts and

sales promotions during the year.

The family of motorcycles is

divided into three categories

namely price segment, deluxe and

premium depending on price and

income class to which the product

caters to.

We at Hero–Honda believe that

there could be more intense

competition in coming years, in

HERO HONDA


Management Discussion & Analysis

GROWTH IN DISPOSABLEINCOME, PARTICULARLY INMIDDLE–INCOME GROUPS,EASE OF AVAILABILITY OFCREDIT AT COMPETITIVERATES, DECLINE IN PUBLICTRANSPORT SERVICES, ANDDEMOGRAPHIC STRUCTUREOF INCOME CLASS ARE THEFACTORS THAT ARE SAID TOBE RESPONSIBLE FORBUOYANCY IN TWO–WHEELERDEMAND – PARTICULARLYFOR MOTORCYCLES.

24


deluxe segment with more

powered bikes [125cc]. Hero

Honda is keenly observing the

market and will take necessary

steps to protect its growth,

market share and leadership

position.

HERO HONDA’S PERFORMANCE

Hero Honda had a market share

of 48% in motorcycles and 37%

in two–wheelers for the year

2003–04. It has added another 4

percentage points to regain its

market share to 2001–02 levels

in motorcycles and has further

consolidated its position in

two–wheelers. Chart B shows the

market shares of Hero Honda in

two–wheelers and motorcycles in

the last 5 years.

In the year 2003–04, Hero

Honda recorded a sale of 2.07

million and registered a growth of

23% as compared to all India

sales growth of 14% in

motorcycles. The company for

the first time crossed the annual

sale of 2 million vehicles (Chart

C). At the same time, the gap

between nearest competitors and

Hero Honda is over 1 million

motorcycles and we believe that

our strategy of remaining closer

to the customers and providing

products of their choice has

provided this advantage.

We have continued our strategy of

broad–basing our product portfolio

based on a series of market

surveys. Accordingly in the year

2003–04, we have launched 5

models basically to provide

additional features and also cover

niche markets. Our largest selling

models i.e. Splendor and Passion

put together constitutes a major

portion of our total sales. The onus

of providing volume is taken over

by other models. The year also

saw a handsome volume of half a

million sale realized from our

newly launched CD Dawn. Spare

parts business, an initiative, which

we started to ensure genuine parts

supply, has yielded a revenue of

Rs 275 Crores for the financial

year 2003–04.

In the coming days, the

competition may adopt new

strategy of bringing bikes with

incremental power that is over

100cc to take on our successful

models. Your Company is very

conscious about the future

challenges of Indian market and

therefore, will continuously strive to

stay ahead with the introduction of

new products, technology, and

services.

PRODUCT LAUNCHES

As mentioned earlier, the Company

launched 5 new models covering

all the three segments namely

25

20Y E A R S


price, deluxe and premium

segments.

• In April 2003, we launched

CD–Dawn, targeted for entry

segment and enabled customers to

have a very viable transport

alternative to public transport with

a byline "Public ka Naya

Transport". The model in the year

of launch itself has done nearly

half a million sales – which is a

record in itself.

• In May 2003, we launched a

futuristic, power+sport segment

bike, Karizma. The "Jet Set Go"

bike is a brilliant aspiration –

fulfilling bike – positioned as

India's first premium sports

motorcycle. The product has

created its own niche.

• In September 2003, Passion plus

was launched primarily to inspire

the customers with improved

styling. Originally the product was

introduced as a style product but to

differentiate from look–alikes that

came later, the styling has been

greatly modified to look

contemporary.

• In October 2003, the largest selling

and most trusted brand Splendor

was launched with new styling and

additional features. It was received

with lot of enthusiasm in the

market.

• And in January 2004, Ambition 135

was launched to strengthen the

premium segment, which is also

covered by CBZ* (launched later in

April 2004).

Together, these five models now

represent the entire range of Hero

Honda motorcycles with fresh look,

additional features and are

meeting the aspirations of the

customer class.

The result of our new launches

was quite rewarding. Your

Company now leads in price and

deluxe segments. Hero Honda has

14% market share in the premium

segment.

Hero Honda has already lined up

models for the next five years. In

2004–05 two new models will be

introduced in the market. At an

appropriate time, your Company

also has plans to enter the scooter

market as well.

CUSTOMER FOCUS

The philosophy of Hero Honda is

to delight the customer with

products and services. Every year

new set of initiatives is taken to

serve the customer even better

and be closer to him. Some of

these initiatives are proactive and

some are based on feedback from

the customers.

In 2001–02, we were the first one

to introduce two– year warranty

from six months. We continue with

that scheme.

HERO HONDA



26

HERO HONDA HAS ALREADYLINED UP MODELS FOR THENEXT FIVE YEARS. IN2004–05 TWO NEW MODELSWILL BE INTRODUCED IN THEMARKET. AT AN APPROPRIATETIME, YOUR COMPANY ALSOHAS PLANS TO ENTER THESCOOTER MARKET AS WELL.


The Hero Honda Passport

Programme, which is one of the

most successful customer

relationship programme

continues to be highly popular

and successful. Today over 1.5

million customers have enrolled

into this programme. Under this

programme, customers of Hero

Honda products are eligible to

enroll at a nominal fee against

which they get not only discounts

on purchase of spare parts,

accessories and services but also

get incentive (bonus) points.

Incentive points are given against

referrals as well. Hero Honda

passport holder is eligible for gifts

and special awards, depending

on total accumulated points.

The idea of this programme is to

create nation–wide customer

loyalty, make them members of

Hero Honda family, who in turn

will become brand ambassadors

to help build up sales and

service through referrals and

good will. Our experience with

the program has been that it has

more than met our objective and

is regarded as a reference case

study in customer relationship

management.

It is our endeavour to have Hero

Honda customer as the most

satisfied customer. Several steps

have been taken in the past to

enhance customer satisfaction,

which is reflected in the MTCS

2004 – a survey conducted by

TNS Automotive. According to the

survey, Hero Honda has recorded

a customer satisfaction level of 83.

CD Dawn has been rated as the

best bike in the Price segment. CD

Dawn, Splendor and Passion have

a satisfaction score of 84 out of

maximum 100 points.

Many more initiatives have been

planned for improving the

satisfaction level, which among

others include expansion of

current reach to small towns /

taluq level, legal action against

non–genuine parts dealers,

training of local mechanics for

better service. In order to spread

the awareness on safety and

environment we are planning

expansion of "Safety Riding" to

approximately 150 locations and

also are promoting sound

environmental practices through

'Green dealership' concept.

We plan to conduct a

comprehensive Customer

Satisfaction study again this year

in partnership with CSMM to

understand our delivery against

the customer expectations.

OPERATIONS

Hero Honda has an annual total

installed capacity of 2.8 million

27

20Y E A R S

It (Hero Honda) is a clear brand and

volume leader in motorcycle segment.

" WHEEL OF FORTUNE"ET AWARDS FOR COPORATE EXCELLENCE - COMPANY OF THE YEARTHE ECONOMIC TIMES AUGUST 21, 2002

THE HERO HONDA PASSPORTPROGRAMME, WHICH IS ONEOF THE MOST SUCCESSFULCUSTOMER RELATIONSHIPPROGRAMME CONTINUES TOBE HIGHLY POPULAR ANDSUCCESSFUL. TODAY OVER1.5 MILLION CUSTOMERSHAVE ENROLLED INTO THISPROGRAMME


from its two plants at Dharuhera

and Gurgaon. Both the plants are

advanced manufacturing units. By

making additional investments in

flexible CNC machines and

automation, the capacity at these

plants is now expanded to 2.8

million vehicles per annum. In the

last three years, the production

from these plants has doubled

from 1 million to 2 million

motorcycles per year, besides

providing for flexibility to

manufacture many models and

their variants.

The Company’s first plant at

Dharuhera is engaged in the

exclusive manufacture of models

like CD100, CD100 SS and

CD–Dawn, while the second plant

at Gurgaon produces more diverse

range of motorcycles that cater to

deluxe and premium segments.

The largest selling model Splendor

is produced at both the plants.

Dharuhera plant has the

distinction of producing its

5 millionth bike on June 17, 2004

and both the plants together

achieved a new milestone of

producing 10 million bikes. In view

of continuously increasing need for

capacity, your Company is

considering a third plant, which

when happens will be a realization

of our mandate of creating a

world–class manufacture. Location

and viability study are under

progress.

In the area of manufacturing, your

Company has been attempting

improvements and innovations on

a continuous basis to achieve

efficiencies and productivity gains.

Dual tone painting technology on

motorcycles was introduced for the

first time in India by Hero Honda

in 2003–04. In order to improve

upon our plant efficiencies, the

Company has taken a major

initiative to implement "Just in

Time concept (JIT)". For this

"Online vendor connectivity"

program was implemented. And

under this, in 2003–04, direct

online supplies to assembly lines

were established with 40 vendors.

A major learning from the

competitive market is the effort the

Company had to make in the area

of cost rationalization on a

continuous basis. Cost optimization

was achieved through various cost

improvement projects, use of

alternate fuels and by cutting down

on our overheads. A reduction of

8.24% was achieved in

manufacturing variable cost in

2003–04 over last year.

The Company is also a major

campaigner for safety in factories

and establishments. For its efforts

and event free records, Hero

Honda has won National Safety

HERO HONDA



IN THE AREA OFMANUFACTURING, YOURCOMPANY HAS BEENATTEMPTING IMPROVEMENTSAND INNOVATIONS ON ACONTINUOUS BASIS TOACHIEVE EFFICIENCIES ANDPRODUCTIVITY GAINS. DUALTONE PAINTING TECHNOLOGYON MOTORCYCLES WASINTRODUCED FOR THE FIRSTTIME IN INDIA BY HEROHONDA IN 2003–04.

28


Awards 2001 & 2002. Similarly

for clean environment practices

adopted by us, Tata Energy

Research Institute (TERI) had

awarded Corporate Environment

Award in June this year. Two

years ago, Hero Honda bagged

3–Leaves Award from Centre for

Science and Environment (CSE)

for our clean practices at the

plant level – the highest award

for any two–wheeler Company in

the country.

VENDOR MANAGEMENT

Vendor management is very

critical to Hero Honda as

68–70% of the cost of

production is accounted by

material cost. 256 vendors

including 36 ancillaries spread

across the country are the

backbone of our successful

operations at both the plants.

Our excellent long–term

relationship has been

responsible for trouble free

production and sustained

expansion for capacity,

increasing localization, efficient

outsourcing and cost and

inventory control.

In terms of efficiency, the

Company is able to access 70%

of the materials by value at

zero– inventory. For the balance

material, the average inventory

is about 3–4 days. As a

measure of rationalization of

vendors, the Company is resorting

to system purchases and is also

looking at the possibilities of going

global to procure materials. We

feel enterprises have to adopt

these techniques to become cost

effective and price competitive in

the market.

Our interaction with our suppliers

has been one of partnership. We

have been helping them with

systems so that, vital

communication with the supply

channel is in place. With the help

of the IT division, the Company

has implemented Supply Chain

Management (SCM) and Supplier

Relationship Manangement (SRM)

system. Secondly, we also provide

them with technical assistance at

various levels, including quality

audit visits to ensure even quality

and quality improvements in their

supplies.

Our supply management strategy

has enabled us to achieve cost

optimization and also contain

inflation to bare minimum of less

than one percent from the year

2003–04. This is one area which

management will increasingly have

focus to achieve cost and quality

competitiveness for the enterprise.

RESEARCH AND DEVELOPMENT

Your Company has access to

29

20Y E A R S


Honda R&D, which has worldwide

experience in automobiles and is

considered to be the best in

two–wheeler technology. Further,

Hero Honda has a huge database

from market feedback, hence

understands the Indian conditions

and the requirements of Indian

customers very well. Hero Honda

market intelligence combined with

Hero Honda and Honda R&D has

been greatly responsible for

bringing out best performing and

most acceptable products in the

markets.

At its own R&D center, Hero

Honda has put in place the

necessary infrastructure and

developed competencies for doing

important base–work, which helps

conceptualization of the product

and later material selection,

localization of components and

testing for various launches as per

Honda specifications. Another

major objective for investing in

local R&D is to cut down on

development and launch time for

this growing and highly competitive

market. You may be pleased to

know that your Company's R&D is

now connected to Honda (Japan)

online to help design data transfer

instantly. All these efforts have

enabled your Company to reduce

product development time. Thus,

the company was able to have

large number of launches in the

last fiscal year, namely, CD–Dawn,

Karizma, Splendor / Passion Disc

Version, Splendor+, Passion Plus,

Ambition 135, CBZ* and needless

to mention that many new

launches are in pipeline.

Regulations, is another area where

R&D support is increasingly

required. Environment and safety

issues require a lot of R&D inputs

to ensure that the products comply

with all the necessary norms laid

down by the government from time

to time. Your Company played a

constructive role in working with

the government (Mashelkar

Committee) to understand and

formulate regulations in the areas

of safety, emissions and fuel

quality for the automobile sector.

INFORMATION TECHNOLOGY

Hero Honda continues to adopt

and implement information

technology (IT) for enhancing the

overall efficiencies of the

organization. In keeping with the

plans, the Company is currently

implementing SAP's Supplier

Relationship Management (SRM)

module & Customer Relationship

Management (CRM) to connect

our dealers and vendors for

carrying on business electronically.

The Company is among the first

ones to implement these solutions

and continues to be a model

reference site for SAP. With this

HERO HONDA



30

THE COMPANY IS CURRENTLYIMPLEMENTING SAP'SSUPPLIER RELATIONSHIPMANAGEMENT (SRM)MODULE & CUSTOMERRELATIONSHIP MANAGEMENT(CRM) TO CONNECT OURDEALERS AND VENDORS FORCARRYING ON BUSINESSELECTRONICALLY. THECOMPANY IS AMONG THEFIRST ONES TO IMPLEMENTTHESE SOLUTIONS ANDCONTINUES TO BE A MODELREFERENCE SITE FOR SAP.


implementation, our supply

chain solution moves from the

current mode of one way

sharing of information to a

collaborative framework, which

would enable dealers and

vendors to carry out on–line

transaction through a secure

Internet connection.

As a part of continuous

improvement, the SAP HR

module was extended to cover

'Employee Self Service System'

(ESS) where employees directly

access their personal

information related to their

salaries and other particulars.

The same facility has also been

extended to the workers through

kiosk–based systems (touch

screen). Bar coding was

introduced for automatic

recording of material receipt and

production data leading to

greater accuracy and efficiency.

Various other initiatives taken

during the year have gone

towards process improvements,

cost reductions and improving

efficiencies.

Yet another major initiative taken

during the year was to move

towards electronic storage of

documents. Frequently

accessed documents are stored

centrally using a document

management software and users

access them based on the roles

and rights assigned to them. Other

documents are being microfilmed

and stored separately. This has

made document storage simple,

saved considerable space, and has

made access very easy.

With the spread of information and

extension of connectivity even

outside the Company, various

steps have been taken to secure

its data and networks. The

Company has formulated an IT

security policy and put it into

action throughout the organization.

Security monitoring exists both at

the technical level (firewalls,

intrusion detection & other tools)

and at the user level (information

classification, access rights,

defining responsibilities etc).

Your Company is continuously

upgrading the IT infrastructure to

meet the business needs. The IT

infrastructure is state–of–the–art

and aims at high throughput, high

availability, and capable of scaling

up to accommodate the

Company's growth. New

technology solutions are evaluated

and put in place delivering high

value to business. Your Company

continues to be a pioneer in the

adoption of various technologies

and remains a reference site in the

Asia Pacific region for various

technology vendors who work with

31

20Y E A R S

It is not every two wheeler manufacturer

that is able to create the best-selling bike

in the world. Hero Honda with its 100 CC

Splendor holds that distinction. BUSINESS STANDARD

JANUARY 25, 2001

YOUR COMPANY ISCONTINUOUSLY UPGRADINGTHE IT INFRASTRUCTURE TOMEET THE BUSINESS NEEDS.THE IT INFRASTRUCTURE ISSTATE–OF–THE–ART ANDAIMS AT HIGH THROUGHPUT,HIGH AVAILABILITY, ANDCAPABLE OF SCALING UP TOACCOMMODATE THECOMPANY'S GROWTH. NEWTECHNOLOGY SOLUTIONSARE EVALUATED AND PUT INPLACE DELIVERING HIGHVALUE TO BUSINESS. YOURCOMPANY CONTINUES TO BEA PIONEER IN THE ADOPTIONOF VARIOUS TECHNOLOGIESAND REMAINS A REFERENCESITE IN THE ASIA PACIFICREGION FOR VARIOUSTECHNOLOGY VENDORS WHOWORK WITH THE COMPANY.


the Company. Many technology

magazines carry the Hero Honda

case study at regular intervals.

This year our offices including the

two Plants have been connected

through Video conferencing. In the

coming year the Company plans to

set up an alternate IT site as a

disaster recovery site, to take care

of any eventuality that may cause

failure of the main data centre.

HUMAN RESOURCE MANAGEMENT

The Human Resources function

has concentrated all its efforts

under the broad banner of

"Organisation Capability Building";

through key initiatives such as

Development of Knowledge, Skills

& Attitudes (KSA), Knowledge

Management, Building a learning

culture within the organization and

several more – all aimed at

providing a more futuristic and

matured outlook to the key

resource in Hero Honda, it's

People. Parallel to developing

internal people capability, we are

also consciously trying to source

exceptional talent in core areas of

Sales & Marketing, Research &

Development and Supply Chain

Management. This effort has borne

fruit in terms of infusion of around

60 bright, young professionals into

the mainstream activity of the

organization.

There is a conscious effort on the

part of the management to

continuously develop the

Knowledge, Skills & Attitudes of its

people through a variety of Training

interventions specifically aimed at

an individual's need with a special

thrust on enhancing

functional/domain knowledge

across disciplines. In line with our

organizational mandate of

becoming a "World Class

Manufacturer", we have managed

to create awareness on its

concepts, tools and techniques

among workforce and employees.

We are also encouraging line

managers to play a lead role in

People Development.

In collaboration with IT, HR has

implemented the SAP Payroll and

"Employee Self–Service" (ESS)

modules. We are also in the

process of launching the People

Development (PD) & Training and

Development (T&D) modules in

the ensuing financial year.

There have been several initiatives

taken on the employee welfare

front through specific programmes

designed for the spouses and the

children of our employees viz:

Employee's Spouse programme

"Apka Shaandar Humsafar",

career–counseling sessions for the

children. These programmes have

enabled us to reach out to the

families of our employees and

HERO HONDA



IN LINE WITH OURORGANIZATIONAL MANDATE OFBECOMING A "WORLD CLASSMANUFACTURER", WE HAVEMANAGED TO CREATEAWARENESS ON ITSCONCEPTS, TOOLS ANDTECHNIQUES AMONGWORKFORCE ANDEMPLOYEES. WE ARE ALSOENCOURAGING LINEMANAGERS TO PLAY A LEADROLE IN PEOPLEDEVELOPMENT.

