Sitting on cash pile, Hero Motors charts grand plans

Most members of the Delhi-based Munjal family would have rued letting go their respective shares in Hero Honda after the Hero group dismantled crossholdings in 2010. But then, each one of them ended up with a lot of cash as a result of the settlement.

Family members of O P Munjal, who now owns Hero Cycles, Hero Motors and Munjal Sales Corp, also gained from the settlement.
O P Munjal is one of the four founder members of the Hero Group. Others are B M Munjal, Satyanand Munjal and the late Dayanand Munjal.

“Today, after this settlement (family), I have huge access to cash... close to `1,000 crore cash,” Pankaj Munjal, O P Munjal’s son, who now oversees his family’s various businesses as managing director, told NewsWire18 in an interview.

Pankaj Munjal said he planned to expand his businesses broadly under four categories — bicycles, hospitality, contract manufacturing, and transmission systems.

Apart from doubling the bicycle manufacturing capacity and setting up overseas assembly plants, Munjal is working aggressively on his first premium hotel coming up in Gurgaon.
Munjal is also in talks with foreign bike companies to get into a contract manufacturing pact.

“Europe is no place to build, let’s say for one transmission equipment, any longer. They are being made in India. So business is migrating over here,” said Munjal.

Hero Motors already supplies gears and transmission assemblies for recreational products, passenger cars and two-wheelers.

The client list includes marquee names like Toyota, Nissan, General Motors, Maruti Suzuki, Hero MotoCorp, BMW, and Honda.
Munjal said his team is working on a low-cost automatic transmission system for passenger cars that he said he would look to sell to Indian vehicle manufacturers.

“We are giving a low-cost solution. But to marry the OE (original equipment) with Suzuki, Tata Motors takes time,” he said.
Munjal said in China, 75% of the cars sold had automatic transmission systems whereas in India, the share was just about 2%.

“We surely (are) looking at contractual assembly of two-wheelers, golf carts, and electric vehicles... These are small batch productions,” Munjal said, adding that the Honda obligation was no longer there on the family.

In 1996, Hero Motors had tied up with BMW to manufacture motorcycles for it in India.

But the deal fell through as the Hero Group had signed a non-compete agreement with Honda Motor Co.

“We had signed on dotted lines way back in early ’80s (1980s) that time as a family,” he said.

Munjal said some international two-wheelers had approached him for their India entry.

“They don’t want to pay 100% duty. I will be backend contractual manufacturer,” he said.

Munjal said he was doubling bicycle manufacturing capacity, planning to set up its first overseas cycle production unit in Africa, build two new factories in India, and double sales volumes to 10 million units per year by 2014.

Hero Cycles, which operates two manufacturing plants in Ludhiana, currently makes about 19,000 bicycles per day. It manufactured 5.6 million bicycles in 2010-11.

“We have not set ourselves any timeframe and are still working out the details,” Munjal said, adding that not much expenditure was seen in setting up the plants.

Munjal, however, did not detail the investments planned for setting up the three plants as they had not yet materialised.

He said Hero Cycles was also planning a distribution and marketing set up in the US and the UK.

“These would be more distribution set-up in terms of marketing and warehousing,” he said.
 
The bicycle maker’s strategy centres around catering to the three categories of mass, premium and super premium.

While the mass market products, that they already sell, cater to the entry-level bicycle customer, the premium range would stretch across a price band of `6,000-20,000 with the super premium cycles going for upwards of `100,000.

The premium range of bicycles would be launched in January and the super premiums later in 2012.

Munjal’s aim at hospitality started with a high-end hotel in Gurgaon.

“There is 8 mln sq ft of office space in Delhi and 42 million sq ft of office space in Gurgaon. So please calculate the number of rooms is to offices if we take business travellers,” he said.
Munjal said the company was investing about `700 crore in setting up the 289-room hotel. “It should take about 18 months.”

While the group will develop the property, it will be managed by a hospitality partner. NewsWire18