2013 Two-Wheeler Special: Hero MotoCorp’s brave new world

Hero MotoCorp, which parted ways with its partner of 25 years, Honda of Japan two years ago, has undertaken a variety of initiatives in this period aimed at making itself a full-fledged Indian player in the sector, riding on its own marketing and brand strengths. It is also targeting the global export market where its products will actually go head to head with those of Honda. The company has spared no effort in this endeavour, inking a deal for technology and spending Rs 2,500 crore in a full-fledged R&D unit. It also plans to expand its manufacturing footprint with two new plants and hopes to sell 10 million units in five years’ time.

Last September, Hero MotoCorp took off the Honda tag on all its products as it prepared to take on its rivals in India, mainly an aggressive Bajaj Auto, and its erstwhile partner, Honda. In the course of last year, it has launched several products on its own steam including the Maestro scooter and two bikes, the Hero Ignitor and the Passion XPro.

Tough times

For India’s two-wheeler segment, it has been a challenging scenario. For the first time in 2012-13, Hero MotoCorp, which had made a habit of crossing the 500,000 mark in monthly sales, actually saw sales dip below that for three consecutive months thanks to the slowdown and the impact of greater competition. It is difficult to say whether customer perception will change with the removal of the Honda monicker but this could well be one factor.

Its key rival now is Honda Motorcycle & Scooter India (HMSI) which has launched its Dream Yuga and, if the initial performance is anything to go buy, Honda has a winner on its hands. Then there is Bajaj Auto which has launched the sporty, more powerful Discover 100T that takes on the Hero Splendor, the current leader in the commuter bike pecking order.

Based on calendar 2012 sales, Hero MotoCorp’s sales were flat at 59,54,807 units as against 59,63,611 units in 2011, a fall of 0.15 percent. For a company that has ridden to phenomenal success, riding the Honda brand name and technology (the tie-up for engine tech continues till 2014), the challenge is to develop itself as a full-fledged Indian player and, more importantly, a brand in its own right.



Aggressive growth plan

Post-Honda, Hero MotoCorp has revealed an aggressive plan. This includes an investment of Rs 2,575 crore in expanding capacity at its three plants, setting up two new ones (at Neemrana in Rajasthan and in Gujarat) and, importantly, an integrated technology and R&D facility at Kukas in Jaipur. The company is also headed to Gujarat for a new unit, set to be operational by the second quarter of FY 2014 and attracting an investment of Rs 1,100 crore. While the installed capacity will be 1.2 million units per annum, the second phase will see this go up to 1.8 million units.

When they go on stream, the two new plants will help augment total installed capacity to nine million units in two years, which is in line with the company’s objective of reaching 10 million units in five years with contributions from assembly units overseas.

On the technology front, the company has already tied up with motorcycle company Erik Buell Racing (EBR) of the US for technology sharing and AVL for bike and engine technologies. Importantly, the R&D centre will enable Hero to strengthen its technological expertise, an area which the company has, till now, been somewhat weak in, having relied on Honda’s technology might for over a quarter of a century.

The two-wheeler maker is also exploring setting up assembly units in international markets mostly through partnerships. Under the Hero Honda umbrella, the company could not export its products but that has now changed. Initially, the thrust will be on new markets in Central America and Africa where exports will be in CBUs, followed by CKD and SKD versions. The first complement of exports was sent off around September last year under the Hero brand name.

The focus on these markets is because the volumes are large, and products can be sold with minimum changes. So the company is now selling existing products with suitable modifications for these export markets. It hopes to reach a 10 percent target of its total production of 10 million units over the next five years.

Unlike Bajaj which has chosen to ‘specialise’ in bikes, Hero wants to be in both the bike and scooter lines like its erstwhile partner, Honda. All the Japanese players including Suzuki and Yamaha are in both sectors as also TVS, though the latter has lost some steam in bikes. With its erstwhile alliance, Hero has enjoyed a reputation for reliability and affordable products. The word-of-mouth appeal has helped and going forward, Hero hopes it can stay in the potential buyer’s mind for these very values. BRIAN DE SOUZA