32


provide them with a unique

opportunity to know about the

company and its values. It has

also helped the children of our

employees in making certain

important decisions with regard

to their career.

The efforts of all these need–felt

resulted in "Employee

Engagement" of about 70 per

cent (considered to be fairly

high) for Hero Honda in the

Best Employers Study 2003

conducted by Hewitt Associates.

In the financial year 2004–05, we

aim to focus our efforts in the area

of fostering creativity & innovation

throughout the organization.

FINANCIALS

Table 2 gives a summary of Hero

Honda's financial performance for

2003–04.

Net sales of the Company

increased by 14.3 per cent from

Rs.5,102 Crore in 2002–03 to

Rs.5,832 Crore in 2003–04. Cost

of raw materials as a percentage of

total sales increased from 68.0 per

cent in 2002–03 to 69.1 percent

in 2003–04, owing to a change in

sales mix and higher steel prices

(during the latter part of the fiscal

year).

However, despite this, a

continuous focus on cost

management and operating

efficiency has enabled the

Company to marginally improve its

OPBDIT margin from 16.7 per

cent in 2002–03 to 16.8 per cent

in 2003–04. Operating profit (PBT

before other income) grew by 14.6

per cent from Rs.792 Crore in


2003–04. Operating profit margin

improved marginaly from 15.5 per

cent in 2002–03 to 15.6 percent

33

20Y E A R S

TABLE 2 HERO HONDA’S ABRIDGED PROFIT AND LOSS STATEMENT

In Rs. Crore

03–04 02–03

Net Sales from Operations 5832.43 5101.71

Material Costs 4030.61 3470.77

Rates and Taxes 6.54 9.75

Manufacturing Expenses 119.35 108.66

Employee Costs 231.52 201.63

Selling & Distribution Expenses 338.38 314.84

Other expenses and provisions 125.93 132.47

Financial expenses –1.35 –1.02

Misc. expenditure written off 0.7 9.53

Depreciation 73.33 63.39

Total Expenditure 4925.01 4310.02

OPBDIT 979.40 854.06

OPBT 907.42 791.69

Other Income 165.04 92.87

PBIT 1071.11 883.54

PBT 1072.46 884.56

Current tax 331.07 298.19

Deferred Tax 13.07 5.61

PAT 728.32 580.76

Note: In order to get a more accurate picture of the Company’s operational performance, OPBDIT has beencalculated net of “other income’’


in 2003–04. Profit after tax (PAT)

went up by 25.4 per cent from


Rs.728 Crore in 2003–04. Other

Income rose from Rs.92.9 Crore in

2002–03 to Rs.165.0 Crore in

2003–04. Return on average

capital employed (ROACE) of the

Company was 92.8 percent in

2003–04, while return on average

equity (ROAE) was 72.9 per cent

in 2003–04.

Table–3 shows that the key

indicators of profitability improved

during the year under review.

Moreover, both fixed asset and

current asset turnover of the

Company improved during the

financial year 2003–04. Net fixed

assets turnover (sales/average net

fixed assets) increased from 10.1

in 2002–03 to 10.5 in 2003–04;

while current assets turnover

(sales/average current assets)

increased from 10.2 to 11.8.

ECONOMIC VALUE ADDED (EVA)

EVA, a measure of corporate value

creation, indicates whether the

management of a Company

generates returns that cover the

weighted average cost of capital.

By explicitly including the cost of

equity, EVA recognizes that capital

is scarce and investors, who claim

the residual share of a firm's

earnings, need to be compensated

adequately for assuming the risk of

investing. As Table 4 shows, the

EVA has increased from Rs.481

Crore in 2002–03 to Rs.569 Crore

in 2003–04.

DEBT STRUCTURE

Hero Honda continues to be a

debt free company. The unsecured

loan of Rs.175 Crore from the

state government of Haryana on

account of sales tax deferment, is

interest free, and has no holding

costs. Net interest payment by the

Company has been negative

during the last three years.

DIVIDEND POLICY

Maximising shareholders value

necessitates that the capital

employed by a company is used

efficiently and earns a return more

than its cost. Keeping this in mind,

your Company has an

unambiguous dividend policy –

funds in excess of what is needed

for capital investments and related

strategic expenses will be

distributed to the shareholders.

This is the philosophy that has led

to high dividend payouts for the

last several years. The Company

paid a total dividend of 900 per

cent in 2002–03 and the Board

has recommended a Total

Dividend of 1000 per cent in

2003–04, including a "Special

Interim Dividend" of 500 per cent

– already paid. It may be pertinent

to note that the % dividend has

HERO HONDA



TABLE 3 KEY INDICATORS OF PROFITABILITY

03–04 02–03

OPBDIT/Sales 16.8% 16.7%

OPBT/Sales 15.6% 15.5%

PBIT/Sales 18.4% 17.3%

PBT/Sales 18.4% 17.3%

PAT/Sales 12.5% 11.4%

ROACE 92.8% 98.9%

ROAE 72.9% 75.6%

34

TABLE 4 EVA & ROACE (POST–TAX)

03–04 02–03

EVA (Rs. Crores) 569 481

EVA/%of cap employed) 49.3% 53.8%

ROACE(post tax) 63.2% 65.1%

Note: Details of the above calculations have been given in theEVA Statement.


always exceeded the previous

year’s % dividend, for any given

year since 1991.

WORKING CAPITAL MANAGEMENT

Hero Honda has aimed at

continuous improvement in its

working capital management. As

Table 5 shows, inventory period

for the Company has decreased

from 16.1 days in 2002–03 to

14.4 days in 2003–04. The

Company initiated a new

receivables policy during the

year, which has helped in

bringing down the level of

receivables. Receivables have

decreased from 7.2 days in

2002–03 to 4.8 days in

2003–04. Operating cycle of the

Company has decreased from

23.2 days in 2002–03 to 19.2

days in 2003–04, while Cash

cycle has decreased from

(–)16.3 days in 2002–03 to

(–)28.3 days in 2003–04. Thus,

Hero Honda continues to be

one of the most efficient

enterprises in terms of working

capital management.

CASH FLOWS

Efficient working capital

management, coupled with

profitable growth has translated

into healthy net cash flows from

operations for the Company.

Chart E plots the trend in net

cash flow from operations over

the last 5 years.

INTERNAL CONTROL & ADEQUACY

Hero Honda has a proper and

adequate system of internal control

to ensure that all assets are

safeguarded and protected against

loss from unauthorized use or

disposition and those transactions

are authorized, recorded and

reported correctly.

RISKS AND CONCERNS

As the market leader, a possible

slowdown in the two–wheeler, and

motorcycle market constitutes a

risk factor for Hero Honda.

Growing competition in the

industry, both in terms of new

models, and price undercutting,

too, is a matter of concern, as both

sales realizations and operating

margins may come under

pressure. At the higher end of the

market, imports could constitute a

threat, if import duties fall down in

the future. Rising steel prices and

other input costs pose a threat to

margins.

OUTLOOK

The medium term (three years)

outlook for the two–wheeler

industry is positive but volatile. We

anticipate double–digit growth in

the two wheeler and motorcycle

markets over the next three years.

Of course, we believe that GDP

and per capita incomes grow at

35

20Y E A R S

It is tough to break into top ranks of our

survey of corporate India. ...Maintaining

the third place is Hero Honda Motors,

India’s largest maker of Motorcycles.FAR EASTERN ECONIOMIC REVIEW DECEMBER 25, 2003

TABLE 5 WORKING CAPITAL MANAGEMENT & LIQUIDITY RATIOS

03–04 02–03

Inventory Period 14.4 16.1

Operating Cycle 19.2 23.2

Cash Cycle –28.3 –16.3

Current Ratio 0.51 0.70

Acid Test Ratio 0.32 0.40

Note: The average of inventory, receivables and payables have beentaken for the above calculations of inventory period,operating and cash cycle.


over 7% and 5% respectively. The

estimated average percapita

income level ranging between

550–700 US$ during FY

2004–FY2006 is conducive to

adoption of two wheelers as

personal transport mode by

households. Once it reaches US$

1000+, then the preference could

begin to shift towards cars. Last

year's robust agricultural growth

supporting rural consumption,

prospect of good monsoon in the

current year, UPA Governments'

programme to prosper rural areas

and infrastructure, favourable

demographic trends are the factors

that are mutually reinforcing and

will influence a handsome growth

in two–wheelers. There will be

expansion in the consumer credit

by banks and financial institutions

but interest rates may have

upward pressure depending on

inflation, which is currently at

around 6%.

We expect the motorcycle market

to grow by about 12–15 per cent

during 2004–05. While this is less

than the growth experienced by

the industry in the last few years, it

is important to remember that the

volumes in the industry have

increased significantly. At present,

motorcycles account for over 77

per cent of the two–wheeler

market and the scope to grow

further in terms of its share in two

wheelers is limited. As the market

leader, Hero Honda too

endeavours to achieve a

double–digit growth in sales.

CAUTIONARY STATEMENT

Statements in this management

discussion and analysis describing

the Company's objectives,

projections, estimates and

expectations may be 'forward

looking statements' within the

meaning of applicable laws and

regulations. Actual results might

differ substantially or materially

from those expressed or implied.

Important developments that could

affect the Company's operations

include a both, significant changes

in political and economic

environment in India or key

markets abroad, tax laws, litigation,

labour relations and interest costs.

HERO HONDA


36

Management Discussion and Analysis

ROBUST AGRICULTURALGROWTH SUPPORTING RURALCONSUMPTION, PROSPECT OFGOOD MONSOON IN THECURRENT YEAR, UPAGOVERNMENTS' PROGRAMMETO PROSPER RURAL AREASAND INFRASTRUCTURE,FAVOURABLE DEMOGRAPHICTRENDS ARE THE FACTORSTHAT ARE MUTUALLYREINFORCING AND WILLINFLUENCE A HANDSOMEGROWTH IN TWO–WHEELERS.THERE WILL BE EXPANSION INTHE CONSUMER CREDIT BYBANKS AND FINANCIALINSTITUTIONS


37

20Y E A R S

FINANCIAL HIGHLIGHTS

In Rs. Crore

1999–00 2000–01 2001–02 2002–03 2003–04

Sales (Nos.) 761623 1029510 1425302 1677537 2070147

Growth in sales (nos.) – % 43.6 35.2 38.4 17.7 23.4

Total income 2269 3191 4539 5195 5997

Growth in Total income – % 50.7 40.7 42.3 14.4 15.5

Profit before tax 285 377 694 885 1072

Profit after tax 192 247 463 581 728

Share capital 39.94 39.94 39.94 39.94 39.94

Reserves and Surplus 408 589 646 821 1099

Total debt 51 66 116 134 175

Net fixed assets 374 454 491 517 589

Total assets 499 696 802 995 1314

Market capitalisation 3874 2816 6670 3758 9797

EVA 119 155 374 481 569

KEY RATIOS

1999–00 2000–01 2001–02 2002–03 2003–04

Long term debt/Equity 0.04 0.0 0.0 0.0 0

OPBDIT*/Net Sales 13.5 13.2 15.0 16.7 16.8

OPBT**/Net Sales–% 11.8 11.7 13.9 15.5 15.6

Profit after tax/Tot. income–% 8.5 7.7 10.2 11.2 12.1

Return on avg. equity–% 52.2 46.9 72.1 75.6 72.9

Return on avg. capital employed–% 66.1 64.9 94.5 98.9 92.8

EVA/Capital employed–% 27.6 26.6 51.0 53.8 49.3

Dividend per share (Rs.)*** 2.0 3.0 17.0 18.0 20.0

Dividend Payout–% 23.1 26.7 75.5 69.8 61.9

Earnings per share (Rs.)*** 9.6 12.4 23.2 29.1 36.5

Market value/Book value 8.8 4.8 10.0 4.4 8.6

Notes:*OPBDIT: Operating Profit before Depreciation, Interest and Tax**OPBT: PBT before Other Income***DPS & EPS: Figures for ‘99-’00 adjusted for shares split in the ratio of 5:1 in March ‘01


ECONOMIC VALUE ADDEDSTATEMENT

HERO HONDA


38

WHAT IS EVA?

Economic Value Added (EVA ) measures the difference between the return on a

Company's capital and the cost of that capital. In business, the revenue earned

from customers is distributed amongst various stakeholders – suppliers for their

goods and services provided, creditors for their capital lent and employees for

their services rendered. Depreciation is charged to the revenue account since it

signifies the use of assets, whereas taxes are paid to the government. The

residual is accounting profit, which belongs to the shareholders. However, the

equity capital provided by the shareholders also carries a cost since there is a

risk involved in putting money into a business. Thus value is created only when

a business earns returns over the cost of all capital, i.e. including the cost of risk

capital. This is precisely what EVA attempts to measure. A positive EVA indicates

that value has been created for shareholders, whereas a negative EVA signifies

value destruction.

HOW IS EVA CALCULATED ?

EVA = Net Operating Profit after Taxes ( NOPAT) – Cost of Capital Employed (COCE)

NOPAT = Profit after taxes but before interest cost. It signifies returns available to the

lenders and shareholders

COCE = Weighted Average Cost of Capital (WACC) (*) Average Capital Employed where

WACC = Post tax cost of debt capital plus cost of equity capital

Weights have been taken at market value for equity capital and at book value for

other capital. Cost of debt capital has been taken at actual basis , whereas the cost

of equity capital has been calculated in the following manner:

Cost of equity capital = Cost of risk free capital plus Beta*(Market risk Premium)

where Beta measures the sensitivity of the return on a security to the return on a market

portfolio.


EVA TREND

All figures in Rs. Crores

99-00 00-01 01-02 02-03 03-04

Avg Cap Employed 432 585 734 893 1154

Avg Debt/Avg Capital (%) 1.7 1.7 1.9 2.3 2.2

Avg Equity/Avg Capital (%) 98.3 98.3 98.1 97.7 97.8

Cost of Debt (% post-tax ) 4.5 2.6 1.1 0.9 0.7

COST OF EQUITY

Beta 0.69 0.58 0.51 0.53 0.90

Cost of Risk Free Debt (%) 10.80 10.33 7.38 6.24 5.13

Market Premium (%) 10.0 10.0 10.0 10.0 10.0

Cost Of Equity (%) 17.7 16.1 12.5 11.5 14.2

EVA

Profit after Tax 192 247 463 581 728

Add: Interest*(1-tax rate) 3 2 1 1 1

NOPAT=PAT + Interest*(1-t) 195 248 464 582 729

Cost of Capital 76 93 90 101 160

EVA 119 155 374 481 569

Return on Capital Employed (%) 45.1 42.5 63.2 65.1 63.2

Weighted Average Cost of Capital (%) 17.5 15.9 12.3 11.3 13.9

EVA/Capital employed (%) 27.6 26.6 51.0 53.8 49.3

ENTERPRISE VALUE

Market Capitalisation 3874 2816 6670 3758 9797

Add: Debt 51 67 116 134 175

Less: Financial Assets 177 333 835 1217 1708

EV (Enterprise Value) 3748 2550 5951 2675 8263

EV/Yr. End Capital Employed (Times) 7.6 3.8 7.5 2.7 6.3

39

20Y E A R S


YOUR DIRECTORS are pleased to present their Report together with the

Audited Statement of Accounts for the financial year ended March 31,

2004.

DIRECTORS’ REPORT

HERO HONDA


40

FINANCIAL RESULTS

Rs. in Crore

For the year For the year

ended March 31, ended March 31,

2004 2003

Sales and other Income 5, 997.47 5,194.58

Profit before depreciation and finance charges 1, 144.44 946.43

Less: Finance charges (1.35) (1.02)

Depreciation 73.33 63.39

Profit before tax 1,072.46 884.56

Less: Provision for tax

—Current 331.07 298.19

—Deferred 13.07 5.61

Profit after tax 728.32 580.76

Add: Balance of profit brought forward 335.75 220.48

Balance available for appropriation 1,064.07 801.24

Appropriations

Dividend

—Interim 199.69 —

—Proposed Final 199.69 359.44

Tax on Dividend 51.16 46.05

Transfer to General Reserve 75.00 60.00

Balance carried to Balance Sheet 538.53 335.75

Dividend % 1000 900

Basic and Diluted EPS (Rs.) 36.47 29.08


BUSINESS PERFORMANCE

The motorcycle market during

2003-04 breached the 4 million

mark even though the competition

intensified both in terms of

product launch as also the pricing.

The rate of growth of motorcycles

has slowed from 30 per cent in

2002-03 to 14 per cent in the

current year. The market share of

your Company in this moderate

growth motorcycle market has

risen to 48% and as a result it

posted impressive financial results.

Total income of the Company grew

by 15 per cent from Rs. 5,194.58

Crores in 2002-03 to Rs. 5,997.47

Crores in 2003-04. Pre-tax profit

(PBT) increased by 21 per cent

from Rs. 884.56 Crores in 2002-

03 to Rs.1,072.46 Crores in 2003-

04 and post-tax profit (PAT) grew

by 25 percent from Rs.580.76

Crores in 2002-03 to Rs.728.32

Crores in 2003-04.

The Company’s motorcycle sales

grew by a healthy 23 per cent

from 1.68 million motorcycles in

2002-03 to 2.07 million

motorcycles in 2003-04. During

the year, over a million units of

Splendor were sold and it

continues to be the largest selling

motorcycle model in the world for

the fourth year in a row. Your

Company launched five new

models targeting the basic/entry

segment as well as the premium

segment of the market, namely,

CD Dawn; Karizma; Splendor+;

Passion plus and Ambition 135.

Good sales growth was

accompanied by improvement in

cost rationalization, better working

capital management, efficiency in

manufacturing and higher

productivity.

We have reasons to be satisfied

with the performance of the

Company. For three years in a row,

Hero Honda continues to be the

world’s single largest two-wheeler

Company. It also continues to be

the leader in the domestic two-

wheeler market. The business

performance of the Company has

been discussed in detail in the

chapter on management

discussion & analysis.

DIVIDEND

At Hero Honda, it is our strong

belief that the profits earned

should be shared with all

stakeholders and also be utilized

in creating “shareholders value”.

Further, the Company has also set

a benchmark with respect to

dividend payments and believes

that surplus funds over and above

requirements for capital

investments should be distributed

to shareholders. The year under

review will go down in the Indian

Corporate history as the highest

dividend paid by any

manufacturing Company in a year

amounting to a Dividend of 1000%

consisting of Special Interim

Dividend of 500% (Rs.10) already

paid. A Final Dividend of 500%

(Rs.10) per equity share of Rs.2

each aggregating to Rs. 225.27

Crores (inclusive of corporate

dividend tax of Rs. 25.58 Crores)

41

20Y E A R S


has been recommended for your

approval for the financial year

ended March 31, 2004.

