Hero Honda's Dividend Policy

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Case Details:

Case Code : FINA005
Case Length : 11 Pages
Period : 2003 - 2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : Hero Honda
Industry : Auto and Ancillaries
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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We did look at buyback but we are not convinced that it would enhance shareholders value. Only the promoters will benefit. It is better to earn the shareholders goodwill by giving them higher dividends.

- Brijmohan Lall Munjal, Chairman, Hero Honda.¹

Introduction

In 2004, India's largest two-wheeler manufacturer, Hero Honda Motors Limited (Hero Honda) had announced a huge 1000% dividend following a 25% increase in its net profits and 14.3% increase in net sales.² The company had declared a final dividend of Rs.10 per share and a special dividend of Rs.8 per share, representing almost 70% payout of profits in 2003.

Hero Honda had a 47.6% overall share of the motorcycle market and a 33 % overall share of the two-wheeler market during 2003-04³. The company had emerged as one of the most successful players in the industry, on account of its superior and reliable product quality and aggressive marketing.

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Hero Honda's motorcycles enjoyed a strong brand equity due to their fuel-efficiency and sleek looks backed by a well spread distribution and after sales network...

Excerpts >>

1] M. Anand, “Is Munjal Being Too Generous?” Businessworld, 5th May 2003.
2] “Hero Honda net jumps to pay 1000 pc total dividend,” The Hindu Business line, 13th April 2004.
3] Source: CMIE: Industry Analysis Service.

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