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Business News/ Companies / News/  Hero MotoCorp plans to develop Gujarat plant into an export hub
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Hero MotoCorp plans to develop Gujarat plant into an export hub

Firm targets sale of 1.2 million units a year by 2020 with most of the export needs met from the Halol plant

A file photo of Pawan Munjal, chairman of Hero MotoCorp Ltd. Photo: Ramesh Pathania/MintPremium
A file photo of Pawan Munjal, chairman of Hero MotoCorp Ltd. Photo: Ramesh Pathania/Mint

New Delhi: India’s largest two-wheeler maker Hero MotoCorp Ltd will develop its Halol plant in Gujarat into an export hub, said chairman Pawan Munjal in the company’s annual report.

The company plans to sell 1.2 million units a year by 2020 and most of the export requirements will be met from the Halol plant.

“The plant at Halol in Gujarat will not only help support the western market more efficiently, it will help Hero reach global destinations faster, since it is within close proximity of ports," Munjal said.

Investment in Hero’s proposed plant at Halol, its fifth in India, is about 1,100 crore. They have been allotted about 215 acres, as per the state support agreement with the government of Gujarat.

The plant is about 20km from General Motors Co.’s factory in Halol, which the US firm wants to shut down and sell, as per a Mint report on 30 July.

Hero is also commissioning a plant at Villa Rica in the state of Cauca, Colombia. The plant will help meet demand for the company’s products in South America. Similarly, a production facility in Bangladesh will help it serve the needs of that region.

The company aims to export to 50 countries by 2020. It sold a little over 200,000 units in global markets during 2014-15.

But Hero MotoCorp’s domestic business is under tremendous stress due to a slowdown in the rural market. Demand for its motorcycles in urban areas has seen stiff competition from the scooter segment, dominated by the local arm of its erstwhile joint venture (JV) partner Honda Motor Co. Ltd.

During the April-July period, sales of Hero declined 5.90% to 2.06 million units while the sales of the two-wheeler industry rose marginally to 5.27 million units —up 0.52%.

According to a 6 August report by ICICI Securities Ltd, a Mumbai-based brokerage firm, apart from the slowdown in demand, intensifying competition is also impacting Hero’s growth.

“HMCL (Hero MotoCorp Ltd) undoubtedly continues to dominate the space and has a strong flagship brand like Splendor/Passion in its portfolio. However, its key challenge remains to protect its market share. In the motorcycle segment, its share has declined from 58% in FY10 to 53% in FY15," ICICI Securities said in the report.

Between 2009-10 and 2014-15, Hero MotoCorp’s domestic two-wheeler volume growth lagged industry growth, where industry posted growth at 11.3% CAGR (compound annual growth rate) and HMCL grew 7.3%, the report added. In the same period, HMCL’s market share declined from 48.1% to 40.2% in the domestic two-wheeler (motorcycles and scooters) market.

“Thus, we believe that with competition intensifying, HMCL needs to realign its product mix and strategy to capture changing consumer preferences," added the report.

Munjal said that this scenario is likely to change soon. India’s agricultural prospects are comparatively better, and the country is poised for viable recovery, he said.

“In this fiscal itself, I anticipate a rebound in the capital goods production, which is usually the harbinger of revival in the manufacturing sector. Once the business cycle turns more positive—as it should, by the second half of this fiscal—I expect an uptick in demand across multiple consumer verticals. In turn, this should create a second order impact across many tertiary sectors," he added.

Rural demand has been more muted than urban because of last year’s delayed and deficient monsoon rainfall, unseasonal rains that damaged standing crops and forecasts of another deficient monsoon this year.

Still,better-than-expected rainfall so far during the April-June monsoon has raised hopes that rural demand may pick up. Also, a turnaround in consumer sentiment typically portends a new investment cycle.

Earlier this month, Foxconn Technology Co Ltd, best known as the manufacturer of Apple iPhones and iPads (and also for its dorm-style facilities for workers in its town-sized campuses), announced a $5 billion investment in Maharashtra over the next five years.

Maulik Pathak in Ahmedabad contributed to this story.

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Published: 18 Aug 2015, 11:21 AM IST
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