Dividend Policy
Table Working Capital Management & Liquidity Ratios
Over the years, the Company has consistently followed a
policy of paying high dividends, keeping in mind the cash-
generating capacities, the expected capital needs of the
business and strategic considerations. For 2009-10, the
board has recommended a dividend of 1,500 percent
higher than 1,000 percent declared in previous year and has
maintained a payout ratio of 31.3 percent vis-a-vis 36.5
percent in the previous year. Further, board has also
declared 4,000 percent interim dividend on the occasion of
25th year.
Working Capital management
Hero Honda has always sought to efficiently use the various
components of working capital cycle. The Company has
been able to effectively control the receivable and
inventories enabling it to continue to operate on negative
working capital.
RISKS AND OUTLOOK
Global uncertainty: While India's growth path remains
clear and secure, there could some ripples on liquidity in
India. The debt-related troubles within the Eurozone could
slow down the pace of global economic recovery.
Commodity prices: Even though the surge in commodity
prices has lessened in recent months, the medium to long-
term trend remains volatile.
Monsoons: Even though the country as a whole may
receive normal rainfall, wide variances between regions
could impact agricultural production during the kharif
season.
Inflation: Inflation is spreading to non-food categories
such as manufacturing and fuels. A rising rupee and strong
overseas capital flows could also add to the environment of
volatility.
Interest rates: Credit growth started picking up towards
the end of 2009-10 after dropping to a 12-year low in
October 2009. Demand-driven growth could push credit
growth to 20 percent and beyond. This could push up
interest rates.
Increasing competition: Increasing competition across all
key segments, including the bread and butter deluxe
segment will put some pressure on market share.
Capacity constraints: In a growth market, capacity
constraints are always a concern and the Company will
continue to explore various opportunities of capacity
enhancement.
Labour unrest: The Dharuhera-Gurgaon industrial belt
remains restive and prone to external influences. IR
disruptions, especially during peak season, are a source
of concern.
ANNUAL REPORT 2009-10
Table2:1: Key Indicators Of Profitability
2009-10 2008-09
Inventory Period 10.6 11.0
Operating Cycle 13.3 16.9
Cash Cycle -17.0 -13.1
Current Ratio 0.45 0.51
Acid Test Ratio 0.26 0.30
Notes On Working Capital
The average of inventory, receivables and payables has been
taken for calculations of inventory period, operating and
cash cycle.
Outlook
The Indian economy is back strongly on track and is
expected to grow in the range of 8-8.5 percent, perhaps
even higher. The prospects of normal monsoons auger well
for the agricultural sector and will soften prices. At another
level, the imminent introduction of GST and the Direct Tax
Code are seen as epochal policy reforms. GST is aimed at
reducing the impact of cascading taxes, lowering
transaction costs and propelling economic performance.
The actual impact, however, will be seen once the final
policy is rolled out.
In a nutshell, the business environment is expected to be
growth-oriented, but volatile as well. Of course, it is
possible that lower borrowings could lead to a lowering of
fiscal deficit and hence reduce volatility.
A revival in agricultural performance could positively
impact Hero Honda because of its rural-centric focus. The
Company's reliance on cash-down sales could act as a
buffer, in case interest rates go up and sales are impacted at
the higher end of the two wheeler spectrum.
The Company is likely to maintain a steady top line
performance while maintaining the bottom-line margins
on the back of various cost optimisation measures.
21
HERO HONDA MOTORS LIMITED
Four Directors namely Mr. Brijmohan Lall Munjal (Executive
Chairman in the Whole-time employment of the Company),
Mr. Pawan Munjal (Managing Director & CEO),
Mr. Om Prakash Munjal (Non-Executive Director) and Mr.
Sunil Kant Munjal (Non-Executive Director) belong to the
promoter family of the Hero Group, which owns 26 per cent
equity in the Company. Four Directors namely
Mr. Toshiaki Nakagawa (Joint Managing Director),
Mr. Sumihisa Fukuda (Technical Director in the Whole-time
employment of the Company), Mr. Masahiro Takedagawa
(Non-Executive Director) and Mr. Takashi Nagai (Non-
Executive Director) are nominees of Honda Motor Co. Ltd.,
Japan, which too, owns 26 per cent equity in the Company.
Apart from these, the rest of the Board comprises of Non-
Executive and Independent Directors.
Board Meetings
During 2009-10, the Board of Directors met 6 (six) times on
April 21, 2009; June 10, 2009; July 29, 2009; October 21, 2009;
January 25, 2010 and March 30, 2010.
The period between any two consecutive meetings of the
Board of Directors of the Company was not more than 4
months.
Directors' Attendance Record and Directorships/
Committee Memberships
Details are given in Table 1.
Pursuant to Clause 49 of the Listing Agreement entered into
with the Stock Exchange(s), an Independent Director means
a Non-Executive Director who:
l apart from receiving Director's remuneration, does not
have any material pecuniary relationships or
transactions with the Company, its Promoters, its
Directors, its senior management, its holding Company,
its subsidiaries or associates which may affect
independence of the Director;
l is not related to Promoters or persons occupying
management positions at the Board level or at one level
below the Board;
l has not been an executive of the Company in the
immediately preceding three financial years;
l is not a partner or an executive of the statutory audit firm
or the internal audit firm that is associated with the
Company and has not been a partner or an executive of
any such firm for the last three years and the legal firm(s)
and consulting firm(s) that have a material association
with the Company;
50
HERO HONDA MOTORS LIMITED ANNUAL REPORT 2009-10
l is not a material supplier, service provider or customer or
a lessor or lessee of the Company, which may affect
independence of the Director;
l is not a substantial shareholder of the Company i.e.
owning two percent or more of the block of voting shares;
l is not less than 21 years of age.
None of the Director 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. Further, there are no
pecuniary relationships or transactions between the
Independent Directors and the Company, except for the
sitting fees drawn by the Non-executive Directors and sitting
fees and commission drawn by the Non-executive and
Independent Directors for attending the meeting of the
Board and its Committee(s) thereof.
Shareholding of Non-Executive Directors, as on
March 31, 2010
Name of the Director Category No. of shares
held
Mr. Om Prakash Munjal Non-Executive 25,000
Director
Mr. Sunil Kant Munjal Non-Executive 32,500
Director
Apart from the above, none of the Non-Executive (including
Independent) Directors holds any shares (as own or on behalf
of any other person on beneficial basis) in the Company.
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). However, in case of
business exigencies or urgencies, the resolutions are passed
by way of circulation. In addition to the regular business
items, the following items/ information are regularly placed
before the Board to the extent applicable:
l Annual operating plans and budgets, capital budgets
and updates;
l Purchase and disposal of major fixed assets;
l Quarterly and half yearly results of the Company;
l Minutes of the Audit Committee, Shareholders'
Grievance Committee, Remuneration Committee and
Committee of Directors' meetings;