MATERIAL CHANGES AND COMMITMENTS

Your Directors wish to inform with

great pleasure that the Company

has renewed its License and

Technical Assistance (LTA)

Agreement with its Joint Venture

Partner Honda Motor Co., Ltd.,

Japan on June 2, 2004 for a

further period of ten years with

effect from June 21, 2004. Apart

from this, there were no material

changes and commitments

affecting the financial position of

the Company that have occurred

between the end of the financial

year of the Company and the date

of signing of this report.

BOARD OF DIRECTORS

Mr. Koji Nakazono was appointed

as the Director of the Company in

the casual vacancy caused by the

resignation of Mr. Yukihiro

Aoshima, with effect from April 1,

2004.

The Directors place on record their

gratitude for the services rendered

and guidance received from Mr.

Aoshima during his tenure as

member of the Board.

The Directors heartily welcome Mr.

Nakazono to the Board and wish

him success for a fruitful

association in the future.

Mr. Satoshi Toshida, Mr. Satyanand

Munjal, Mr. Om Prakash Gupta,

Mr. Mahendra Pal Wadhawan,

Directors of the Company, retire by

rotation at the ensuing Annual

General Meeting. Mr. Satoshi

Toshida and Mr. Satyanand Munjal

being eligible have offered

themselves for re-appointment.

Your Directors recommend their

re-appointment at the ensuing

Annual General Meeting.

However Mr. O.P. Gupta and Mr.

M.P. Wadhawan though eligible for

re-appointment, have requested to

be relieved from this responsibility.

Both of them have been

associated with the Company since

inception. We take this opportunity

to record our deep appreciation for

the immense contribution made by

them, especially in the formative

years. Their knowledge and rich

experience was very useful in

laying strong foundation for the

Company.

We wish them good health and

happiness.

DIRECTORS’ RESPONSIBILITY STATEMENT

To the best of their knowledge and

belief and according to the

information and explanations

obtained by them, your Directors

HERO HONDA


Directors’ Report

42


make the following statement in

terms of Section 217(2AA) of the

Companies Act, 1956:

1. that in the preparation of the

annual accounts for the year ended

March 31, 2004, the applicable

accounting standards have been

followed;

2. that appropriate accounting

policies have been selected and

applied consistently and

judgements and estimates that are

reasonable and prudent have been

made so as to give a true and fair

view of the state of affairs as at

March 31, 2004 and of the profit

of the Company for the financial

year ended March 31, 2004;

3. that proper and sufficient care has

been taken for the maintenance of

adequate accounting records in

accordance with the provisions of

the Companies Act, 1956 for

safeguarding the assets of the

Company, and for preventing and

detecting fraud and other

irregularities;

4. that the annual accounts for the

year ended March 31, 2004 have

been prepared on a going concern

basis.

MANAGEMENT DISCUSSION AND

ANALYSIS REPORT

A detailed chapter on,

‘Management Discussion and

Analysis’, pursuant to Clause 49 of

the Listing Agreement is given in

the Annual Report.

CORPORATE GOVERNANCE

Hero Honda believes that the

essence of Corporate Governance

lies in the phrase ‘Your Company’.

It is ‘Your’ Company because it

belongs to you – the shareholders.

The Chairman and Directors are

‘Your’ fiduciaries and trustees.

Their objective is to take the

business forward in such a way

that it maximises ‘Your’ long-term

value. Your Company is committed

to benchmark itself with global

standards in all areas including

appropriate standards for Good

Corporate Governance. Towards

this end, an effective ‘Corporate

Governance System’ has been put

in place in the Company, which

also ensures that the provisions of

Clause 49 of the Listing Agreement

are duly complied with. A report

on Corporate Governance along

with the Auditors’ Certificate on its

compliance is annexed hereto as

Annexure — I.

INTERNAL CONTROL SYSTEMS

Hero Honda has a proper and

adequate system of internal

controls to ensure that all assets

are safeguarded and protected

against loss from unauthorised use

or disposition and that the

transactions are authorised,

recorded and reported correctly.

An extensive programme of

internal audit and management

reviews supplement the internal

control. Properly documented

policies, guidelines and

procedures are laid down for this

purpose. The internal control

system has been designed to

ensure that the financial and other

records are reliable for preparing

financial and other statements and

for maintaining accountability of

assets.

The Company has an Audit

Committee, comprising three

Independent, Non-Executive and

professionally qualified Directors,

which interacts with the Statutory

Auditors, Internal Auditors, Cost

Auditors and the Auditee in

dealing with matters within its

terms of reference. It also, deals

with accounting matters, financial

reporting and internal controls.

The Committee held six meeting

during the year 2003-04 in this

regard.

AWARDS AND RECOGNITION

During the year under review, your

Company was the winner of

‘Review 200 – 3rd Rank’ amongst

the top 10 Indian Companies - by

the Far Eastern Economic Review.

The Company also won the ‘Best

Value Creator among large

Companies for 2003’ award from

the ‘Outlook Money’ magazine. In

addition, the ‘All India

Management Association’

conferred the “Lifetime

43

20Y E A R S


Achievement Award for

Management (2003)” on your

Company’s Chairman Mr.

Brijmohan Lall Munjal.

RATINGS

The rating agency CRISIL has

reaffirmed their rating granted to

various programme / instruments

of the Company. The ‘AAA’ (‘triple

A’) rating to Non-Convertible

Debenture programme, ‘P1+’ (‘P

one plus’) rating for the Company’s

Commercial Paper programme, as

well as the ‘FAAA’ (‘F-Triple A’)

rating for its Fixed Deposit

programme. The ratings indicate

that the degree of safety with

regard to timely payment of

interest and principal on the

instruments is very strong.

Further ICRA has also granted

‘LAAA’ (‘L triple A’) rating to Non-

Convertible Debenture programme.

FIXED DEPOSITS

During the year under review, the

Company has not accepted any

deposit under Section 58A and

Section 58AA of the Companies

Act, 1956 read with Companies

(Acceptance of Deposits) Rules,

1975.

AUDITORS

M/s. A. F. Ferguson & Co.,

Chartered Accountants, New Delhi,

Auditors of the Company will retire

at the conclusion of the ensuing

Annual General Meeting and being

eligible, offer themselves for re-

appointment. The Company has

received a certificate from the

auditors to the effect that their

reappointment, if made, would be

in accordance with Section

224(1B) of the Companies Act,

1956. The Board recommends

their reappointment.

AUDITORS’ REPORT

As regards the Auditors’ Report,

the respective notes to the

accounts are self explanatory and

therefore, do not call for any

comments.

COST AUDITORS

The Board has re-appointed M/s.

Ramanathan Iyer & Co., Cost

Accountants, New Delhi, as the

Cost Auditors of the Company

under Section 233B of the

Companies Act, 1956 for the

financial year 2004-05 and

necessary approval from the

Government regarding the said

appointment has been received by

the Company. The Cost Auditors'

Report for 2003-04 will be

forwarded to the Central

Government in pursuance of the

provisions of the Companies Act,

1956.

HERO HONDA


Directors’ Report

44


CONSERVATION OF ENERGY, TECHNOLOGY

ABSORPTION, FOREIGN EXCHANGE EARNINGS

AND OUTGO

Information required under Section

217(1)(e) of the Companies Act,

1956, read with Companies

(Disclosure of Particulars in the

Report of the Board of Directors)

Rules, 1988 is given as per

Annexure II and forms an integral

part of this Report.

LISTING

The shares of your Company are

presently listed on The Stock

Exchange, Mumbai (BSE); The

National Stock Exchange of India

Ltd. (NSE) and the Calcutta Stock

Exchange Association Ltd.

(delisting application pending).

Given the abysmally low trading

volumes on all other stock

exchanges, barring the BSE and

NSE, the Company proposed to

delist its shares from the stock

exchanges at Delhi, Calcutta,

Ahmedabad and Ludhiana and

accordingly necessary approval

was accorded by the shareholders

in their 20th Annual General

Meeting held on August 1, 2003.

During the year, The Delhi Stock

Exchange Association Ltd. (DSE)

and The Stock Exchange,

Ahmedabad (ASE) approved

delisting of securities w.e.f.

December 10, 2003 and March

18, 2004 respectively. Further,

delisting approval from The

Ludhiana Stock Exchange

Association Limited (LSE) has also

been received. The approval from

The Calcutta Stock Exchange

Association Limited (CSE) is in

process and is expected to be

received shortly.

ENVIRONMENT AND RESOURCE MANAGEMENT

Hero Honda is an ISO:

14001:1996 Company since 1999,

and is committed to maintain high

environmental standards. Its water

and effluent treatment plants are

one of the best in India. The

Company also has an in-house

laboratory for testing water

effluents for ensuring that all

regulatory requirements are

complied with. The treated water

from these plants is mostly used

for manufacturing processes and

horticulture. The Dharuhera plant

has a hazardous waste clearance

site to dump such wastes so that

nothing is discharged outside the

factory premises.

A) ENVIRONMENTAL MANAGEMENT

The Company has been certified

for its environmental management

systems as per ISO: 14001:1996.

The integration of environment

friendly measures and cleaner

production practices in the

business processes has resulted in

better efficiency of operations and

also improved the environmental

performance.

B) ENVIRONMENTAL COMPLIANCE

The applicable Environmental

regulations are complied with. The

Company has defined its own

environmental standards, which

are more stringent than the

prescribed norms. A state-of-the

art Environmental Laboratory has

been set up to monitor pollution

control strictly as per standards.

C) POLLUTION PREVENTION AND

RESOURCE MANAGEMENT

The Company is committed to

conserve resources particularly the

pollution causing resources i.e.

oils, water, energy, paints and

chemicals. A number of

environmental management

programs have been implemented

and new practices introduced to

ensure the optimal consumption of

these resources. The consumption

of such resources have

consistently been reduced over the

past years. The carbon emission

on account of motorcycle

production is calculated and

monitored vigorously to ensure

better energy performance.

We have introduced a state-of-the

art technology for setting up of

Aluminium Machining Shop, which

has resulted in low energy

consumption and better

environment controls.

45

20Y E A R S


D) POLLUTION CONTROL MANAGEMENT

The Company is a zero effluent

discharge Company; the inevitable

effluent generated from industrial

activities is treated at the facilities

and treated effluent is recycled in

the plant. In order to control the

noise pollution, D.G. House has

also been treated acoustically.

E) D ISPOSAL OF HAZARDOUS WASTE

At our Dharuhera Plant, an

engineered landfill facility has

been constructed & incinerators

installed for disposal of wastes

which have been classified as

hazardous.

F) OTHER IN IT IATIVES

Suppliers and Dealers are integral

part of our supply chain and

distribution system; therefore we

constantly influence them to

incorporate environment protection

guidelines in their activities.

Your Company greatly values

conservation of natural resources.

We have implemented rain water

harvesting programme at both the

plants. The scheme has 10

injection wells covering

approximately 31540 sq. m. of

rooftop area. A leading

environmental NGO, Centre for

Science and Environment (CSE),

New Delhi, has selected our

rainwater-harvesting project at the

Dharuhera plant as one of the

model project for enhancing public

awareness.

The Company is actively involved

in the development of a common

integrated facility for Disposal of

Hazardous Waste in the state of

Haryana.

The Company’s Managing Director

has been the Chairman of National

Environment Committee of

Confederation of Indian Industry

(CII) for the year 2003-04 and

spearheaded the environmental

initiatives at the national level.

PERSONNEL

As on March 31, 2004, the total

number of employees on the

records of the Company was

4,017. Hero Honda conducts

several training programmes to

upgrade the skills of its workforce.

These programmes have a strong

practical approach, and the

objective is to derive tangible

improvements. Your Directors place

on record their appreciation for the

significant contribution made by all

the employees, who through their

competence, hard work, solidarity,

co-operation and support, have

enabled the Company to cross new

milestones on a continual basis.

Industrial relations, as always, have

remained cordial throughout the

year.

HERO HONDA


Directors’ Report

46


PARTICULARS OF EMPLOYEES

A Statement showing Particulars of

Employees as required under

Section 217(2A) of the Companies

Act, 1956 read with the

Companies (Particulars of

Employees) Rules, 1975 is

annexed as Annexure III and

forms an integral part of the report.

ACKNOWLEDGEMENTS

It is our strong belief that caring

for our business constituents has

and will go a long way in the

progress of the Company. Your

Directors acknowledge with

sincere gratitude the co-operation

and assistance extended by the

Central Government, State

Government(s), Financial

Institution(s), Bank(s), Customers,

Dealers, Vendors and Ancillary

Undertakings. The Directors also

place on record their appreciation

for the valuable assistance and

guidance extended to the

Company by Hero Cycles Ltd. and

Honda Motor Co., Ltd., Japan and

for the encouragement and

assurance, which our collaborator

has given for the growth and

development of the Company. The

Board, also, takes this opportunity

to express its deep gratitude for

the continued co-operation and

support received from its valued

shareholders.

For and on behalf of the Board

Brijmohan Lall Munjal


New Delhi

July 14, 2004

47

20Y E A R S


ANNEXURE I TO DIRECTORS’ REPORT

INTRODUCTION

Hero Honda’s philosophy of

Corporate Governance stems from

its belief that the Company’s

business strategy and plans should

be consistent with the welfare of all

its stakeholders, including

shareholders. Good Corporate

Governance practices enable a

company to attract financial and

human capital and leverage these

resources to maximize long-term

shareholder value, while preserving

the interests of multiple

stakeholders, including society at

large.

Corporate Governance rests upon

the four pillars of: transparency, full

disclosure, independent monitoring and

fairness to all, especially to minority

shareholders. Hero Honda has

always strived to promote good

governance practices, which ensure

that:

• A competent management team is at

the helm of affairs;

• The Board is strong with an optimum

combination of Executive and Non-

Executive (including Independent)

Directors, who represent the interest

of all stakeholders;

• The Board effectively monitors the

management’s progress, takes all

key corporate decisions and is

effectively in control of the

Company’s affairs;

• The Board is concerned about the

Company’s shareholders; and

• The Management and Employees

have a stable environment.

We believe that the essence of

Corporate Governance lies in the

phrase “Your Company”. It is “Your”

Company because it belongs to you

– the shareholders. The Chairman

and Directors are “Your” fiduciaries

and trustees. Their objective is to

take the business forward to

maximise “Your” long-term value.

The Securities and Exchange Board

of India (SEBI) has specified certain

mandatory governance practices,

which are incorporated in Clause 49

of the Listing Agreement of stock

CORPORATE GOVERNANCEREPORT

HERO HONDA


48


TABLE 1 DETAILS ABOUT COMPANY’S BOARD OF DIRECTORS / ATTENDANCE RECORD

Director Number of Attendance Number of Number of Number of

Board at Last AGM Committee Committee outside

meetings memberships Chairmanships Directorships

held # held held

(excluding Private Companies, Foreign

Companies, Section 25 Companies)

Held Attended

Executive Directors

Mr. Brijmohan Lall Munjal 6 6 Yes None None 7

Mr. Pawan Munjal 6 6 Yes None None 1

Mr. Akio Kazusa 6 4 Yes None None 1

Mr. Shinichi Nakayama* 6 4 Yes None None 1

Mr. Kazumi Yanagida * 6 1 Yes None None 1

Non-Executive Directors

Mr. Satyanand Munjal 6 None No 1 None 4

Mr. Om Prakash Munjal 6 4 No None None 9

Non-Executive and Independent Directors

Mr. M.P.Wadhawan 6 6 Yes 7 3 3

Mr. O.P.Gupta 6 6 Yes 8 4 5

Mr. S.P.Virmani 6 6 Yes 2 1 2

Mr. N.N.Vohra 6 5 No 1 None None

Mr. Pradeep Dinodia 6 5 Yes 8 3 7

Gen. (Retd.) V.P.Malik 6 4 Yes 1 None 1

Mr. Satoshi Toshida 6 None No None None None

Mr. Yukihiro Aoshima ** 6 None No None None 1

Notes:# Membership includes Chairmanship also. * Mr. Shinichi Nakayama has been appointed as a Director on the Board with effect from May 9, 2003, in the casual vacancy caused due to the resignation of Mr. Kazumi Yanagida with effect from April 24, 2003; ** Mr. Yukihiro Aoshima resigned from the Board on April 1, 2004 and Mr. Koji Nakazono has been appointed as a Director on the Board with effect from April 1, 2004 in

the casual vacancy caused due to resignation of Mr. Yukihiro Aoshima.

49

20Y E A R S


exchanges. Hero Honda is

committed to benchmark itself

with the best standards of

Corporate Governance, not only in

form but also in spirit. This

section, along with the section on

‘Management Discussion and

Analysis’ and ‘General

Shareholder’s Information’

constitute Hero Honda’s

compliance with Clause 49.

BOARD OF DIRECTORS

COMPOSIT ION OF THE BOARD

As on March 31, 2004, the

Company’s Board of Directors

consists of fourteen Directors.

Four Directors, including the

Chairman, are Executive, two are

Non-Executive and eight are Non-

Executive and Independent. As

more than 50 per cent of the

Board consists of Independent

Directors, the composition of the

Board is in consonance with

Clause 49. Details of the

composition of the Board are given

in Table 1.

Four Directors— Mr. Brijmohan

Lall Munjal (Executive Chairman in

the whole-time employment of the

Company), Mr. Pawan Munjal

(Managing Director), Mr.

Satyanand Munjal (Non-Executive

Director) and Mr. Om Prakash

Munjal (Non-Executive Director)—

belong to the promoter family of

the Hero Group, which owns 26

per cent equity in the Company.

Two Directors— Mr. Akio Kazusa

(Executive Director) and

Mr. Shinichi Nakayama (Executive

Director)— are nominees of Honda

Motor Co., Ltd, Japan, which too,

owns 26 per cent equity in the

Company. Subsequent to the year

end, Mr. Yukihiro Aoshima has

resigned and in his place Mr. Koji

Nakazono has been appointed on

the Board, with effect from April 1,

2004.

Apart from formulating business

strategies, The Board regularly

reviews the performance of the

Company and ensures that

targeted objectives are met on a

consistent basis.

BOARD MEETINGS

During 2003-04, the Board of

Directors met 6 times on April 10,

2003; June 4, 2003; July 11,

2003; September 30, 2003;

October 14, 2003 and January 14,

2004 respectively.

The longest gap between any two

Board Meetings did not exceed the

period of 3 months.

DIRECTORS’ATTENDANCE RECORD AND

DIRECTORSHIPS

Details are given in Table 1

As per Clause 49 of the Listing

Agreement entered into with the

Stock Exchange(s), an

Independent Director means a

Director who apart from receiving

director’s remuneration, does not

have any other material pecuniary

relationship or transactions with

the Company, its promoters, its

management or its subsidiaries,

which in the judgement of the

Board may affect the

independence of judgement of the

director.

