Hero Motors Explores Non-Auto M&A for Next Leg of Growth

Hero Motors is exploring acquisitions and strategic alliances outside the automotive sector as it looks for its next leg of growth, with Chairman Pankaj Munjal saying the new businesses could eventually become larger than the company’s existing operations.

The auto-components and powertrain systems maker has spent the last two years studying potential opportunities, including the technology, customers, and R&D capabilities of companies it could partner with or acquire, Munjal said in an interaction on the sidelines of the company’s IPO conference.

Asked how large the non-automotive business could eventually become, he said it could be “bigger than who we are today”.

Munjal, however, declined to identify the sectors Hero Motors is evaluating, except to say they would have to offer significantly higher growth.

Munjal said the company is evaluating both M&A and strategic alliances, with potential opportunities largely in North America and Europe. The transactions are still under discussion and no agreements have been signed, he added.

The diversification plan comes as Hero Motors prepares to launch its maiden public offering. 

The company has set a price band of ₹79-84 per share for its ₹1,000 crore IPO, which will open for subscription on September 16 and close on September 18. At the upper end, the company is seeking a valuation of about ₹3,815 crore.

The IPO comprises a fresh issue of up to ₹600 crore and an offer for sale of up to ₹400 crore by promoters O P Munjal Holdings and Hero Cycles, according to the Red Herring Prospectus. 

Of the fresh issue, Hero Motors plans to use ₹190 crore to repay or prepay borrowings and ₹200 crore to purchase equipment for capacity expansion at its Gautam Buddha Nagar facility. The remaining proceeds will be used for unidentified acquisitions, other strategic initiatives and general corporate purposes. 

The RHP states that spending on inorganic growth and other strategic initiatives cannot exceed 25% of the gross fresh issue proceeds, while inorganic growth and general corporate purposes together cannot exceed 35%. 

Managing Director and CEO Amit Gupta said the company had earlier considered some acquisitions when it planned a larger fresh issue, but those transactions did not materialise. It consequently reduced the fresh issue rather than raise funds before they were required.

“We were earlier thinking of some acquisitions, which we were not able to do. And now, we are exploring options,” Gupta said.

From Components to Complete Systems

Munjal said the company's willingness to enter new businesses comes from its experience of repeatedly adding technologies and businesses over the past two decades.

Hero Motors started with component manufacturing before expanding into gears, transmissions, electric motors and complete electric drive systems.

“Hero Motors has evolved,” Munjal said. “We have learnt how to nurture new businesses, get into new technologies, get new joint venture partners.”

Today, Hero Motors describes itself as a fully integrated powertrain systems provider, covering design, prototyping, validation, development and manufacturing of both system-level and component-level products for electric as well as conventional powertrains.

Its products are used in two-wheelers, performance cars, e-bikes, off-road vehicles, electric and hybrid cars, heavy-duty vehicles, and electric vertical take-off and landing aircraft.

The company caters to customers including BMW, Ducati, enviolo, Formula Motorsport, HWA and Hummingbird EV, apart from global e-bike manufacturers and customers in aerospace and other mobility applications.

Hero Motors operates through two main business segments, Powertrain Solutions and Alloys & Metallics (A&M). The Powertrain Solutions business is further divided into Gears & Transmissions (G&T) and Bike Powertrain (BPT).

G&T designs, develops and manufactures transmissions and related systems for two-wheelers, passenger cars, commercial vehicles and performance vehicles, while also serving applications such as aerospace, marine, off-road vehicles and specialty EVs. Bike Powertrain focuses on micro-mobility products including CVT systems, electric motors and integrated electric drive units for e-bikes, scooters and other electric vehicles.

A&M, the company's legacy business, makes sheet-metal, tubular and machined components such as swing arms, engine guards, cylinder blocks and other products for automotive, bicycle and e-bike customers.

According to the company, it is also among the few suppliers addressing premium and performance ICE applications, where transmissions need to handle high torque while keeping components lightweight. The company is recognised for its capabilities in continuously variable transmissions, EV transmissions, electric motors, integrated drive units and gear sets. 

Gupta said the transition towards complete systems also increases the value Hero Motors captures from each programme. 

According to the company’s management, the complete systems and gear sets now account for a significant portion of its powertrain business. More than half of its G&T and Bike Powertrain business involves complete systems rather than only individual components.

Largest Revenue Contributor

The shift is also visible in Hero Motors' financial mix. Its revenue from operations rose 9.1% to ₹1,188.35 crore in FY26 from ₹1,089.59 crore in FY25. Powertrain Solutions grew much faster, increasing around 19% to ₹637.75 crore and raising its share of revenue to 53.7% from 49%.

Within Powertrain Solutions, Gears & Transmissions generated ₹488.88 crore, or 41.1% of total company revenue, in FY26. Bike Powertrain revenue jumped to ₹148.87 crore from ₹81.51 crore a year earlier, an increase of about 83%. The BPT business was entirely EV-linked in FY26.

The A&M business generated ₹550.60 crore, or 46.3% of revenue, down marginally from ₹555.35 crore in FY25.

The difference is sharper at the segment-profit level. Powertrain Solutions reported a segment profit of ₹104.09 crore in FY26, up from ₹67.57 crore in FY25. In contrast, A&M recorded a segment loss of ₹15.90 crore, compared with a ₹6.23 crore profit a year earlier.

At the consolidated level, adjusted EBITDA increased to ₹160.24 crore from ₹128.82 crore, while the adjusted EBITDA margin improved to 13.48% from 11.82%. Restated profit for the year rose to ₹41.17 crore from ₹32.80 crore.

EV Business Expands

Electrification has emerged as another important part of Hero Motors' transition.

EV-related revenue increased to ₹273.29 crore in FY26 from ₹175.59 crore in FY25, taking its share of company revenue to 23% from 16.1%. Three years earlier, EVs contributed about 12%.

Management said much of the company's future product development is also moving towards electric mobility. Gupta said around 60-70% of projects under development are EV-related, while a large part of R&D spending is directed towards EV and hybrid applications.

Hero Motors has built this capability through a mix of internal development, acquisitions and joint ventures. It acquired a majority stake in UK-based Hewland Engineering, which specialises in high-performance transmission design, and has a joint venture with Yamaha Motor for electric motors. It has also entered the integrated electric drive-unit business through Hero EDU Systems under the ESYNC brand.

The company operates six manufacturing facilities across India, the UK and Thailand and is setting up two additional facilities in Ludhiana and Bengaluru.

Global Turbulence Seen Creating M&A Opportunity

Munjal sees the disruption facing global manufacturing, particularly in Europe, as creating acquisition opportunities for Indian companies.

He said pressure from Chinese competitors and slower growth are forcing European companies to look for both new markets and lower-cost manufacturing partners.

“Europe grows, they need us. Europe does not grow, they need cost saving, they need us,” Munjal said.

The current environment could also make potential acquisition targets more affordable, he said. “A few Indian companies will make it with this new turbulence, opportunity. We are trying to be in that,” Munjal said.

Hero Motors already derives a significant part of its business internationally. In FY26, 41.4% of revenue came from outside India. Europe was its largest overseas market, contributing ₹399.22 crore, or 33.6% of revenue, while the US contributed ₹45.88 crore.

For Hero Motors, the next step could therefore extend beyond expanding its current automotive and electric-mobility businesses. However, with the company yet to identify either the sectors or acquisition targets publicly, the scale and timing of its non-auto diversification will depend on the deals it is able to close.