The 58-yr-old big daddy of the world’s largest two-wheeler company by volume is gearing up to go global at a time of dipping domestic sales.
Rather than dealerships and factories of Hero MotoCorp, its CEO & MD Pawan Kant Munjal is probably a more familiar sight on the Daytona race track fussing over his 1190 RS Erik Buell Racing (EBR) bike in the American Motorsports Association’s (AMA) Superbike championship. Hero has recently forged an alliance with EBR for high-end bikes and sponsors the EBR team in America’s premier
motorcycle racing circuit. The 58-year-old big daddy of the world’s largest two-wheeler company by volume is gearing up to go global at a time when doubting Thomases point at dipping domestic sales, predicting an uncertain future for the two-wheeler company. The CEO of a rival company says: “Hero is in a place where Bajaj was many years ago -without a technology partner. The way things are moving in the motorcycles market, it’s soon going to be a two-horse race between Honda and Bajaj. Honda on its own is a far more dangerous player than Hero Honda.”
Munjal’s new Hero is a W.I.P. Since the Honda JV break up in 2010, he and his A-team have put in a lot of hard work adding teeth to the organization. Over a planning exercise in Delhi’s Grand Hotel after the split, Munjal showed his men The King’s Speech, where King Edward VI corrects a stammering problem with the right inputs. “The moral of The King’s Speech is that nothing really is impossible – if you get after something and have the conviction, you will definitely achieve your goals,” he say ..
In April-October 2012, Hero MotoCorp sold 3.4 million units and registered a negative growth of 1.83% over the same period the previous year. Bajaj Auto too shrank by 4.5% in the same period, while Honda Motorcycles and Scooters India (HMSI) grew by 47%, albeit on a much lower base of 1.5 million units. In the fast growing scooter segment, Hero has a 17% market share, while Honda with 49.3% market share is by far the leader. The contest is rather close between Hero and TVS for the number two position.
What’s going on? “When Honda came out with a 100% subsidiary in India (HMSI in 1999), they manufactured only scooters for the first 5 years of their operation since that was the deal with us,” says Munjal, echoing how he fended off Honda’s challenge in motorbikes long enough for Hero Honda to consolidate and add teeth to volumes. But the hiatus proved a boon for Honda to develop a market for scooters at a time when the segment was sliding. For Hero, it will now indeed be difficult to unseat its established erstwhile partner in a rapidly growing segment.
Another significant shift can be noticed in the traction across the 125cc segment, a sort of aspirational uptrading by customers. Traditionally, Hero has championed the 100cc segment and rules the roost with twothirds of the market with winners, such as the Splendor and Passion. “In a full year, Splendor sells about a third of our volumes,” claims Dua. But over the years, Bajaj has built up capabilities in the 125cc space while Hero battles on with three offerings. Hero’s relative advantage will get whittled away as the competition already has credible products in the 125cc space,” says a recent report from CitiGroup. Even in the premium segment, Hero’s heroics come unstuck. Its market share was down to 7% in August from 24% five quarters ago. Blame it on the slowdown for now, but as the segment continues to grow, Hero may have to bite the bullet from Bajaj (40% market share) and Honda (17%).
Nevertheless, it’s worth noting that with approximately 70% share in the most popular 100cc segment of the two-wheeler industry, Hero has penetrated deep into the hinterland with almost 5,400 touch points encompassing dealerships, service and spare parts outlets and authorized reps of dealers, while nearest competitor Bajaj stands a distant second with 3,500 touch points. “We will be adding another 400 touch points to our network by the end of this year (taking the total to 5800),” says Anil Dua Senior Vice President-Sales & Marketing, Hero MotoCorp, when grilled on the Honda challenge.
With the success of the Hero Honda venture behind him, Dua revs up for a repeat performance. “I’m not very concerned about market shares going up and down,” he says matter-of-factly, pointing to a newfound vigor post the split with Honda. “I’m looking ahead.” In a volume-driven market like India where competition is hotting up, despite being market leaders, Hero has stepped up its efforts to go overseas. “We’ve created an international business division with 16 people as of now and want to grow our international business five times in five years,” says Dua. Earlier, Hero Honda had just two people in its overseas division and exported to four countries-Nepal, Sri Lanka, Bangladesh and Colombia-accounting for a mere 3% of its annual turnover. Today, the thinking has changed even though the turning of the tide can take longer.
While unveiling the new brand identity in London’s O2 Arena last year, Munjal outlined the vision of his company through the ‘Power of 10’. Simply put, in five years, he’s eyeing $10 billion in revenues with 10 million units, and at least 10% of the total volumes coming from the international business. Very carefully, the company has recalibrated the nomenclature from ‘exports’ to ‘international business’, since it harbours hopes of setting up manufacturing facilities in some of the newer geographies it is venturing into. “We’ve appointed distributors in Africa, Central America and Latin America and are first tapping those markets where we believe our products will deliver,” claims Munjal in the backdrop of Bajaj Auto’s successful foray in the overseas markets, which now forms one-third of its total business by volume.
If international business is the new hottie in Team Hero, so is its planned Rs 400 crore R&D centre in Kukas, Rajasthan. Since tech was a hand-me-down from Honda, the group honchos are passionate about innovation adding teeth to their capabilities. Today, the R&D team is 325-strong from 71 during the split and the plan really is to take it to 500 in the mid term.
Along with Erik Buell Racing of the USA, Hero has also tied up with AVL of Austria for engine technologies and Italian design firm Engines Engineering (EE) for end-toend two-wheeler design solutions -who are working together to develop the next-generation Hero twowheelers. Hero is reportedly working on several models ranging from low engine displacement to higherpowered motorcycles and scooters.
However, the first bike on a new platform to hit the market will be a 250cc motorcycle by the third or fourth quarter of FY2014-15. Ever since Hero separated from Honda, the company has launched only four products, which could all be termed as Honda’s babies in terms of technology. The Honda effect may well continue with a couple of fresh launches in the next fiscal.
But does that augur well for the group when the competition has the firepower to deliver more? “In the first 15 years of this company (1985-2000), we launched only six models. From 2001 to 2005, the company launched 15 models. Each year now, companies launch on an average 8-10 models,” says Ravi Sud, Senior VP & CFO, Hero MotoCorp. Clearly, Hero falls woefully short of market expectations in the near term.
But the new tie-ups will surely come into force after that and Munjal is upbeat. “The premium segment is currently on the drawing board, well beyond the design board, and we’ve seen mock-ups and clay models….in 2014, we would have a completely new portfolio.” It is learnt that the first bike from Hero will be sport a 250cc engine. But skeptics demur as analysts question the effectiveness of the tie-ups, save AVL, a trusted name in engine technologies. “While EBR is a boutique, EE is not a name to reckon with in auto design,” says an analyst requesting anonymity.