None of the Directors on the Board

holds the office of Director in more

than 15 companies, nor are they

members in Committees of the

Board in more than 10

Committees or Chairman of more

than 5 Committees. There are no

pecuniary relationships or

transactions between the Non-

Executive Directors and the

Company, except for the sitting

fees drawn by the Non-Executive /

Non-Executive and Independent

Directors for attending the

meetings of the Board and its

Committee(s).

INFORMATION SUPPLIED TO THE BOARD

Board members are given agenda

papers along with necessary

documents and information in

advance of each meeting of the

Board and Committee(s). In

addition to regular business items,

the following are regularly placed

HERO HONDA


Corporate Governance Report

50


before the Board to the extent

applicable :

• Annual Operating plans and

budgets, Capital Budgets, updates;

• Purchase and disposal of major

fixed assets;

• Quarterly and half yearly results of

the Company;

• Minutes of the Audit Committee and

other Committee meetings;

• Information on recruitment and

remuneration of senior officers just

below the Board level including

appointment or removal of CFO and

Company Secretary;

• Any material defaults in financial

obligations to and by the Company

for substantial non-payments;

• Fatal or serious accidents,

dangerous occurrences, any

material effluent or pollution

problems;

• Transactions that involve

substantial payment towards

goodwill, brand equity or

intellectual property;

• Materially important show cause,

demand, prosecution and penalty

notices;

• Details of Quarterly foreign

exchange exposures and steps

taken by the management to limit

the risks of adverse exchange rate

movement;

• Sale of material nature, of

investments and assets, which are

not in the normal course of

business;

• Details of Joint Ventures and

Agreements or variations thereof;

• Quarterly Statutory Compliance

Report;

• Directors’ Overseas Travelling

expenses;

• Non-compliance of any regulatory,

statutory nature or listing

requirements and shareholder’s

service such as non-payment of

dividend, delay in share transfer

etc.;

• Investments strategy/plan;

• Any issue which involves possible

public or product liability claims of

substantial nature, including any

judgement or order which may

have passed strictures on the

conduct of the Company or taken

an adverse view regarding another

enterprise that can have negative

implications on the Company; and

• Significant labour problems and

their proposed solutions. Also, any

significant development in Human

Resources/Industrial Relations front

like signing of Wage Agreement,

implementation of Voluntary

Retirement Schemes etc.

BOARD LEVEL COMMITTEES

AUDIT COMMITTEE

The genesis of Hero Honda’s Audit

Committee can be traced back to

the Audit Sub-Committee,

constituted in 1987. Since then it

has been dealing with matters

prescribed by the Board of

Directors on a case-by-case basis.

The nomenclature, constitution

and terms of reference of the

Committee were revised on

January 16, 2001 and an Audit

Committee was set up as per the

provisions of the Section 292A of

the Companies Act, 1956 and

Clause 49 of the Listing Agreement

of the Stock Exchange(s). As on

March 31, 2004, the Committee

had three Non-Executive &

Independent Directors in

accordance with the prescribed

guidelines. All the members have

sound knowledge in the field of

finance, accounting and law. The

“terms of reference” of the Audit

Committee included the following:

• Overseeing the Company’s financial

reporting process and disclosure of

its financial information to ensure

that the financial statements are

correct, sufficient and credible.

• Recommending the appointment

and removal of the external auditor,

fixation of audit fees and approving

payments for any other services.

• Reviewing with the management

the annual financial statements

with primary focus on accounting

policies and practices, compliance

with accounting standards and

guidelines of stock exchange(s)

etc.

• Compliance with Stock Exchange

and legal requirements concerning

financial statements.

• Reviewing the adequacy of internal

control systems and the internal

audit function and reviewing the

51

20Y E A R S


company’s financial and risk

management policies.

• Reviewing the findings of any

internal investigations by the

internal auditors into matters

where there is suspected fraud or

irregularity or a failure of internal

control system of a material nature

and reporting the matter to the

Board.

• Reviewing reports furnished by the

internal auditors, discussion with

Internal Auditors on any significant

findings and ensuring suitable

follow up thereon.

• Discussing with external auditors

before the audit commences, of the

nature and scope of audit. Also

post – audit discussion to ascertain

any area of concern.

• Directors’ Overseas Travelling

expenses.

• Review of Foreign Exchange

exposure.

• Reviewing the Company’s financial

and risk management policies.

• To look into the reasons for

substantial defaults in the

payments to the depositors,

debentureholders, shareholders (in

the case of non-payment of

declared dividends) and creditors.

The Vice President – Finance,

internal auditors, statutory auditors

and cost auditor attend the

meetings of the Committee on the

invitation of the Chairman. The

Company Secretary acts as the

Secretary of the Committee.

During the year, six meetings of

the Audit Committee were held on

April 10, 2003; June 25, 2003;

July 11, 2003; September 30,

2003; October 14, 2003 and

January 14, 2004 respectively in

due compliance with the stipulated

provisions. The attendance record

of members of the Audit

Committee is given in Table 2.

REMUNERATION COMMITTEE

The Company had set up a

Remuneration Committee on

January 16, 2001 to review and

recommend the payment of

annual salaries, commission;

service agreements and other

employment conditions of

Executive Directors. The

Committee takes into consideration

the best remuneration practices

being followed in the industry

while fixing appropriate

remuneration packages. As on

March 31, 2004, Mr. S.P.Virmani

is the Chairman of the Committee.

The other members are Mr.

N.N.Vohra and Gen. (Retd.)

V.P.Malik. All the members are


Directors.

During 2003-04, the Committee

met twice on April 10, 2003 and

June 4, 2003. The objective of the

meetings was to review the terms

of appointment and remuneration

of Mr. Shinichi Nakayama, the

Whole-time Director of the

Company and revision in Basic

Salary of Executive Directors

respectively. All the members

attended the meetings and the

attendance record of members of

the Committee is given in Table 3.

REMUNERATION POLICY

The remuneration paid to

Executive Directors is

recommended by the

Remuneration Committee and

approved by the Board of

Directors, in the Board meeting,

subject to the subsequent approval

by the shareholders at the General

Meeting and such other

authorities, as the case may be.

HERO HONDA



52

TABLE 2 DETAILS OF THE AUDIT COMMITTEE

Director Category No. of No. of

meetings held meetings attended

Mr. M.P Wadhawan Chairman 6 6

Mr. O.P. Gupta Member 6 6

Mr. Pradeep Dinodia Member 6 4


53

At the Board meeting, only the


Directors participate in this

exercise. The remuneration is fixed

considering various factors such as

qualification, experience, expertise,

prevailing remuneration in the

corporate world and the financial

position of the Company. The

remuneration structure comprises

of Basic Salary, Perquisites and

allowances, Contribution to

provident fund and other funds.

Besides these, a fixed commission

@ 1 per cent of net profit

computed in accordance with

Section 198 of the Companies Act,

1956 is paid as per the terms of

appointment. The Non-Executive

Directors do not draw any

remuneration from the Company

except sitting fees of Rs. 5,000 for

each meeting of the Board, Audit

Committee, Remuneration

Committee and Shareholders’

Grievance Committee attended by

them. The amount of sitting fees

has also been enhanced to

Rs. 15, 000 for each such meeting

being attended with effect from

October 14, 2003 and thereafter in

the Board meeting held on

January 14, 2004, the amount of

incidental expenses i.e. Rs. 1,500

was clubbed with the sitting fee

making the sitting fee payable to

Rs. 16,500 for each meeting.

REMUNERATION PAID TO DIRECTORS

Table 4 and 5 gives details of

remuneration paid to Directors.

During 2003-04, the Company did

not advance any loans to any of its

Directors. As of now, the Company

does not have any Employee Stock

Option Plan (ESOP). Further, no

notice period and severance fee is

applicable for the above-

mentioned Executive Directors.

SHAREHOLDERS’ GRIEVANCE COMMITTEE

This Committee, constituted on

January 16, 2001, specifically

looks into redressal of

shareholders’ and investors’

grievances arising out of issues

regarding share transfers,

dividends, dematerialisation and

related matters. As on March 31,

2004, Mr. O.P.Gupta is the

Chairman of the Committee. The

other members are Mr. Pradeep

Dinodia and Mr. M.P.Wadhawan.

All the members are Non-

Executive and Independent

Directors. Mr. Kazumi Yanagida

relinquished his office with effect

from April 24, 2003 and thereafter

the Board of Directors in their

meeting held on September 30,

2003 co-opted Mr. M.P.Wadhawan

as the member of the Committee.

Mr. Ilam C. Kamboj, Company

20Y E A R S

TABLE 3 DETAILS OF THE REMUNERATION COMMITTEE

Director Category No. of meetings No. of meetings

Held Attended

Mr. S.P. Virmani Chairman 2 2

Mr. N.N. Vohra Member 2 2

Gen. (Retd.) V.P. Malik Member 2 2

TABLE 4 REMUNERATION TO EXECUTIVE DIRECTORS

Executive Directors Salary$ Commission** Total Service

Rs.) Fixed (Rs.) (Rs.) Contracts

Mr. Brijmohan Lall Munjal 62,24,258 11,09,00,000 11,71,24,258 5 years

Mr. Pawan Munjal 44,47,574 11,09,00,000 11,53,47,574 5 years

Mr. Akio Kazusa 27,05,006 11,09,00,000 11,36,05,006 5 years

Mr. Shinichi Nakayama * 18,64,769 9,94,00,000 10,12,64,769 5 years

Mr. Kazumi Yanagida * 4,30,142 73,00,000 77,30,142 5 years

* Mr. Shinichi Nakayama was appointed as a Director on the Board with effect from May 9, 2003 in the casualvacancy caused due to the resignation of Mr. Kazumi Yanagida on April 24, 2003.

$ Salary includes Basic Salary, Perquisites and Allowances, Contribution to provident and other funds.

**Total Commission is calculated @ 1% of the net profit calculated in accordance with Section 198 of theCompanies Act, 1956.


Secretary being the Compliance

Officer is the Secretary of the

Committee.

The Company has an efficient

system of dealing with Investors’

Grievances. The Chairman and the

Managing Director of the Company

take personal interest in all matters

of concern of investors, as and

when necessary. The Company

Secretary being the Compliance

Officer carefully looks into each

issue and reports the same to the

Shareholders’ Grievance

Committee. The Committee met

three times during the year under

review. In these meetings, the

status of shareholders’ complaints,

requests etc. and also letters

received from different authorities

were reviewed.

During the year, three meetings of

the Shareholders’ Grievance

Committee were held on July 11,

2003; September 30, 2003 and

January 14, 2004 respectively in

due compliance with the stipulated

provisions. The attendance record

of members of the Shareholders’

Grievance Committee is given in

Table 6.

Details of Shareholders’ complaints

and their status are given in the

section on “General Shareholder’s

Information”.

COMMITTEE OF DIRECTORS

Apart from these Committees, the

Company also has a Committee of

Directors. As on March 31, 2004,

the Committee comprised of Mr.

Brijmohan Lall Munjal—Chairman,

Mr. Pawan Munjal—Managing

Director, Mr. Akio Kazusa—Joint

Managing Director, Mr. Shinichi

Nakayama—Director, Mr. Ravi

Sud—Vice President-Finance and

Mr. Ilam C. Kamboj—Company

Secretary.

Constituted in 1985, the

Committee deals with matters

relating to transfer, transmission

and transposition of shares, issue

of new share certificates, review of

dematerialisation of shares, all

matters relating to shares and all

other matters as prescribed and

delegated to the Committee by the

Board from time to time.

This Committee generally meets

four times in a month. During the

year under review, 50 meetings

were held.

HERO HONDA



54

TABLE 5 REMUNERATION TO NON-EXECUTIVE DIRECTORS

Non-Executive Directors Sitting fees Commission Total

(Rs.) (Rs.) Rs.)

Mr. Om Prakash Munjal 41,500 Nil 41,500

Mr. M.P. Wadhawan 1,24,500 Nil 1,24,500

Mr. O.P. Gupta 1,29,500 Nil 1,29,500

Mr. Pradeep Dinodia 1,09,500 Nil 1,09,500

Mr. S.P. Virmani 61,500 Nil 61,500

Mr. N.N. Vohra 56, 500 Nil 56,500

Gen.(Retd.) V.P. Malik 41, 500 Nil 41,500

No sitting fee was payable to Mr. Satyanand Munjal, Mr. Yukihiro Aoshima and Mr. Satoshi Toshida, as they have not attended any of the meetings of the Board during the Financial Year

TABLE 6 DETAILS OF THE SHAREHOLDERS’ GRIEVANCE COMMITTEE

Director Category No. of meetings No. of meetings

Held Attended

Mr. O.P. Gupta Chairman 3 3

Mr. Pradeep Dinodia Member 3 2

Mr. M.P Wadhawan * Member 3 2

* inducted as member with effect from September 30, 2003


55

DISCLOSURES

RELATED PARTY TRANSACTIONS

Related Parties and transactions

with them as required under

Accounting Standard 18 (AS- 18)

are furnished under paragraph no.

7 of the Notes to the Accounts

attached with the financial

statements for the year ended

March 31, 2004.

The transactions with the related

parties are neither materially

significant nor they have potential

conflict with the interests of the

Company at large.

DETAILS OF NON-COMPLIANCE

There has neither been any non-

compliance of any legal provision

of applicable law, nor any penalty,

stricture imposed by the stock

exchanges or SEBI or any other

authorities, on any matters related

to capital market during the last

three years.

INSIDER TRADING

In compliance with the recently

amended SEBI regulation on

prevention of insider trading, the

Company has instituted a

comprehensive code of conduct

for its management, staff and

relevant business associates. The

code lays down guidelines, which

advises them on procedures to be

followed and disclosures to be

made, while dealing with shares of

the Company and cautioning them

on consequences of non-

compliances.

SHAREHOLDERS

APPOINTMENT / RE-APPOINTMENT OF

DIRECTORS

Mr. Satoshi Toshida, Mr.

Satyanand Munjal, Mr. Om

Prakash Gupta and Mr. Mahendra

Pal Wadhawan, Directors of the

Company, retire by rotation at the

ensuing Annual General Meeting.

Mr. Satoshi Toshida and Mr.

Satyanand Munjal being eligible

have offered themselves for re-

appointment. However Mr.

O.P.Gupta and Mr. M.P.Wadhawan

though eligible for re-appointment,

have requested to be relieved from

this responsiblity.

Mr. Koji Nakazono has been

appointed as Director in the casual

vacancy caused due to the

resignation of Mr. Yukihiro

Aoshima with effect from April 1,

2004.

The abbreviated resume of the

said Directors being re-appointed,

is given in the Notice of the

Annual General Meeting.

MEANS OF COMMUNICATION

The Company’s half yearly results

(period ended September 30,

2003) and annual results (year

ended March 31, 2004) have

been published in English, Hindi

and other regional language

newspapers ( viz. The Economic

Times, The Financial Express,

Business Standard, Nav Bharat

Times etc). Results for the quarter

ended June 30, 2003 and

December 31, 2003 have been

published in English and Hindi

newspapers (viz. The Economic

Times, The Financial Express, Nav

Bharat Times and Jansatta).

Further, the Company’s quarterly,

half yearly and annual results have

also been sent to the individual

shareholders of the Company.

Results for each quarter and

annual results for the year ended

March 31, 2004 have been

displayed on the Company’s

website at www.herohonda.com.

The website also displays official

news releases and distribution

schedule as required by Clause 35

of the Listing Agreement.

Moreover, pursuant to clause 51 of

the Listing Agreement, financial

information like annual and

quarterly financial statements,

shareholding pattern etc. are

available on the SEBI web-site,

www.sebiedifar.nic.in. The

Company Secretary being the

Compliance Officer ensures the

correctness and authenticity of the

information filed in the said web

site.

20Y E A R S


During the year ended March 31,

2004, various presentations were

made to Analysts and Institutional

Investors.

Further, the Management

Discussion and Analysis (MDA)

report, throwing light on the

Operations, Business

Performance, Financials and other

important aspects of the

Company’s functioning, forms a

part of the Annual Report.

GENERAL BODY MEETINGS

DETAILS OF EXTRA-ORDINARY GENERAL

MEETING (EGM) AND ANNUAL GENERAL

MEETING (AGM)

Location, date and time of General

Meetings held during the last three

years and Special resolutions

passed there at are given in Table

7. Pursuant to the provisions of

Section 192A of the Companies

Act, 1956, there was no matter

required to be dealt by the

Company to be passed through

postal ballot.

HERO HONDA



56

TABLE 7 DETAILS OF EGM’S & AGM’S

Year Location Date Time Special resolution passed

EGM

2000-01 Dharuhera Plant February 23, 2001 10:30 a.m. • Amendment in Articles of Association, Article 3 and 6(1) modified

• Amendment in Object clause of Memorandum of Association

• Variation in terms of appointment of Mr. Rahul Munjal

AGM

2002-03 Air Force August 1, 2003 10:00 a.m. • Delisting of Securities of the Company.

Auditorium • Variation in terms of remuneration of Executive Directors

New Delhi

2001-02 Air Force August 12, 2002 10:00 a.m. • Amendment in Articles of Association. New Article Nos.

Auditorium 84 and 113 inserted in place of existing Article Nos. 84 and 113.

New Delhi • Increase in the investment limit of F.I.I’s.

• Variation in terms of appointment of Mr. Brijmohan Lall Munjal,

Chairman and Managing Director.

2000-01 Air Force August 10, 2001 10:30 a.m. • Amendment in Articles of Association: Article 1

Auditorium and 84 modified and Article 74A inserted

New Delhi • Re-appointment of Mr. Brijmohan Lall Munjal as Chairman

and Managing Director


57

GENERAL SHAREHOLDERS’ INFORMATION

ANNUAL GENERAL MEETING

Date August 17, 2004

Day Tuesday

Time 11:00 A.M.

Venue: Airforce Auditorium, Subroto Park, Dhaula Kuan, New Delhi 110 010

FINANCIAL CALENDAR

Financial year April 1 to March 31

FOR THE YEAR ENDED MARCH 31, 2004, RESULTS WERE ANNOUNCED ON:

First quarter ended June 30, 2003 July 11, 2003

Half year ended September 30, 2003 October 14, 2003

Third quarter ended December 31, 2003 January 14, 2004

Fourth quarter and year ended March 31, 2004 April 12, 2004

FOR THE YEAR ENDED MARCH 31, 2005, RESULTS WILL BE ANNOUNCED ON: (TENTATIVE AND SUBJECT TO CHANGE)

First quarter ending June 30, 2004 July, 2004 (2nd week)

Half year ending September 30, 2004 October, 2004 (2nd week)

Third quarter ending December 31, 2004 January, 2005 (2nd week)

Fourth quarter and year ending March 31, 2005 April, 2005 (2nd week)

BOOK CLOSURE

The dates of book closure are from Saturday, July 31, 2004 to Tuesday, August 3, 2004 (both days inclusive).

