The company is entering into distribution partnerships and setting up manufacturing plants in South America and Africa; Old competitor Bajaj Auto already enjoys dominance there
The battle in the two-wheeler market between homegrown Hero MotoCorp and Bajaj Auto is set to play out overseas too. Hero MotoCorp Chief Executive & Managing Director Pawan Munjal recently announced plans to build 20 manufacturing or assembly facilities abroad to expand the company's presence to 50 countries by the end of the decade. Interestingly, the geographies being explored by Hero MotoCorp in Central and South America as well as in Africa are the very same in which Bajaj Auto has claimed dominance over the last few years.
Pune-based Bajaj Auto is, in fact, the largest exporter of two-wheelers from India. In the last financial year, Bajaj Auto exported 1.29 million motorcycles, an increase of around two per cent over 1.26 million shipped out the previous financial year. Exports accounted for over a third of the company's overall sales of motorcycles in 2012-13. In the same period, for Hero MotoCorp, exports fell 16 per cent to 161,023 units. Exports account for 2.7 per cent of the company's annual sales of 6.07 million
Till two years ago, Hero MotoCorp was called Hero Honda, a 26-26 joint venture between the Munjal family and Honda of Japan. Under the joint-venture agreement, the company could export to only those markets where Honda was not present. The only countries it could export two-wheelers to were Sri Lanka, Nepal and Bangladesh in the sub-continent and Colombia in South America. This had ensured that the company remained, by and large, a domestic Indian player.
Hero MotoCorp is now keen to make up for that lost opportunity. As part of its ambitious global expansion plans, the company has drawn up a blueprint to set up six assembly lines spread across three continents in 2014. Munjal says, "We will be selling in 50-plus countries by 2020 and produce 12 million motorcycles and scooters every year. This will come from 20 assembly lines from inside and outside the country." Annual turnover is estimated to rise to Rs 60,000 crore by 2020 from Rs 24,000 crore in FY13. To achieve this target, the company will have to increase its production to 12 million units annually from 6-7 million right now.
Hero MotoCorp's overseas drive, say industry observers, has been partly propelled by increasing competition from its erstwhile partner Honda Motorcycle and Scooter India in the domestic market. In the last financial year, Hero MotoCorp's share in the domestic two-wheeler space declined to 42.9 per cent from 45.2 per cent in FY12. In the same period, Honda Motocycle's share rose to 18.9 per cent from 14.9 per cent. The company plans to expand its footprint overseas by setting up manufacturing facilities abroad and stitching up local partnerships for marketing and promotion over the next two to three years.
Earlier this year, Hero MotoCorp incorporated its first off-shore investment subsidiary in the Netherlands to drive its overseas expansion plans. "The overseas arm would take care of our international operations, be it expanding exports or making investments in joint-venture partnerships and strategic alliances. In certain countries, the duty structure is such that we need to maintain specified levels of local content in our products. The off-shore subsidiary in such cases would help us in making investments in setting up assembly units or manufacturing facilities," Ravi Sud, chief financial officer, Hero MotoCorp had earlier told Business Standard.
Hero MotoCorp is also actively exploring opportunities to set up companies in the United States, Europe, South America and Southeast Asia. "If we need to import components from China, we may consider having a subsidiary in Hong Kong also. We may also look at setting up an overseas company to expand our business in the US," Sud had said. Strategically, the new ventures are aligned with Hero MotorCorp's target to increase the share of international business to 10 per cent of total volumes by 2016-17, from less than 3 per cent in 2012-13. Hero MotoCorp has already started despatches to new international markets in Central and South America.
While long-term prospects are improving, led by an uptick in output and gas price revision, it's trading at a 40% discount to ONGC