Hero MotoCorp’s drive for high-end tech sees it take 49.2 percent stake in Erik Buell Racing

New Delhi, July 2, 2013: In line with its plans to fast-forward its global expansion programme, Hero MotoCorp Ltd (HMCL) has announced its first-ever equity partnership in an overseas company. The company, which is targeting annual sales of 10 million units in the next few years, is investing $25 million (Rs 148.8 crore) for a total stake of 49.2 percent in its US-based partner Erik Buell Racing (EBR). The investment in EBR is being made through Hero MotoCorp’s newly-incorporated wholly-owned American subsidiary HMCL (NA). While HMCL has already invested the first tranche of $15 million, the balance $10 million is proposed to be invested within the next nine months.

It may be recollected that on February 22, 2012, Hero MotoCorp had first announced that it was forging a strategic partnership with EBR encompassing multiple areas of collaboration. As part of the partnership, HMCL was to receive support in terms of cutting-edge technology and design to develop future models from EBR, which specialises in designing and manufacturing powerful and high-speed motorcycles.

Gunning for proprietory tech and design

Following the split in December 2010 with its 26-year partner Honda Motor Co of Japan, Hero MotoCorp has been on a technology sourcing and upgradation drive and lined up partnerships with AVL Holding GmbH of Austria, Engines Engineering of Italy and EBR of the USA. But they were only technology alliances. Clearly, Hero MotoCorp wants to have proprietory rights over technology in the long term and buying equity in EBR is one way of ensuring a flow of high-end technology and also design for its products, which EBR should be able to provide. Typically, it would have taken Hero MotoCorp close to five years if it would have to get to that stage on its own.

Announcing the investment yesterday, Pawan Munjal, MD and CEO, Hero MotoCorp, said: “The equity partnership with EBR is reflective of our long-term vision of transforming Hero MotoCorp to a truly global two-wheeler major with footprints spread across continents, offering a wide range of technologically-advanced two-wheelers.”

Hero MotoCorp has plans to achieve 10 million units sales in the next five years from the current 6.2 million with exports contributing 10 percent of this. While it has begun exports to new markets in Central and Latin America, the stake in EBR will enable the Indian two-wheeler maker to enter the North American (through EBR’s sales network) and European markets.

With this equity partnership, Hero MotoCorp will now have representation on the EBR board with two directors and one observer. There will, however, be no organisational change at EBR and Erik Buell will continue to be its chairman and CEO.

Hero MotoCorp, which has seen more or less flat sales during April-June 2013, is engaged in a new growth programme. Last June, Munjal had announced an investment of Rs 2,575 crore to expand capacity at Hero’s existing plants, plans to set two new plants, one at Neemrana in Rajasthan and the other at Gujarat as well as an integrated technology and R&D Centre at Kukas in Jaipur.

SHOBHA MATHUR

Caption: On February 22, 2012, Pawan Munjal, MD and CEO, Hero MotoCorp and Erik Buell, chairman and CTO of EBR (astride an EBR 1190RS motorcycle) first announced their strategic technical alliance.