DIVIDEND PAYMENT

The Company has declared 1000 per cent dividend for 2003-04, which includes an interim dividend of 500

per cent already paid in the month of February 2004. This is one of the highest dividends by any Company of

this proportion in India, engaged in manufacturing activity. The final dividend of 500 per cent shall be paid to

those shareholders whose names appear in the Register of members as on Tuesday, August 3, 2004.

LISTING ON STOCK EXCHANGES

Due to lack of significant trading volumes, the members of the Company on the proposal of the Board

approved the delisting of its equity shares from all the regional Stock Exchanges except The Stock Exchange,

Mumbai and National Stock Exchange of India Limited, Mumbai, in the previous Annual General Meeting held

on August 1, 2003.

Subsequent to the approval of the members, the Company’s equity shares have been delisted by the following

20Y E A R S


Stock Exchanges from their respective Exchanges:

SL. NO. NAME OF THE STOCK EXCHANGE DATE OF DE-LISTING

1. The Delhi Stock Exchange Association Limited (DSE) December 10, 2003

2. The Stock Exchange, Ahmedabad (ASE) March 18, 2004

3. The Ludhiana Stock Exchange Association Limited (LSE) March 26, 2004

The Delisting approval from The Calcutta Stock Exchange Association Limited (CSE) is expected in due course

of time while the procedural formalities for the same have been complied with.

As on March 31, 2004 the shares of the Company are listed on the following exchanges:

SL. NO. NAME OF THE STOCK EXCHANGE

1. The Stock Exchange, Mumbai, Phiroze Jeejeebhoy Towers, 25th Floor, Dalal Street, Mumbai-400 001.

2. National Stock Exchange of India Limited, Exchange Plaza, Plot No. C/1,G Block, Bandra-Kurla

Complex, Bandra East, Mumbai - 400 051

LISTING FEES

Listing fees for the year 2004-05 has been paid to the stock exchanges wherein the equity shares are listed by

the first week of April 2004 i.e within the stipulated time.

STOCK CODES

The Company’s stock codes at the primary exchanges are:

Stock Code Reuters Code Bloomberg

Bombay Stock Exchange 500182 HROH.BO HH IN

National Stock Exchange HEROHONDA HROH.NS NHH IN

STOCK MARKET DATA

The Company’s market capitalisation is included in the computation of the BSE Sensex, BSE -100, BSE-200,

BSE -500, S & P CNX Nifty and S&P CNX 500. Monthly high and low quotations as well as the volume of

shares traded at the National Stock Exchange of India Ltd. (NSE) and The Stock Exchange, Mumbai (BSE) is

given in Table 1.

HERO HONDA



58


59

20Y E A R S

TABLE 1 SHARE PRICE DATA FOR 2003-04 (IN RS.) (SHARE OF RS. 2 PAID UP VALUE)

National Stock Exchange The Stock Exchange, Mumbai

Month High Low Volume High Low Volume

(In Rs.) (In Rs.) (Nos.) (In Rs.) (In Rs.) (Nos.)

APRIL 03 208.00 180.05 19167729 207.60 180.10 7521931

MAY 03 239.50 199.25 11889093 239.00 199.60 4445566

JUNE 03 257.80 216.00 9958408 256.90 216.00 3179724

JULY 03 270.00 234.55 17028625 270.00 234.75 4716376

AUG 03 308.00 245.00 11253185 308.00 261.50 4117783

SEPT 03 310.25 260.00 9432417 310.90 266.00 3748272

OCT 03 355.90 298.10 15132638 356.00 298.05 6155094

NOV 03 399.95 338.00 12361151 400.00 354.90 5443769

DEC 03 472.00 377.00 18276489 490.00 377.00 6748673

JAN 04 499.50 424.15 25386848 500.00 425.00 9839214

FEB 04 521.70 425.55 18536116 521.80 423.35 8679893

MAR 04 544.40 438.00 26006595 543.70 439.35 12290683

CHART A PLOTS COMPANY’S SHARE PRICE MOVEMENT VIS A VIS SENSEX


HERO HONDA


60


DISTRIBUTION OF SHAREHOLDING/ SHAREHOLDING PATTERN

Table 2 lists the Distribution of Shareholding by number of shares held and Shareholding Pattern in

percentage, as on March 31, 2004

TABLE 2

No. of shares held Folios Shares of Rs. 2 paid up

(Rs. 2/- paid up) Numbers % Numbers %

Upto 500 37925 72.55 5164490 2.57

500-1000 10892 20.84 8328748 4.18

1001-5000 2832 5.42 5753246 2.88

5001-10000 232 0.44 1639275 0.82

10001-50000 218 0.41 5205568 2.61

50001 and above 177 0.34 173596173 86.94

TOTAL 52276 100.00 199687500 100.00

DISTRIBUTION OF SHAREHOLDING AS ON MARCH 31, 2004 (PURSUANT TO CLAUSE 35 OF THE LISTING AGREEMENT )

Categories No. of shares Held (Rs. 2 paid up) Percentage of shareholding

A Promoters’ holding

1. Promoters

—Indian Promoters 51918710 26.00

—Foreign Promoters 51918750 26.00

2 Persons acting in concert 5904470 2.96

A Sub-total 109741930 54.96

B. Non-promoters Holding

3 Institutional Investors

a. Mutual Funds and UTI 11154579 5.59

b. Banks, Financial Institutions, Insurance Companies

(Central/ State Government Institutions/ non-governments) 5117518 2.56

c. FIIs 48067923 24.07

B Sub-total 64340020 32.22

C Others

a. Pvt. Corporate Bodies 1970847 0.99

b. Indian Public 23113670 11.57

c. NRIs /OCBs 189243 0.09

d. Foreign Banks 331790 0.17

e. Any other

C Sub-total 25605550 12.82

B+C Sub-total 89945570 45.04

GRAND TOTAL 199687500 100.00


61

DEMATERIALISATION OF SHARES AND LIQUIDITY

As on March 31, 2004, 40 per

cent of total share capital, which

forms 83 per cent of the non-

promoters’ holding, is held in

dematerialised form with NSDL

and CDSL. During the year under

review, 2951 share certificates,

involving 29,88,859 shares of Rs.

2 each, were dematerialised by the

shareholders. These represent

1.50 percent of the total share

capital of the Company. The joint

venture partners hold 52 per cent

of the total share capital, which is

in physical form.

OUTSTANDING GDR’S/ADR’S/WARRANTS OR

ANY CONVERTIBLE INSTRUMENTS CONVERSION

DATE AND LIKELY IMPACT ON EQUITY

Not Applicable

DETAILS OF PUBLIC FUNDING OBTAINED IN THE

LAST THREE YEARS

The Company has not obtained

any public funding in the last three

years.

REGISTRAR & TRANSFER AGENTS

All work related to Share Registry,

both in physical form and

electronic form, is handled by the

Company’s Registrar and Transfer

Agents, whose details are given

below:

MCS Limited, Sri Venkatesh

Bhawan, W 40, Okhla Industrial

Area, Phase II, New Delhi 110 020

Phones: 2638 4909-911,

Fax: 2638 4907

e-mail: [email protected]

SHARE TRANSFER SYSTEM

The Share transfers are approved

by the Committee of Directors

which meets regularly on a

weekly/fortnightly basis. The total

number of shares transferred

during the year 2003-04 was

416734, which was completed in

the prescribed period. Shares

under objection were returned

within two weeks time.

The shares of the Company are

traded in the ‘compulsory demat

mode’ for all investors. Regarding

shares sent for transfer in physical

form, the transfer is registered

within a week (if in order and

complete in all respects) and a

demat option form is simultaneously

sent to the shareholder for

exercising the option to receive the

shares in demat form within 30

days. On exercise of a valid option

by the shareholder through his

Depository Participant(DP), the

shares are confirmed to the

respective accounts with

depositories of National Securities

Depository Limited (NSDL) and

Central Depository Services

Limited (CDSL).

INVESTORS’ SERVICES

The Company has Board Level

Committees dealing with investor

Table 3 Complaints/requests/reminders received and redressed during 2003-04

SL. NO. NATURE OF COMPLAINTS/REQUESTS RECEIVED CLEARED

1. Non receipt of shares sent for transfer 98 98

2. Request for issue of duplicate shares 186 186

3. Non receipt of dividend warrant 156 156

4. Change of address 538 538

5. Mandate cases/bank description 165 165

6. No. of cases received for sub division 2028 2016 #

7. Miscellaneous (Shares) 820 806 #

# 24 requests and 2 complaints were pending as on March 31, 2004, regarding sub-division and other miscellaneous matters and the samewere cleared within the next 15 days.

20Y E A R S


issues, which have been discussed

in detail earlier. Table 3 lists the

complaints/request/reminders

received and redressed during

2003-04. During the financial year,

the Company has attended to most

of the investors’ grievances/

correspondence within a period of

10-15 days from the date of

receipt of the same.

COMPANY’S REGISTERED OFFICE ADDRESS

34, Community Centre,

Basant Lok, Vasant Vihar,

New Delhi 110 057

Tel: 2614 2451, 2614 4121

Fax: 2615 3913.

Website: www.herohonda.com

PLANT LOCATIONS

GURGAON PLANT

37 K.M. Stone

Delhi-Jaipur Highway,

Sector 33-34, Industrial Area,

Gurgaon, Haryana 122 001

Tel: 0124 2372 123–130

Fax: 0124 2373 141–142

DHARUHERA PLANT

69 K.M. Stone

Delhi-Jaipur Highway

Dharuhera, Distt. Rewari,

Haryana 121 006

Tel: 01274 242 131–135,

Fax: 01274 242 399

NON-MANDATORY REQUIREMENTS

The Company has not adopted the

Non-Mandatory Requirements as

specified in Annexure–3 of the

Listing Agreement except Clause

(b) relating to Remuneration

Committee.

INVESTORS’ CORRESPONDENCE MAY BE

ADDRESSED TO

Mr. Ilam C. Kamboj

Company Secretary and

Compliance Officer


or

at the Registrars’ office.

QUERIES RELATING TO THE FINANCIAL

STATEMENTS OF THE COMPANY MAY BE

ADDRESSED TO

Mr. Ravi Sud, Vice President —

Finance,


For and on behalf of the Board

Brijmohan Lall Munjal


New Delhi

July 14,2004

HERO HONDA


62



63

CERTIFICATE

TO THE MEMBERS OF HERO HONDA MOTORS LIMITEDWe have examined the compliance of conditions of Corporate Governance by Hero Honda Motors Limited for

the year ended March 31, 2004, as stipulated in clause 49 of the Listing Agreement of the said Company with

Stock Exchanges.

The compliance of conditions of Corporate Governance is the responsibility of the management. Our

examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the

compliance of the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on

the financial statements of the Company.

In our opinion and to the best of our information and according to the explanations given to us, we certify that

the Company has complied with the conditions of the Corporate Governance as stipulated in the above

mentioned Listing Agreement.

We state that in respect of investor grievances received during the year ended March 31, 2004, no investor

grievances are pending for a period exceeding one month against the Company as per the records maintained

by the Company.

We further state that such compliance is neither an assurance as to the future viability of the Company nor the

efficiency or effectiveness with which the management has conducted the affairs of the Company.

For A. F. FERGUSON & CO.

CHARTERED ACCOUNTANTS

A. K. MAHINDRA

Place : New Delhi PARTNER

Date : July 14,2004 (Membership no. 10296)


HERO HONDA


64

Directors’ Report

ANNEXURE II TO DIRECTORS’ REPORT

Information Under Section 217(1)(e) of the Companies Act, 1956 read with Companies (Disclosure of Particulars in the Report ofBoard of Directors) Rules, 1988 and forming part of the Directors’ Report for the year ended March 31, 2004 ;

I. CONSERVATION OF ENERGYa) Techno-economic viability of few energy saving proposals are being carried out and few proposals have been already

implemented

a) Energy conservation measures taken during the financial year 2003-04 and their impact

Measures taken Impact

Installation of HPS DG Sets Reduction in power generation cost

Replacement of metal Halide lights with HPMV Lights Reduction in power consumption

Installation of RTCS for air conditioners Reduction in power consumption

Installation of “Power Boss” on machines Reduction in power consumption

Conversion of existing HWG from LDO to HPS/ FO Reduction in power consumption

Interlocking of inlet solenoid valve of machines withpower saving circuits Reduction in power consumption & air conservation

Natural ventilators on roof at selected areas Reduction in power consumption

Use of Boiler Blowdowns to heat boiler feed water Reduction in power consumption

b) Additional Investments and Proposals being implemented for reduction of consumption of energy

Measures taken Impact

Additional installation of HPS DG Sets Reduction in power generation cost

Additional natural ventilators on roof Reduction in power consumption

Energy efficient lighting & motors Reduction in power consumption

VFD installation for high powered motors & compressors Reduction in power consumption

Prevention of air leakages to reduce air compressor running Reduction in power consumption

Installation of temperature controller in cooling towers Reduction in power consumption

Optimum loading of genset with respect to daily load Reduction in power generation cost

Installation of Waste heat recovery system to generatehot water for paint shop Reduction in power consumption

Use of waste heat boiler on existing DG set exhauststo generate steam Reduction in power consumption

Note: The additional investment cannot be precisely ascertained, and is part of the Repairs and Maintainence; consumables expenditureand investments in fixed assets.

c) Impact of measures at a) and b) for reduction of energy consumption and consequent impact on the cost of production ofgoods.

It is difficult to quantify the impact of individual projects on the cost of production of goods. The impact of abovementioned initiatives (and also of initiatives taken in past) is clearly visible as decreasing trends of “Energy consumptionand generation cost” over the last couple of years. The power & fuel cost of the Company per vehicle has reduced from Rs.199.28 in 2001-02 to Rs. 143.72 in 2003-04. Similarly, the Company’s electricity consumption (in KWH/Vehicle) forboth the plants taken together has reduced from 81.98 KWH/Vehicle to 62.08 KWH/Vehicle.

Hero Honda-64.p65 7/26/2004, 3:12 PM64

65

FORM-AForm for Disclosure of Particulars with respect to Conservation of Energy

FOR DHARUHERA PLANT FY 2003-04 FY 2002-03A. Power and fuel consumption per unit of productionProduct Unit (Motorcycle) 1013835 8236131. Electricity

a) Purchased Unit (KWH) 7420905 5858418Amount (Rs.) 2,91,69,290 2,28,58,070Rate/unit (Rs.) 3.93 3.90

b) Own generationThrough diesel generator unit

Self (KWH) 22497760 22376204Hired (KWH) Nil NilUnit per-ltr.of Diesel Oil (Cost/unit)Self (KWH/Ltr.) 3.93 3.91Hired (KWH/Ltr.) Nil Nil

2. *Furnace Oil, LDO, HPS etc.Quantity (K.Ltrs) 1155.217 1191.051Total amount (Rs.) 1,41,28,205 1,45,73,718Average Rate/Ltr. (Rs.) 12.23 12.24

B. Consumption per unit of productionStandards (if any)1) Electricity (KWH/Motorcycle) 29.51 34.282) Furnace Oil, LDO, HPS etc. (Ltr./Motorcycle) 1.14 1.45*being used for the purpose of Boiler used for production of motorcycle.

FOR GURGAON PLANTA. Power and fuel consumption per unit of productionProduct Unit (Motorcycle) 1050863 8566641. Electricity

a) Purchased Unit (KWH) Nil NilAmount (Rs.) Nil NilRate/unit (Rs.) Nil Nil

b) Own generationThrough diesel generator unit

Self (KWH) 34230188 31786197Hired (KWH) Nil NilUnit per-ltr.of Diesel Oil Cost/unitSelf (KWH/Ltr.) 3.89 3.76Hired (KWH/Ltr.) Nil Nil

2. **Furnace Oil, LDO, HPS etc.Quantity (K.Ltrs) 783.364 628.681Total amount (Rs.) 1,24,58,210 89,43,533Average Rate/Ltr. (Rs.) 15.90 14.23

B. Consumption per unit of production1) Electricity (KWH/Motorcycle) 32.57 37.102) Furnace Oil, LDO, HPS etc. (Ltr./Motorcycle) 0.75 0.73**being used for the purpose of Hot water generatorused for production of motorcycle.

Hero Honda-64.p65 7/26/2004, 3:12 PM65

HERO HONDA


66

Directors’ Report

II. PARTICULARS AS PER FORM B

(A) RESEARCH & DEVELOPMENT (R&D)

1 Specific areas in which R & D carried out by the Company1.1 New Model Technology Absorption1.2 Indigenisation of CKD Parts1.3 Multi Source Approval1.4 Meeting Legislative Norms1.5 Active Participation in deciding the needs of future Automobile Norms in India

2 Benefits derived as a result of the above R & D activities2.1 Launching of CD-Dawn (100 cc - 4 Stroke)

Launching of KARIZMA (223 cc - 4 Stroke)Launching of Splendor/ Passion Disc VersionLaunching of Splendor+/ Passion PlusLaunching of Ambition 135Launching of CBZ*

2.2 Multi source Components2.3 Major new sources added for existing models2.4 Indigenisation (2003-04) – 3 more items have been localized2.5 Compliance to Regulations: -

1. New EMI as per AIS 0042. Tele Tale Symbols & Controls as per IS 14413: 19963. Rear View Mirror as per AIS 0014. Bulbs as per IS 1606 (revision 3)5. Installation of lighting and Signalling Devices as per AIS:0096. Pillion Hand Hold as per IS:144957. Fuel Tank as per IS:146818. Horn Installation as per AIS:0149. Brake Hose as per IS:7079

3 Future plan of action3.1 New model launch3.2 Indigenisation plan of various other parts3.3 Compliance Plan for Future Regulations:-

• Mass Emission 2005 norms• Pass Bye Noise (2005 Noise norms)• Deterioration Factor• Idle CO (Standard under finalisation)• New COP Regulation (Procedure & Frequency)• Lighting and Signalling Devices as per AIS 010.• Component Marking (Standard under finalisation)• Anti Theft Device• Reflex Reflector as per AIS:057• Tyres as per AIS:044• High Security Number Plate• Brakes as per IS:14664• Engine Power Management as per IS:14559

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4. Expenditure on R & D

(Rupees in crores) Year Ended Year Ended

March 31, 2004 March 31, 2003

i) Capital 7.43 1.56

ii) Recurring 9.33 6.97

iii) Total R & D expenditure as a percentage of sales (as per P & L A/c) 0.29% 0.17%

B) TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATIONCertain more parts which were till date being imported have been developed in India. With the Multiple source development,supply capacities of bought out parts have been increased to meet the increased volume of production. The Company’s R&Dhas developed requisite infrastructure and expertise to develop, test and approve products in-house as per Honda specificationsand acceptance criteria. These facilities are upgrading from time to time ahead of new technology adoptions.

