Though he says that his company will face tremendous margin pressure in the current year, Pawan Munjal, MD, Hero Honda Motors, is looking at a double-digit volume growth in FY07. He is positive that the company is going to retain its leadership position this year too, with four new launches and four variants scheduled in the months ahead. Detailing Hero Honda Motors' plans for FY07, Munjal says that the company will launch four new models and four new variants. CNBC-TV18 shares its exclusive interview with domain-b.

What is your FY07 outlook in terms of industry growth and your own volume and margin outlook?
We are looking at a double-digit volume growth in FY06-07, but there will be tremendous pressure on margins this fiscal.

Any specific reason why you expect extra pressure on margins this year?
April started with metal prices going up and we think that going forward, metal prices would harden. The market is also becoming more competent. There are new entrants as well, so there are more players in the market. So obviously, there have to be concerns on the competitive scenario.

If there are pressures from the raw material side and you don't increase product prices, do you think margins could slip into single digits?
All I can say is that as far as the pricing goes, the current market scenario does not allow any of us to pass on cost increases to the customers. Most of the time we have to absorb and manage our own costs and improve our efficiencies to be able to manage our margins. I am not saying single or double digits, but the pressure on margins is going to be there.

Hero Honda Motors has announced its fourth quarter results. The company's Q4 net profit is up at Rs267 crore from Rs207 crore. Its total income is up at Rs2,298 crore from Rs1,976 crore. Its operating margin is down at 14.9 per cent versus 15.1 per cent.

What are you factoring in terms of volume growth for both your bikes and scooter segment?
We are looking at a double-digit growth like in the previous year. I think we ought to do very well this fiscal as well. We will definitely do middle and high double digits.

Where is competitive pressure the highest… the executive segment, where pricing would be the stickiest and you may have to offer discounts in line with other manufacturers?
The competitive pressures are there in all segments. On our part, we are trying to see that we do not burden our customers with any cost increases and try to absorb those ourselves. It might hit the margins. But if we try to manage the cost efficiencies well, then we might still be able to manage our margins.

For this financial year, do you have any launches planned and in what categories? Would you phase-out some categories?
We have a number of launches planned for this fiscal. We have eight new launches, out of which there are variants and new launches in this fiscal. In June itself, we are starting with fuel injection technology.

We will be the first one in the country to launch a two-wheeler with a small-sized engine having a fuel injection technology. After that, we have seven more launches lined up in this fiscal itself.

How many of these eight are going to be product variants of existing models and how many would be completely new models?
There would be four variants and four new models.

Is this a year, where you would focus on retaining market share rather than profitability?
We definitely want to go for market share.

Will it continue to be the executive segment where you hold your market leadership or will you look more aggressively at the entry segments as well?
When I talked about four variants and four new launches, we are going to be looking at all the segments.

Will there be any phase-outs along with that?
We let the customer decide on phase-outs. It was only in 2005-06 that there was a phase-out of 'CBZ' and 'Ambition' because of technology reasons. But otherwise, we let the customer decide on our phase-outs.

Could you quantify what kind of discounts you are offering or are likely to offer on key models like 'Splendour' and 'Passion'?
In April and May, we had a promotional offer because of the celebration of having sold a significant number of vehicles. This discount was temporary and none of these are permanent discounts per se.

his is as per the market requirement and the company's milestone that we achieve from time to time when we go out and give out these promotional offers.

"We will be the first one in the country to launch a two-wheeler with a small-sized engine having a fuel injection technology."

Honda Motors is also trying to get a foothold here. Do you envisage any relationship issues as they also try to compete with you in some of your product brackets?
There are no relationship issues. In fact currently, the relationship is on a high. There is positive energy in Thailand and Japan for Hero Honda. Also, we are working very closely not just between Honda and Hero Honda, but also between Honda Motorcycle and Scooters India (HMSI) for Hero Honda to be able to garner more market share, to be able to take on competition together.

You don't see their 125cc bike competing with your models?
As we have said in the past, whenever we decide on models, we try and keep some differentiation so that we do not go for the same market segment, for the same customer.

We try to expand the market segments, so that we can take on one and they can take on the second, to be able to garner more market share. That is how it works with us.

Are you envisaging the pricing of your new launches to be very aggressive, which is why the product mix might lead to a slightly lower margin this year?
We have tried to give products at various price points to make it very easy for the customer to choose and select. We are only trying to expand and diversify that range by giving these variants and new models, specifically in the premium segment.

This is because as I said, we had phased out 'CBZ' and 'Ambition' so we are coming back very aggressively in that segment for sure. At the same time, with the price segment becoming highly competitive, we are again coming back there to be able to garner more market share.

Do you expect any cannibalisation with these new models from the executive segment versus the existing ones?
There is no definite line between one model and the other. There always would be some cannibalisation between our own models. We cannot say that there will be nil cannibalisation, but when we add a new model, we expect both the models put together, to increase our numbers and market share.

Can you give us any details on the four new models that you spoke about? What categories do they belong to? Are these all bikes or would those include any scooters?
They are all bikes. We do not have a new scooter at the moment. We are currently focusing on 'Pleasure', which is doing well for us. By the end of the fiscal, at an average, we would have done about 10,000 scooters a month. The bikes would be in all segments.

Including the entry level?
Yes, including the entry levels.

It is a two-horse race at the top in the two-wheeler market between you and Bajaj Auto. At the end of this year how would you perform versus Bajaj Auto?
We are happy with our performance. Going forward, we have a plan in place this year. We are trying to take a number of models and various other measures in the market base, etc. We are surely going to retain our leadership position.

Business-wise operationally due you think it would be a tougher year?
Yes. I can say this is going to be a tougher year and we are preparing ourselves well for it.