The said efforts have led to new model development to increase market share, reduction in devolvement time etc. Further, inthe last five years the Company’s ancillaries have imported technologies regarding Rotary gear, Cold Forging, Pistonmanufacturing, RR & CDI unit, Piston rings etc.

III. FOREIGN EXCHANGE EARNINGS AND OUTGOA) EXPORT ACTIVITIES / INITIATIVES TO INCREASE EXPORTS / DEVELOPMENT OF NEW EXPORT MARKETS / EXPORT PLANS

During the financial year 2003-04 motorcycle exports by the Company grew at an impressive rate of 72% as compared to2002-03. New Models CD Dawn, Splendor+ & Passion Plus introduced successfully in the Exports markets also, which led toincrease in sales by 87%. New Markets like Sierra Leone was developed for Motorcycles & Philippines for Components. Specialsupports in service and sales was extended to Srilanka, Bangladesh & Columbia.

Export Plans:The Company plans to further increase export sales; explore new markets; provide world class products; highest level ofconsumer satisfaction in service; and to be competitive globally. With the support from Honda Motor Co., Ltd., Japan, to furtherincrease the export volumes in the coming financial year. Further, the introduction of new models shall certainly help in thisendeavour to tap new markets and potential.

B) EARNINGS & OUTGOForeign exchange earnings during the period under report was Rs. 118.21 Crore as compared to Rs. 94.91 Crore in theprevious year.

On account of Royalty, Technical Guidance Fee, Technical Know-how fee, Export Commission, Travel and other accounts,Advertisement and Publicity, Foreign Exchange Outgo was Rs. 126.74 Crore, as compared to Rs. 104.79 Crore in the previousyear. Besides outgo on account of Dividend was Rs. 145.37 Crore as compared to Rs. 52.96 Crore in the previous year.

On account of import of components, spare parts, raw materials and capital goods, the foreign exchange outgo was Rs. 381.50Crore as compared to Rs. 328.79 Crore in the previous year, representing an increase of 16%.

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O H

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Directo

rs’ Rep

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ANNEXURE III TO THE DIRECTORS’ REPORT

INFORMATION AS PER SECTION 217(2A) OF THE COMPANIES ACT, 1956, READ WITH THE COMPANIES(PARTICULARS OF EMPLOYEES) RULES, 1975 FORMING PART OF THE DIRECTORS’ REPORT FOR THE PERIOD ENDED MARCH 31, 2004

Sl. Name of Employee Age Designation Gross Rem. Qualification Experience Shareholding Date of Last employmentNo. (Yrs.) (Nature of Duties) Received (Rs.) (Years) % Employment

1. Munjal, Brijmohan Lall 81 Chairman 9,85,06,599 Privately educated 60 — 03.08.1991 Chairman - Hero Cycles Ltd.[Overall management of the affairs ofthe Company]

2. Munjal, Pawan 50 Managing Director [Day to day 9,68,85,747 B.E. ( Mech. ) 28 0.04% 01.04.1986 Works Executive -management of the affairs Majestic Auto Ltd.of the Company]

3. Kazusa, Akio 52 Joint Managing Director [Day to day 9,49,40,542 Engineering 25 — - 01.06.2002 Manager - Hondamanagement of the affairs (Master Course) Motor Co. Ltd., Japanof the Company]

4. Yanagida, Kazumi* 47 Director [Day to day management 9,26,34,342 Law, Meiji University 33 — - 03.12.1999 Manager - Hondaof the affairs of the Company] Motor Co. Ltd., Japan

5. Sobti, Atul 50 Sr. Vice President - Marketing & 57,64,307 B.A.(Hons.) 28 — - 16.04.1998 Chief Executive Officer -Sales (Responsible for overall Eco., M.B.A. (IIMA) Elbee Services Ltd.marketing & sales functions)

6. Agrawal, K.K. 56 Sr. Vice President - Operations 36,51,938 B.E. (Mech.) 33 — - 30.09.1993 Chief of Operations -[Responsible for overall operations Vespa Car Co. Ltd.functions]

7. Malhotra, K.K. 57 Vice President - Materials 26,33,480 B.Sc. ( Engg. ) 35 — - 16.08.1985 Manager (Purchase) - BST Ltd.[Responsible for overallmaterial functions]

8. Sud, Ravi 49 Vice President- Finance [Responsible 28,86,017 B.Com (Hons.), 28 — - 25.04.1998 General Managerfor overall finance functions] PGDM (IIMA), (Corporate Finance) -

FCS, AICWA Eicher Goodearth Ltd.

9. Akhouri N.N. 54 Vice President -HRM [Responsiblefor overall Human resourcemanagement functions] 25,05,497 PGDIP(Hons)- PM & 32 — - 15.12.1999 V.P.-Organisational Capability -

IR (XLRI), LLB Seagram Manufacturing Ltd.

* employed for part of the year

Notes :

1. Information has been furnished on the basis of employees employed throughout the financial year, who were in receipt of remuneration for that year which, in the aggregate, was not less thanRs. 24,00,000 (Rupees twenty four lacs) per annum and those employed for the part of the financial year, were in receipt of remuneration for any part of that year at a rate which, in the aggregate,was not less than Rs. 2,00,000 (Rupees two lac) per month. There was no person employed either throughout the financial year or part thereof, who was holding either by himself or alongwith thespouse and dependent children 2% or more of the shares of the Company and drawing remuneration in excess of the remuneration drawn by the Managing Director / Jt. Managing Director / Whole-timeDirector.

2. Remuneration includes Basic Salary, Commission paid during the year, Perquisites and other allowances, payments and expenditures incurred on perquisites and Company’s contribution to Provident,Superannuation and Gratuity Funds.

3. All appointments are / were on contractual basis.

4. Mr. Pawan Munjal is the son of Mr. Brijmohan Lall Munjal. Mr. Om Prakash Munjal and Mr. Satyanand Munjal, Directors of the Company are related as brothers to Mr. Brijmohan Lall Munjal. None ofthe other employees is a relative of any Director of the Company.

5. The terms and conditions of employees at Sl. No.1, 2, 3 & 4 are as approved by the Board of Directors and shareholders. The employees at Sl. No.5, 6, 7, 8 & 9 are paid remuneration as per thepolicy / rules of the Company.

6. Mr. Kazumi Yanagida who ceased to be the Whole-time Director on 24.04.2003, was paid Rs.9,26,34,342 mainly consisting of commission for the year 2002-03 and return travel expenses during2003-04 after the accounts for the year 2002-03 were audited and approved by the shareholders in the Annual General Meeting.

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TO THE MEMBERS OFHERO HONDA MOTORS LIMITED

1. We have audited the attached balance sheet of Hero HondaMotors Limited, as at March 31, 2004 and also the profitand loss account for the year ended on that date annexedthereto and the cash flow statement for the year ended onthat date. These financial statements are the responsibilityof the Company’s management. Our responsibility is toexpress an opinion on these financial statements based onour audit.

2. We conducted our audit in accordance with auditingstandards generally accepted in India. Those Standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles usedand significant estimates made by management, as well asevaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for ouropinion.

3. As required by the Companies (Auditor’s Report) Order,2003 issued by the Central Government of India in terms ofsub-section (4A) of section 227 of the Companies Act,1956, we enclose in the Annexure a statement on thematters specified in paragraphs 4 and 5 of the said Order.

4. Further to our comments in the Annexure referred to above,we report that:

i) we have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purposes of our audit;

ii) in our opinion, proper books of account as required bylaw have been kept by the Company so far as appearsfrom our examination of those books;

iii) the balance sheet, profit and loss account and cash flowstatement dealt with by this report are in agreement withthe books of account;

iv) in our opinion, the balance sheet, profit and lossaccount and cash flow statement dealt with by thisreport comply with the accounting standards referred toin sub-section (3C) of section 211 of the CompaniesAct, 1956;

v) on the basis of written representations received from thedirectors and taken on record by the Board of Directors,we report that none of the directors is disqualified as onMarch 31, 2004 from being appointed as a director interms of clause (g) of sub-section (1) of section 274 ofthe Companies Act, 1956;

vi) In our opinion and to the best of our information andaccording to the explanations given to us, the saidaccounts give the information required by theCompanies Act, 1956, in the manner so required andgive a true and fair view in conformity with theaccounting principles generally accepted in India:

(a) in the case of the balance sheet, of the state ofaffairs of the Company as at 31 March, 2004;

(b) in the case of the profit and loss account, of theprofit for the year ended on that date; and

(c) in the case of the cash flow statement, of the cashflows for the year ended on that date.

FOR A.F. FERGUSON & CO.,CHARTERED ACCOUNTANTS

A.K. MAHINDRA

Place : New Delhi PARTNERDate : April 12, 2004 (Membership No. 10296)

AUDITORS’ REPORT

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(i) (a) The Company has maintained proper records toshow full particulars, including quantitative detailsand situation of fixed assets.

(b) As explained to us, the Company has a system ofphysical verification, which is designed to cover allassets over a period of three years and inaccordance therewith, physical verification ofcertain fixed assets of the Company was carried outduring the year. In our opinion, the frequency ofphysical verification is reasonable having regard tothe size of the Company and the nature of its fixedassets. The discrepancies noticed on suchverification were not material and have beenproperly dealt with in the books of account.

(c) As the Company has disposed off an insignificantpart of the fixed assets during the year, paragraph4(i)(c) of the Companies (Auditor’s Report) Order,2003 (hereinafter referred to as the Order) is notapplicable.

(ii) (a) During the year, the inventories have beenphysically verified by the management, except forstocks lying with third parties at the year end forwhich confirmations have been obtained in most ofthe cases. In our opinion, the frequency ofverification is reasonable.

(b) In our opinion and according to the information andexplanations given to us, the procedures of physicalverification of inventories followed by themanagement are reasonable and adequate inrelation to the size of the Company and the natureof its business.

(c) On the basis of our examination of the record ofinventories, we are of the opinion that the Companyis maintaining proper records of inventories. Thediscrepancies noticed on physical verification ofinventories as compared to book records were notmaterial and have been properly dealt with in thebooks of account.

(iii) According to the information and explanations given tous, the Company has neither taken nor granted any loans,secured or unsecured from/to companies, firms and otherparties covered in the register maintained under Section301 of the Companies Act, 1956. Accordingly,paragraphs 4 (iii)(b), (c) and (d) of the Order are notapplicable.

(iv) According to the information and explanations given tous, there are adequate internal control procedurescommensurate with the size of the Company and thenature of its business with regard to purchases ofinventories, fixed assets and with regard to sale of goods.During the course of our audit, no major weakness hasbeen noticed in the underlying internal controls.

(v) (a) Based on the audit procedures applied by us andaccording to the information and explanationsgiven to us, the transactions that need to beentered in the register in pursuance of section 301of the Companies Act, 1956 have been so entered.

(b) According to the information and explanationsgiven to us, in respect of the transactions enteredin the register maintained in pursuance of section301 of the Companies Act, 1956, and exceedingthe value of Rs. 5 lacs in respect of any partyduring the year are of a specialized nature forwhich there are no alternate sources of supply toenable a comparison of the prices paid.

(vi) As the Company has not accepted any deposits from thepublic, paragraphs 4 (vi) of the Order is not applicable.

(vii) In our opinion, the Company has an adequate internalaudit system commensurate with the size and nature ofits business.

(viii) We have broadly reviewed the books of accountmaintained by the Company pursuant to the Rules madeby the Central Government for the maintenance of costrecords under section 209(1) (d) of the Companies Act,1956 and are of the opinion that, prima facie, theprescribed accounts and records have been made andmaintained. We have not, however, made a detailedexamination of the records with a view to determinewhether they are accurate or complete.

(ix) (a) As explained to us, the statutory dues payable bythe Company comprise of provident fund, investoreducation protection fund, employees’ stateinsurance, income-tax, sales tax, wealth tax,customs duty, excise duty, cess, value added tax,Haryana local area development tax. According tothe records of the Company and information andexplanations given to us, the Company is regular in

ANNEXURE REFERRED TO IN PARAGRAPH ‘3’ OF THE AUDITORS’ REPORT TO THEMEMBERS OF HERO HONDA MOTORS LIMITED ON THE ACCOUNTS FOR THE YEARENDED MARCH 31, 2004.

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depositing the aforesaid undisputed statutory dueswith the appropriate authorities. There are noundisputed statutory dues as referred to above as atMarch 31, 2004 outstanding for a period of morethan six months from the date they becomepayable.

(b) According to the records of the Company andinformation and explanations given to us, there aredues of sales tax and excise duty aggregatingRs. 1.19 crores and Rs. 0.92 crore respectively,which have not been deposited on account ofvarious disputes, the details of which are set out innote ‘9’ of schedule 14. We have further beeninformed that there are no dues in respect ofincome-tax, wealth tax, customs duty and cesswhich have not been deposited on account of anydispute.

(x) The Company does not have accumulated losses at theend of the financial year March 31, 2004. Further, theCompany has not incurred any cash losses during thefinancial year ended March 31, 2004 and in thepreceding financial year ended March 31, 2003.

(xi) Based on our audit procedures and on the informationand explanations given by management, we are of theopinion that the Company has not defaulted in repaymentof dues to banks. The Company has not taken any loansfrom financial institutions and has not issued debentures.

(xii) As the Company has not granted any loans and advanceson the basis of security by way of pledge of shares,debentures and other securities, paragraph 4 (xii) of theOrder is not applicable.

(xiii) As the Company is not a chit fund/nidhi/mutual benefitfunds/society to which the provisions of special statuterelating to chit fund are applicable, paragraph 4 (xiii) ofthe Order is not applicable.

(xiv) As the Company is not dealing or trading in shares,securities, debentures and other investments,paragraph 4 (xiv) of the Order is not applicable.

(xv) As informed to us, the Company has not given anyguarantee for loans taken by others from banks orfinancial institutions.

(xvi) The Company has term loans comprising of sales taxdeferment from the State Government of Haryana to beutilized for the expansion of Company’s manufacturingfacilities. During the year, sales tax deferment amountingto Rs. 50 crores has been applied for the purpose forwhich it was obtained.

(xvii) The Company has taken short term loan from bankscomprising of packing credit and buyers line of creditwhich has been utilized for working capital requirements.The Company also has long term loans comprising ofsales tax deferment as referred to in paragraph 4(xvi)above. The opening balance of such loans amounting toRs. 134.28 crores as on April 1, 2003 and Rs. 50 croresfor the year ended March 31, 2004 have been utilized forexpansion of Company’s manufacturing facilities.

(xviii) As the Company has not made preferential allotment ofshares to parties and companies covered in the registermaintained under section 301 of the Act,paragraph 4 (xviii) of the Order is not applicable.

(xix) As the Company has not issued any debentures,paragraph 4(xix) of the Order is not applicable.

(xx) During the year, since the Company has not raised moneyby way of public issue, paragraph 4(xx) of the Order is notapplicable.

(xxi) Based upon the audit procedures performed andinformation and explanations given by the management,we report that no fraud on or by the Company has beennoticed or reported during the course of our audit for theyear ended March 31, 2004.

FOR A.F. FERGUSON & CO.,CHARTERED ACCOUNTANTS

A.K. MAHINDRA

Place : New Delhi PARTNERDate : April 12, 2004 (Membership No. 10296)

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Financials

(Rupees in crores)

Schedule As at March As at MarchNo. 31, 2004 31, 2003

SOURCES OF FUNDSSHAREHOLDERS’ FUNDSShare capital 1 39.94 39.94Reserves and surplus 2 1,098.87 821.09

1,138.81 861.03LOAN FUNDSUnsecured 3 174.70 134.28

174.70 134.28DEFERRED TAX LIABILITIES 8 90.02 77.16Total 1,403.53 1,072.47

APPLICATION OF FUNDSFIXED ASSETS 4Gross block 916.91 786.29Less: Depreciation 345.79 278.42

571.12 507.87Capital work in progress 17.69 9.19Net block 588.81 517.06INVESTMENTS 5 1,565.10 1,193.00DEFERRED TAX ASSETS 8 0.68 0.89CURRENT ASSETS, LOANS AND ADVANCES 6Inventories 188.20 200.92Sundry debtors 43.80 141.49Cash and bank balances 37.12 24.33Loans and advances 239.87 109.77

508.99 476.51Less: CURRENT LIABILITIES AND PROVISIONSCurrent liabilities 7 1,003.86 681.52Provisions 256.19 434.17

1,260.05 1,115.69Net current assets (751.06) (639.18)MISCELLANEOUS EXPENDITURE(to the extent not written off or adjusted) 9 — 0.70Total 1,403.53 1,072.47

Notes to the accounts 13

BALANCE SHEET As at March 31, 2004

Per our report attached

FOR A.F. FERGUSON & CO.


A.K. MAHINDRA

PARTNERMembership Number 10296

New Delhi

April 12, 2004

For and on behalf of the Board of Directors




M.P. WADHAWAN DIRECTOR

RAVI SUD VICE PRESIDENT - FINANCE

ILAM C. KAMBOJ COMPANY SECRETARY

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(Rupees in crores)

Schedule Year ended Year ended

No. March 31, 2004 March 31, 2003

INCOME

Sales and other income 10 5,997.47 5,194.58

EXPENDITURE

Manufacturing and other expenses 11 4,852.33 4,238.12

Depreciation 4 73.33 63.39

Interest (net) 12 (1.35) (1.02)

Miscellaneous expenditure written off 0.70 9.53

Total expenditure 4,925.01 4,310.02

Profit for the year before tax 1,072.46 884.56

Provision for taxation

— current 331.07 298.19

— deferred 13.07 5.61

Profit after tax 728.32 580.76

Balance of profit brought forward 335.75 220.48

Balance available for appropriation 1,064.07 801.24

APPROPRIATIONS

Dividend

– Interim 199.69 —

– Proposed final 199.69 359.44

Tax on dividend 51.16 46.05

Transfer to general reserve 75.00 60.00

Balance carried to balance sheet 538.53 335.75

1,064.07 801.24

Basic and diluted earnings per share face value Rs. 2/-each (in rupees) 36.47 29.08

Notes to the accounts 13

PROFIT AND LOSS ACCOUNT For the year ended March 31, 2004

Per our report attached to the balance sheet



A.K. MAHINDRA


New Delhi

April 12, 2004



PAWAN MUNJAL MANAGING DIRECTORAKIO KAZUSA JOINT MANAGING DIRECTOR




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Financials

(Rupees in crores)

Year ended Year ended

March 31, 2004 March 31, 2003

A. CASH FLOW FROM OPERATING ACTIVITIES

Net profit before tax 1,072.66 884.56

Adjustments for:

Add: Depreciation 73.33 63.39

Exchange differences 0.65 0.13

Loss on sale of non-trade investments 12.75 12.53

Loss on fixed assets sold/discarded 1.20 3.86

Interest - others and financial charges 1.72 1.73

Miscellaneous expenditure written off 0.70 9.53

90.35 91.17

Less: Interest received on long term non-trade investments 9.38 —

Interest received on loans, deposits etc. 3.07 2.75

Dividend received on investments 18.00 0.41

Profit on sale on non-trade investments 127.67 85.34

Profit on sale of fixed assets 0.13 0.17

158.25 88.67

Operating profit before working capital changes 1,004.56 887.06

Adjustments for:

Add: Increase in trade payables 314.16 62.63

Decrease in inventories 12.72 —

Increase in security deposits from dealers 1.56 2.09

328.44 64.72

Less: Increase in trade and other receivables 29.24 11.87

Increase in inventories — 22.56

29.24 34.43

Cash generated from operations 1,303.76 917.35

Less: Interest paid 1.73 1.74

Direct taxes paid 330.81 296.60

332.54 298.34

Net cash from operating activities 971.22 619.01

B. CASH FLOW FROM INVESTING ACTIVITIES

Sale of fixed assets 2.86 5.27

Inter corporate deposits received back 150.50 43.05

Sale of investments 6,569.98 4,713.63

Interest received 8.95 2.75

Dividend received on investments 18.00 0.41

6,750.29 4,765.11

Less: Purchase of fixed assets 149.01 98.68

Inter corporate deposits paid 150.50 43.05

Purchase of investments 6,827.16 5,108.05

7,126.67 5,249.78

CASH FLOW STATEMENT For the year ended March 31, 2004

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Net cash (used) in investing activities (376.38) (484.67)

C. CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long term borrowings 9.67 —

Share application money - refundable — 0.02

Dividend paid 550.60 236.78

Tax on dividend 71.63 —

Repayment of customers’ booking advance 0.02 0.03

631.92 236.78

Less : Proceeds from long term borrowings 50.00 17.84

Net cash( used) in financing activities (581.92) (218.94)

Increase in cash and cash equivalents 12.92 (84.60)

Cash and cash equivalents at the beginning of the year 24.33 108.96

Cash and cash equivalents at the end of the year

Cash and bank balances 37.12 24.33

Unrealised exchange loss/(gain) 0.13 0.03

37.25 24.36

Notes to the accounts Schedule 13

(Rupees in crores)


March 31, 2004 March 31, 2003

CASH FLOW STATEMENT (Contd.) For the year ended March 31, 2004

Per our report attached to the balance sheet



A.K. MAHINDRA


New Delhi

April 12, 2004



PAWAN MUNJAL MANAGING DIRECTORAKIO KAZUSA JOINT MANAGING DIRECTOR




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Financials

SCHEDULES 1 TO 13 ANNEXED TO AND FORMING PART OF THE ACCOUNTS

1) SHARE CAPITAL (Rupees in crores)

As at March As at March

31, 2004 31, 2003

AUTHORISED

25,00,00,000 (Previous year 25,00,00,000) 50.00 50.00

Equity shares of Rs. 2 each

4,00,000 (Previous year 4,00,000) Cumulative 4.00 4.00

convertible preference shares of Rs. 100 each

4,00,000 (Previous year 4,00,000) Cumulative 4.00 4.00

redeemable preference shares of Rs. 100 each

58.00 58.00

ISSUED, SUBSCRIBED AND PAID UP

19,96,87,500* (Previous year 19,96,87,500) 39.94 39.94

Equity shares of Rs. 2 each fully paid up

39.94 39.94* Of the above 11,98,12,500 (Previous year 11,98,12,500) shares are

allotted as fully paid bonus shares by capitalisation of general reserve.

2) RESERVES AND SURPLUS (Rupees in crores)

As at March Additions Deductions As at March

31, 2003 31, 2004

CAPITAL RESERVES

On shares forfeited (# Rs. 4,250) # — — #

Share premium account on

forfeited shares reissued (## Rs. 25,500) ## — — ##

REVENUE RESERVES

General reserve 485.34 75.00 — 560.34

Surplus, being balance in profit and loss account 335.75 202.78 — 538.53

821.09 277.78 — 1,098.87

3) LOAN FUNDS (Rupees in crores)


31, 2004 31, 2003

UNSECURED LOANS

Other loans and advances - others

Sales tax deferment from the State Government of Haryana 174.70 134.28

174.70 134.28

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4) FIXED ASSETS (Rupees in crores)

GROSS BLOCK (AT COST) DEPRECIATION NET BLOCK

As at Additions Deductions As at As at For the On As at As at As at

March March March year deductions March March March

31,2003 31, 2004 31,2003 31, 2004 31, 2004 31, 2003

Land 27.04 – – 27.04 – – – 27.04 27.04

Buildings 99.33 13.19 0.12 112.40 15.84 2.98 0.07 18.75 93.65 83.49

Plant & machinery 589.32 92.76* 4.78 677.30 234.46 54.13 2.83 285.76 391.54 354.86

Furniture, fixtures 17.27 1.81 2.61 16.47 6.73 1.06 1.90 5.89 10.58 10.54and office equipment

Vehicles 9.10 0.74 1.88 7.96 2.95 0.81 0.83 2.93 5.03 6.15

Computer and dataprocessing machines 28.00 8.82 0.50 36.32 13.03 4.30 0.33 17.00 19.32 14.97

TOTAL 770.06 117.32 9.89 877.49 273.01 63.28 5.96 330.33 547.16 497.05

Intangible assetsModel fee 16.23 23.19 – 39.42 5.41 10.05 – 15.46 23.96 10.82

786.29 140.51 9.89 916.91 278.42 73.33 5.96 345.79 571.12

Previous Year 704.52 99.18 17.41 786.29 223.47 63.39 8.44 278.42 507.87

Capital work in progress {including capital advances Rs. 8.78 crores (previous year Rs. 3.48 crores)} 17.69 9.19

588.81 517.06

Note :

* Includes reduction of Rs. 0.24 crore (Previous year increase Rs. 0.12 crore) due to fluctuation in exchange rates

5) INVESTMENTS (Rupees in crores)


31, 2004 31, 2003

CURRENT INVESTMENTS

Non-trade

Unquoted

In Mutual fund units:

Debt fund

(Units of the face value of Rs. 10 each)

Prudential ICICI Mutual Fund

27567651 (Previous year 91531842) units in income plan - growth 46.57 154.64

90078990 (Previous year 234574805) units in flexible income plan - growth option 98.24 241.73

Nil (Previous year 50000000) units in FMP growth yearly series VI — 50.00

40087769 (Previous year Nil) units in institutional income plan growth 76.07 —

Birla Sunlife Mutual Fund

Nil (Previous year 59160421) units in income plus plan B: growth — 142.50

5672750 (Previous year Nil) units in income plus institutional plan : growth 15.00 —

Nil (Previous year 8001662) units in FMP yearly growth 3 plan B : growth — 8.00

Alliance Capital Mutual Fund

Nil (Previous year 5316321) units in income fund - regular growth — 9.99

Nil (Previous year 50000000) units in term plans - 378 days - 210602 - growth — 50.00

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HDFC Mutual Fund

7023310 (Previous year 38117747) units in income fund - growth 9.20 49.92

Nil (Previous year 25000000) units in FIP June 2002 (1) - growth — 25.00

DSP Merrill Lynch Mutual Fund

459874 (Previous year 28317023) units in bond fund - retail growth 0.90 55.22

5000000 (Previous year 5000000) units in bond fund - institutional plan- growth 5.00 5.00

Standard Chartered Mutual Fund

10545260 (Previous year 25583040) units in GSSG GSSIF-investment plan - growth option 13.99 33.94

17815785 (Previous year Nil) units in dynamic bond fund - growth 20.00 —

69135310 (Previous year Nil) units in dynamic bond fund institutional plan B- growth 81.23 —

IL & FS Mutual Fund

Nil (Previous year 26889793) units in bond fund - growth plan — 38.81

Templeton Mutual Fund

Nil (Previous year 60669635) units in India income builderaccount - institutional plan - growth — 65.00

Nil (Previous year 23275950) units in floating rate incomefund-short term plan - growth — 25.00

Cholamandalam Mutual Fund

Nil (Previous year 5907576) units in Chola triple ace -bonus — 6.67

17272983 (Previous year Nil) units in Chola freedom income STF-Inst.Cum - Bonus 17.65 —

Tata Mutual Fund

48452909 (Previous year Nil) units in Tata income fund appreciation - bonus 50.00 —

HSBC Mutual Fund

52401600 (Previous year 14839437) units in institutional

income fund - investment plan -growth 55.00 15.00

19013488 (Previous year Nil) units in income fund-investment plan-growth 20.00 —

Sundaram Mutual Fund

6905830 (Previous year 6905830) units in bond saver bonus option 7.11 7.11

ING Vysya Mutual Fund

19884503 (Previous year Nil) units in income fund-institutional-bonus option 20.00 —

5) INVESTMENTS (Contd.) (Rupees in crores)

As at March As at March31, 2004 31, 2003

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Reliance Mutual Fund

10000000 (Previous year Nil) units in fixed term scheme-monthly plan-6-growth option 10.00 —

25000000 (Previous year Nil) units in fixed term scheme-annual plan-3-growth option 25.00 —

Escorts Mutual Fund

9527152 (Previous year Nil) units in income plan-bonus 10.00 —

Repurchase Price Rs.621.61 crores (Previous year Rs.1041.80 crores) 580.96 983.53

Fund of Funds

(Units of the face value of Rs.10 each)


50000000 (Previous year Nil) units in cautious plan cumulative option 50.00 —


5000000 (Previous year Nil) units in asset allocation conservative plan growth 5.00 —

Repurchase Price Rs.56.36 crores (Previous year Rs.Nil) 55.00 —

Monthly Income Plan



187804326 (Previous year Nil) units in MIP - cumulative 263.74 —

50000000 (Previous year Nil) units in income multiplier regular plan growth 50.00 —

I L &F S Mutual Fund

29934032 (Previous year Nil) units in growth plan 30.00 —

HDFC Mutual Fund

25000000 (Previous year Nil) units in long term - growth 25.00 —


91517630 (Previous year Nil) units in FT India Monthly income plan A growth 137.40 —

Reliance Mutual Fund

5000000 (Previous year Nil) units in growth plan 5.00 —

Tata Mutual Fund

20000000 (Previous year Nil) units MIP plus-growth 20.00 —



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HSBC Mutual Fund

15000000 (Previous year Nil) units in MIP-savings plan-growth 15.00 —

25000000 (Previous year Nil) units in MIP-regular plan-growth 25.00 —


21393486 (Previous year Nil) units in savings plus-growth 25.00 —

Repurchase Price Rs.613.07 crores (Previous year Rs.Nil) 596.14 —

Liquid fund



19059871 (Previous year Nil) units in institutional liquid plan growth 29.76 —

32836050 (Previous year Nil) units in liquid plan institutional plus-growth 51.35 —

Nil (Previous year 98428768) units in liquid plan — 146.25


3233358 (Previous year Nil) units in liquidity fund-growth 5.00 —


2919742 (Previous year Nil) units in cash plus institutional plan:growth 5.00 -

Nil (Previous year 40064032) units in cash plus-plan A :dividend reinvestment — 43.19

Principal Mutual Fund

1199798 (Previous year Nil) units in cash management fund liquid option growth plan 1.50 —



Nil (Previous year 30445) units in liquid treasury management account-growth — 4.55

Repurchase Price Rs.92.64 crores (Previous year Rs.194.18 crores) 92.61 193.99

Non-trade

In Equity Shares:

Quoted

1225000 (Previous year Nil) equity shares of Rs.10 each

fully paid up of Indian Petrochemicals Corporation Limited 20.83 —

42583 (Previous year Nil) equity shares of Rs.10 eachfully paid up of Dredging Corporation of India Limited 1.70 —



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790187 (Previous year Nil) equity shares of Rs.10 each

fully paid up of GAIL (India) Limited 15.41 —

3378200 (Previous year Nil) equity shares of Rs.10 eachfully paid up of Petronet LNG Limited 5.07 —

411002 (Previous year Nil) equity shares of Rs.10 eachfully paid up of Oil and Natural Gas Corporation Limited 30.82 —

Market value Rs.80.83 crores (Previous year Rs.Nil) 73.83 —

Unquoted *

307000 (Previous year Nil) equity shares of Rs.10 eachfully paid up of Power Trading Corporation of India Limited 0.49 —

42400 (Previous year Nil) equity shares of Rs.5 eachfully paid up of Biocon Limited 1.34 —

*Quoted on The Stock Exchange, Mumbai andNational Stock Exchange of India on April 7, 2004 1.83 —

LONG TERM INVESTMENTS

Non-trade

Quoted

In Mutual Funds units

Equity fund


Morgan Stanley Mutual fund

Nil (Previous year 12862228) units in growth units — 10.50

Market value Rs.Nil (Previous year Rs.10.80 crores) — 10.50

Unit Trust of India


Nil (Previous year 1524994) units of Unit scheme 1964 — 2.04

less : provision for permanent diminution in value — 0.52

Market value Rs. Nil (Previous year Rs.1.52 crores) — 1.52

In Bonds

15501507 (Previous year Nil) 6.75%Tax free US64 bonds of Rs.100 each 161.27 —

Market value Rs.168.19 crores (Previous year Rs.Nil)



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Trade

Unquoted

In Equity Shares:

2715000 (Previous year 2715000) equity shares of Rs.10 each

fully paid up of Hero Honda Finlease Limited 3.46 3.46

1,565.10 1,193.00

(Rupees in crores)

Cost Cost

This year Previous year

The following investments were purchased during the year

Mutual Funds

Debt Funds

891070520 (Previous year 1461335601) units of the face value of Rs.10 each 1,054.49 1,818.70

Monthly Income Plans

577909684 (Previous year Nil) units of the face value of Rs.10 each 758.27 —

Fund of Funds Scheme


Equity Funds

22263926 (Previous year 15786740) units of the face value of Rs.10 each 54.22 37.86

Gilt Funds


Liquid Funds



Equity Shares

6153972 (Previous year Nil) equity shares of the face value of Rs.10 each 74.32 —

42400 (Previous year Nil) equity shares of the face value of Rs.5 each 1.34 —

Bonds

15501507 (Previous year Nil) bonds of the face value of Rs.10 each 161.27 —

Units

144218967 (Previous year Nil) units of the face value of Rs.10 each of 150.00 —

Unit Trust of India -Unit Scheme 1964

6,827.16 5,108.05

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The following investments were sold during the year

Mutual Funds

Debt Funds


Monthly income plans


Equity Funds


Gilt Funds


Liquid Funds



Units

145743961 (Previous year Nil) units of the face value of Rs.10 each of

Unit Trust of India -Unit Scheme 1964 151.52 —

6,455.06 4,640.82


31, 2004 31, 2003

Aggregate value of Book Market Book Market

value value value value

Quoted investments 235.10 249.02 12.02 12.33

Unquoted investments 1,330.00 — 1,180.98 —

1,565.10 249.02 1,193.00 12.33


Cost Cost


(Rupees in crores)

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6) CURRENT ASSETS, LOANS AND ADVANCES (Rupees in crores)

As at As atMarch 31, 2004 March 31, 2003

CURRENT ASSETS

INVENTORIES #Stores and spares (at cost or under) 14.47 14.41Loose tools (at cost or under) 9.19 10.63Raw materials and components* 121.92 111.67Finished goods *

Motorcycles 7.69 22.99Spare parts 23.13 31.85

Work in progress * 11.80 9.37188.20 200.92

*Lower of cost and net realisable value#Includes goods in transit Rs.15.50 crores (Previous year Rs.29.56 crores)

SUNDRY DEBTORSDebts outstanding for a period exceeding six months

Secured -considered good 0.33 0.36Unsecured -considered good 0.28 0.47

-considered doubtful 1.20 1.49Other debts

Secured -considered good 6.23 9.63Unsecured -considered good 36.96 131.03

45.00 142.98Less : Provision for doubtful debts 1.20 1.49

43.80 141.49CASH AND BANK BALANCESCash in hand 0.24 0.27Cheques in hand 1.62 0.04With scheduled banks:

On current accounts 34.78 23.43On deposit accounts# 0.43 0.54

With post office (pledged with excise authorities)On deposit account 0.01 0.01On savings account 0.04 0.04

37.12 24.33LOANS AND ADVANCES(Unsecured and considered good)Advances recoverable in cash or in kind or for value to be received* 224.66 98.14Income-tax deducted at source 11.50 11.31Interest accrued on investments 3.50 —Deposits with excise authorities on current account 0.21 0.32

239.87 109.77

# Includes Rs.Nil (previous year Rs.0.04 crore) held as margin money towards a guarantee* Due from an officer of the Company Rs.0.01 crore (Previous year Rs.0.02 crore);

Maximum amount due during the year Rs.0.02 crore (Previous year Rs.0.03 crore)

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7) CURRENT LIABILITIES AND PROVISIONS (Rupees in crores)


CURRENT LIABILITIESAcceptances 79.57 78.50Sundry creditors

Total outstanding dues of small scaleindustrial undertakings* 0.42 0.16Total outstanding dues of creditors otherthan small scale industrial undertakings 619.00 331.28

Other liabilities ** 284.78 253.05Security deposits from dealers 20.09 18.53

1,003.86 681.52PROVISIONSProposed dividend 199.69 359.44Provision for taxation less payments 11.35 10.90Provision for tax on dividend 25.58 46.05Warranties 19.57 17.78

256.19 434.17

* The Company does not owe any sum which is outstanding for more than 30 days** Other liabilities do not include any amount outstanding as on March 31,2004 which are

required to be credited to the Investor Education and Protection Fund (Fund)

8) DEFERRED TAX ASSETS AND LIABILITIES (Rupees in crores)


DEFERRED TAX ASSETSAccrued expenses deductible on payment 0.25 0.25Others 0.43 0.64

0.68 0.89DEFERRED TAX LIABILITIESAccumulated depreciation 90.02 76.91Others — 0.25

90.02 77.16

9) MISCELLANEOUS EXPENDITURE(to the extent not written off or adjusted) (Rupees in crores)


Deferred revenue expenditure:On leased assets– interest paid on capital advances prior to

commencement of lease — 0.48– installation and commissioning charges — 0.22

— 0.70

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10) SALES AND OTHER INCOME (Rupees in crores)

Year ended Year endedMarch 31, 2004 March 31, 2003

SALES 5,832.43 5,101.71Dividend Income

On current investments - Non trade 13.33 —On long term investments - Trade 4.67 0.41

18.00 0.41Interest on long term non trade investments 9.38 —Profit on sale of non trade investments

On current investments* 106.21 72.81On long term investments 8.71 —

114.92 72.81Provision for doubtful debts written back 0.29 —Exchange difference 0.07 0.05Profit on sale of fixed assets 0.13 0.17Miscellaneous income 22.25 19.43

5,997.47 5,194.58* After adjusting loss on sale of current investments aggregating

Rs. 12.75 crores (previous year Rs. 12.53 crores)

11) MANUFACTURING AND OTHER EXPENSES (Rupees in crores)


MATERIALS CONSUMEDPurchase of spares etc. for re-sale 173.04 162.33Consumption of raw materials and components 4,013.95 3,514.41Less: - Sale of components to ancillaries on cost to cost basis 170.02 178.30

3,843.93 3,336.11Less : - Cash discount 0.83 0.60

3,843.10 3,335.51Add: Opening stock

Motorcycles 22.99 15.49Spare parts 31.85 18.53Work in progress 9.37 9.11

64.21 43.13Less:Closing stock

Motorcycles 7.69 22.99Spare parts 23.13 31.85Work in progress 11.80 9.37

42.62 64.21Net consumption 4,037.73 3,476.76Less: Scrap sales 7.12 5.99

4,030.61 3,470.77OTHER EXPENSES*Payments to and provisions for employees:

Salaries, wages, bonus, gratuity and leave encashment benefit 211.13 179.22Contribution to provident and other funds 11.32 8.23Staff welfare expenses 9.07 14.18

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12) INTEREST (NET) (Rupees in crores)


March 31, 2004 March 31, 2003

Interest - others and financial charges 1.72 1.73

1.72 1.73

Less : Interest received on loans, deposits, etc.* 3.07 2.75

(1.35) (1.02)

*Income tax deducted at source Rs. 0.14 crore (Previous year Rs. 0.97 crore)

11) MANUFACTURING AND OTHER EXPENSES (Contd.) (Rupees in crores)


Expenses for manufacturing, administration and sellingStores and tools consumed 39.22 33.37Power and fuel 29.75 25.82Rent 2.58 2.45

Repairs and maintenance:Plant and machinery 17.08 14.40Buildings 2.40 1.93Others 0.54 0.48

Insurance 6.55 7.12Rates and taxes** 6.54 9.75Packing, forwarding, freight etc. 115.62 98.92Royalty 89.64 68.91Advertisement and publicity 124.46 141.86Commision

Export 5.72 3.76Others 2.94 1.39

8.66 5.15Donations 2.38 2.03Lease rent 21.23 23.09Other expenses 122.35 125.19Provision for doubtful debts — 1.39Loss on fixed assets sold/discarded 1.20 3.86

4,852.33 4,238.12

* Research and development expenses of Rs. 9.33 crores (Previous year Rs. 6.97 crores)have been charged to respective heads

** Includes excise duty provision on finished goods Rs. 1.41 crores (Previous year Rs. 4.15 crores)

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13) NOTES TO THE ACCOUNTS

1) SIGNIFICANT ACCOUNTING POLICIES

i) Accounting convention

The financial statements are prepared under the historical cost convention, in accordance with applicable accountingstandards and relevant presentational requirements of the Companies Act,1956.

ii) Fixed /Intangible assets and depreciation /amortisation

Fixed assets are stated at cost less accumulated depreciation. Cost of acquisition is inclusive of freight, duties, taxesand other incidental expenses and in the case of plant and machinery, interest on loan taken for the acquisition ofassets upto the date of commissioning of assets. Roll over charges on forward exchange contracts and loss or gain onconversion of foreign currency liabilities for acquisition of fixed assets are added to or deducted from the cost of theassets.Depreciation is charged on a pro-rata basis at the straight line method rates prescribed in schedule XIV to theCompanies Act,1956 except where the historical cost of a depreciable asset has undergone a change due to increaseor decrease in long term liability on account of exchange fluctuations, the depreciation on the revised unamortiseddepreciable amount is provided prospectively over the residual useful life of the asset. Assets costing less thanRs. 5000 are fully depreciated in the year of purchase.Intangible assets, comprising of expenditure on model fee etc, incurred upto March 31, 2003 and on or after April 1,2003 are being amortised on a straight line method over a period of three and five years respectively.

iii) Investments

Current investments are stated at lower of cost and fair value. Long term investments are stated at cost less provisionfor permanent diminution.

iv) Inventories

Stores and spares and loose tools are stated at cost or under.

Raw materials and components, finished goods and work in progress are valued at cost or net realisable value,whichever is lower.

The bases of determining cost for various categories of inventories are as follows:-

Stores and spares,loose tools,raw – Weighted average costmaterials and componentsMaterials in transit – Actual costWork in progress and finished goods – Material cost plus appropriate

share of labour, manufacturingoverheads and excise duty.

v) Retirement benefits

The Company has various schemes of retirement benefits such as provident fund, superannuation fund, gratuity fundduly recognised by the income tax authorities and leave encashment benefit fund. The funds are administeredthrough trustees and the contributions are charged against revenue every year.

vi) Foreign currency transactions

Exchange differences are dealt with as follows :-

Transactions in foreign currency are recorded at the exchange rate prevailing at the time of the transaction. In case ofloans taken for the acquisition of fixed assets, the loss or gain on conversion (at the rates prevailing at the year end orat the forward rates where forward cover has been taken) and roll over charges in respect of forward cover is includedin the carrying amount of the related fixed assets and loans.

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Current assets, (other than inventories) and current liabilities, (other than relating to fixed assets) are restated at therates prevailing at the year end or at the forward rates where forward cover has been taken and the differencebetween the year end rate / forward rate and the exchange rate at the date of the transaction is recognised as incomeor expense over the life of the contract and is taken to the profit and loss account.

vii) Sales

Sale of goods is recognised at the point of despatch of finished goods to the customers. Sale of motorcycles isinclusive of freight and is exclusive of excise duty and sales tax. Sale of spare parts are inclusive of excise duty anddelivery charges but exclusive of sales tax.

viii) Scrap

Scrap sale is accounted for on sale basis.

ix) Warranty claims

Warranty costs are provided on accrual basis on the total sales of motorcycles during the year,which are based on pastexperience of claims.

x) Research and development expenses

Research and development expenditure of a revenue nature is expensed out under the respective heads of account inthe year in which it is incurred.

xi) Taxation

The provision for taxation is ascertained on the basis of assessable profits computed in accordance with theprovisions of the Income Tax Act,1961.

Deferred tax is recognized, subject to the consideration of prudence, on timing differences, being the differencebetween taxable income and accounting income that originate in one period and are capable of reversal in one ormore subsequent periods.

2) CONTINGENT LIABILITIES :(Rupees in crores)


i) In respect of income-tax cases pending at various

stages of appeal with the authorities 0.61 —

3) Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 105.39 crores(Previous year Rs. 42.87 crores ).

4) i) The Company had entered into lease agreements for the rental of plant and machinery. Typically,lease rentals are fora period of five years. As at March 31, 2004, the Company had commitments under the lease agreements of Rs.16.85 crores (Previous year Rs. 35.93 crores).

ii) The Company has also entered into operating lease agreements for motor vehicles, dies and data processingmachines. These lease arrangements are cancellable in nature and range between two to four years. The aggregatelease rentals under these arrangements amounting to Rs. 2.45 crores (Previous year Rs. 0.12 crore) have beencharged under “Lease rentals ” in Schedule 11.

5) During the year, the Company has implemented Accounting Standard (AS-26) ‘Intangible Assets ’issued by the Institute ofChartered Accountants of India and has accordingly recognized expenditure on model fee aggregating Rs. 23.19 crores as‘Intangible Assets’ under Schedule 5 ‘Fixed Assets’, whereas expenditure on model fee incurred upto March 31, 2003aggregating Rs. 10.82 (Gross Rs. 16.23 crores and accumulated amortisation Rs. 5.41 crores) hitherto accounted for asdeferred revenue expenditure under Schedule 9 ‘Miscellaneous expenditure ’has been recast as ‘Intangible assets’.

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The amortisation of intangible assets amounting to Rs 10.05 crores has been included in depreciation for the year in theprofit and loss account.

6) As the Company ’s business activity falls within a single primary business segment viz. Motorcycles and its parts’ thedisclosure requirements of Accounting Standard (AS-17)“Segment Reporting”, issued by The Institute of CharteredAccountants of India are not applicable.

7) Related party disclosures under Accounting Standard 18

a) Enterprises in which the Company has controlHero Honda Finlease Limited

b) Parties in respect of which the Company is a joint ventureHonda Motor Co., Ltd., JapanHero Cycles LimitedBhadurchand Investments Private LimitedHero Investments Private Limited

c) Key management personnelMr. Brijmohan Lall Munjal – ChairmanMr. Pawan Munjal – Managing DirectorMr. Akio Kazusa – Joint Managing DirectorMr. Shinichi Nakayama – Whole time Director (w.e.f. 9 th May 2003)Mr. Kazumi Yanagida – Whole time Director (Upto 24 th April 2003)

d) Enterprises over which key management personnel and their relatives are able to exercise significant influence ;-Brijmohan Lall Associates, A.G.Industries Private Limited, Hero Corporate Services Limited, Highway IndustriesLimited, Honda Trading Corporation, Honda Trading (Thailand) Ltd. Majestic Auto Limited, Munjal Auto IndustriesLimited, Munjal Showa Limited, Rockman Cycle Industries Limited, Sunbeam Auto Limited and Satyam AutoComponents Limited.

Transactions with related parties during the year

a) Enterprises in which the Company has control(Rupees in crores)

This year Previous yearLease rentals 19.14 22.01Dividend received 4.62 0.41Intercorporate deposits given and repaid 150.50 43.05Interest received on Inter Corporate deposits 0.66 0.03Balance outstanding at the year end-Payables — 0.01

b) Parties in respect of which the Company is a joint venture.(Rupees in crores)

This year Previous yearRemittance of dividends 290.74 124.60Royalty 89.64 68.91Export commission 5.72 3.76Model Fee 22.09 10.62Technical guidance fee 0.39 0.11Purchase of raw materials,components,spares and capital goods 219.55 297.57Balance outstanding at the year end-Receivables — 0.01-Payables 7.16 17.22

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c) Key management personnel(Rupees in crores)

This year Previous yearRemuneration 1.57 0.75Commission 43.94 36.88Balance outstanding at the year end-Payables (other than commission) 0.14 0.04

d) Enterprises over which key management personnel and their relatives are able to exercise significant influence

(Rupees in crores)

This year Previous yearPurchase of raw materials and components 1,177.09 1,162.81Purchase of fixed assets 4.62 -Sale of components etc 4.14 9.71Sale of fixed assets 0.12 2.93Payment towards rent and other services 3.53 1.60Balance outstanding as at the year end-Receivables 0.27 0.76-Payables 183.67 110.55

8) EARNINGS PER SHARE


Profit after taxation as per profit and loss account (Rupees in crores) 728.32 580.76

Weighted average number of equity shares outstanding 19,96,87,500 19,96,87,500

Basic and diluted earnings per share in rupees 36.47 29.08

(face value –Rs.2 per share)

9) Information pursuant to clause 4 (ix) (b) of the Companies (Auditor’s Report) Order, 2003 in respect of disputed dues, notdeposited, pending with various authorities (excluding interest)

Nature of the Statue Nature of Dues As at March 31, 2003 Forum where dispute is

(Rupees in crores) pending

1) Sales Tax Laws Sales Tax 1.19 Sales Tax Tribunal

2) Central Excise Excise duty 0.92 Commissioner (Appeals)

10. ADDITIONAL INFORMATION

a) Details of capacity and production:

Class of goods Units Licensed capacity* Installed capacity** Actual Production***

This year Previous year This year Previous year This year Previous year

Motorised two wheelers upto

350CC engine capacity Nos. 200000 200000 2250000 1800000 2064698 1680277

* The Company’s products are exempt from Licensing requirements under New Industrial Policy in terms of Notificationno. S.O. 477 (E) dated 25th July, 1991.

** On triple shift basis, as certified by the management and relied on by the auditors being a technical matter.***Includes 49 (previous year 140) motorcycles produced and capitalised during the year.

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b) Particulars in respect of opening stock, purchases, sales and closing stock for each class of goods dealt with by theCompany:

Class of goods Units Opening stock PurchasesThis year Previous year This year Previous year

Quantity Value Quantity Value Quantity Value Quantity Value(Rupees in crores) (Rupees in crores) (Rupees in crores) (Rupees in crores)

Motorcycles Nos. 8335 22.99 5733 15.49 — — — —Spares - * 31.85 * 18.53 * 173.04 * 162.33

54.84 34.02 173.04 162.33

Class of goods Units Sales Closing stockThis year Previous year This year Previous year

Quantity Value Quantity Value Quantity Value Quantity Value(Rupees in crores) (Rupees in crores) (Rupees in crores) (Rupees in crores)

Motorcycles Nos. 2070147++ 5,553.75 1677535++ 4,862.90 2837 7.69 8335 22.99Spares - * 277.37 * 224.40 * 23.13 * 31.85Miscellaneous * 1.31 14.41Components

5,832.43 5,101.71 30.82 54.84

* It is not practicable to furnish quantitative information in view of the considerable number of items diverse in size andnature. These items in value individually account for less than 10% of the total value of the purchases, stocks andturnover of the aforesaid spares and miscellaneous components.

++ Excluding 49 (previous year 140) motorcycles capitalised.

c) Raw materials and components consumed:

Class of goods Units This year Previous yearQuantity Value Quantity Value

(Rupees in crores) (Rupees in crores)

Steel sheets MT 9286.02 47.25 8529.79 44.05Components * 3,796.68 * 3,292.06

3,843.93 ** 3,336.11 **

* It is not practicable to furnish quantitative information of components consumed in view of the considerable number ofitems diverse in size and nature.These items in value individually account for less than 10%of the total value ofcomponents consumed.

** Includes Rs.0.12 crore (Previous year Rs.0.45 crore)for motorcycles produced and capitalised during the year.

d) CIF Value of imports:

Class of goods This year Previous year(Rupees in crores) (Rupees in crores)

Capital goods* 56.06 28.24Raw materials 58.90 37.28Components, spare parts and others 266.54 263.27

* Excludes reduction of Rs.0.24 crore (Previous year increase of Rs.0.12 crore) capitalised due to fluctuation inexchange rates.

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e) Value of imported and indigenous raw materials,components and spares consumed and percentage of each to the totalconsumption:

Class of goods This year Previous year

Value Percentage Value Percentage


Raw materials

– Imported 46.52 1.21% 41.48 1.24%

– Indigenous 0.73 0.02% 2.67 0.08%

Components

– Imported 75.73 1.97% 124.58 3.73%

– Indigenous 3,720.95 96.80% 3,167.38 94.95%

*3,843.93 100.00% 3,336.11 100.00%

Spares consumed (charged to repairs and maintenance)

– Imported 3.34 29.56% 2.66 19.25%

– Indigenous 7.96 70.44% 11.16 80.75%

11.30 100.00% 13.82 100.00%

*Includes Rs.0.12 crore (Previous year Rs 0.45 crore) for motorcycles produced and capitalised during the year.

f) Expenditure in foreign currency (on accrual basis):



Royalty 89.64 68.91

Technical guidance fee 0.39 0.49

Technical know-how fee 22.09 15.50

Export commission 5.72 3.76

Travel and other accounts 0.94 1.67

Advertisement and Publicity 7.96 14.46

g) Earnings in foreign currency (on accrual basis):



FOB value of exports 117.40 94.06

Freight and insurance 0.81 0.85

h) Managerial remuneration:*



Remuneration 1.57 0.75

Commission 43.94 36.88

Directors’ sitting fee 0.06 0.03

45.57 37.66

*Excludes incremental contribution for gratuity, as the contributions are determined for the Company as a whole.

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HERO HONDA


94

Financials

Computation of net profit in accordance with section 198 of the Companies Act, 1956.

This year Previous year(Rupees in crores) (Rupees in crores)

Profit before taxation as perprofit and loss account 1,072.46 884.53Add:-Managerial remuneration 45.57 37.66Less:-Provision for Bad Debts Written back 0.29 —Profit on sale of non trade long term investments 8.71 —Net profit as per section 349 of the Companies Act,1956 1,109.03 922.19Commission @1% of the above profit for the four directors 44.36 36.88Restricted to 43.94* 36.88

*Mr. Kazumi Yanagida, whole time director was in employment with the Company up to April 24, 2003. Mr. ShinichiNakayama joined the Company in place of Mr. Kazumi Yanagida with effect from May 9, 2003. Accordingly, commissionon profit has been apportioned on a pro-rata basis to these whole-time directors and to the other three whole-timedirectors on a full year basis.

i) Provision and/or payment in respect of Auditors’ Remuneration :

This year Previous year(Rupees in crores) (Rupees in crores)

a) As auditors (Audit fee) 0.17 0.15b) In other capacity

– taxation matters — 0.04– limited review of unaudited financial results 0.12 0.04– corporate governance and other certification 0.02 0.03

c) Out of pocket expenses # ## This year Rs. 60,151 (Previous year Rs. 82,738)

j) Amount remitted in foreign currencies towards dividends during the year:

This year Previous yearNo. of No. of equity Dividend No. of No of equity Dividend

Non-Resident shares held remitted Non-Resident shares held remittedshareholders (Rupees in crores) shareholders (Rupees in crores)

2001-2002 - Final — — — 1 51918750 52.962002-2003 - Final 1 51918750 93.45 — — —2003-2004 - Interim 1 51918750 51.92

145.37 52.96

11. Previous year’s figures have been recast/regrouped wherever necessary.

New Delhi

April 12, 2004








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95

BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

I. Registration Details

Registration No. 17354

State Code 55

Balance Sheet Date 31.03.2004

II. Capital Raised during the year (Rupees in crores)

Public Issue Nil Rights Issue Nil

Bonus Issue Nil Private Placement Nil

III. Position of Mobilisation and Deployment of Funds (Rupees in crores)

Total Liabilities 1313.51 Total Assets 1313.51

Sources of Funds Application of Funds

Paid-Up Capital 39.94 Net Fixed Assets 588.81

Reserves & Surplus 1098.87 Investments 1565.10

Secured Loans Nil Net Current Assets* (840.40)

Unsecured Loans 174.70 Misc. Expenditure Nil

*Includes Deferred Tax Liability (Net) Rs. 89.34 crores

IV. Performance of Company (Rupees in crores)

Turnover 5,997.47

Total Expenditure 4,925.01

Profit before tax 1072.46

Profit after tax 728.32

Earnings per share (Rs.) 36.47

Dividend Rate (%) 1000

V. Generic names of Three Principal Products/ Services of Company (as per monetary terms)

Item Code No. (ITC Code) 87112003

Product Description Motorised two wheelers upto 350cc engine capacity

PART IV OF SCHEDULE VI To The Companies Act, 1956

Per our report attached



A.K. MAHINDRA


New Delhi

April 12, 2004








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Documents

ND L18fontscorrected FIN.qxd 7/26/2004 5:29 PM Page 1 · 2015. 9. 4. · 2 Board of Directors 4 Highlights 6 Chairman’s Letter 10Managing Director’s Message 12Joint Managing Director’s