Hero MotoCorp Ltd will start exporting scooters and motorcycles sometime in the April-June quarter this year, a year after it broke up with Japan’s Honda Motor Co. Ltd after a 27-year-long partnership that effectively prevented it from tapping overseas markets for its products.
“We will start exporting very soon, maybe in the first quarter of the next financial year,” Hero’s chief executive and managing director Pawan Munjal said in an interview last week. “We have identified some distributors in Latin America and Africa.”
Currently, Hero exports to Sri Lanka, Bangladesh, Nepal and some Latin American countries, but these account for a very small portion of the 6.5 million vehicles it sells every year.
In 2010-11, for instance, it exported 114,581 scooters and motorcycles, according to data from the Society of Indian Automobile Manufacturers. According to the company, it expects to sell one million scooters and motorcycles in overseas markets by 2016-17, and generate $1 billion, or Rs 5,060 crore today, (10%) of its total revenue from exports by 2020.
A senior Hero executive, on condition of anonymity, said the firm is also identifying overseas locations for assembly plants (factories that assemble vehicles from parts). “We’re open to set up an assembly plant if (the) volumes justify it. There are (also) some countries where import duties are on a higher side...that may require us to assemble locally,” he said. Typically, import duty on a complete scooter or bike is higher than that on parts.
As part of the joint venture pact between the Hero Group and Honda in 1984, Hero was not allowed to export motorcycles to most large markets where Honda had its own assembly units. After breaking up with Honda, Hero created a separate arm focused on export markets, Hero International Business.
The African market for two-wheelers is estimated to be one million units per year, according to Sugan Palanee, senior regional leader and auto expert (South Africa) at consultancy Ernst and Young.
Hero will compete with Bajaj Auto Ltd in the region. Bajaj, the only Indian motorcycle manufacturer that exports to African markets, has around a 30% market share of the entry-level motorcycle segment in the continent, while Chinese manufacturers have the rest. In 2010-11, Bajaj exported 972,437 vehicles to markets around the world.
Hero has identified at least 50 overseas markets for its products. It will start with Africa and then move to markets in West Asia and Latin America. “It is excited about the Latin American market, but expects lead time of at least two years before it can enter them due to dual-fuel usage,” Jinesh Gandhi and Mansi Verma, sector analysts at Motilal Oswal Securities Ltd, a Mumbai-based brokerage firm, wrote in a report.
Gandhi explained that the current range of Hero’s engines may not perform well in countries such as Brazil, Argentina, Mexico and Chile that use ethanol-blended fuel.
Brazil is Latin America’s largest two-wheeler market and saw sales of at least one million scooters and motorcycles in 2011, Gandhi said. It is also the world’s largest producer of sugar cane. Ethanol is produced in significant quantity by the Brazilian sugar cane industry, and it is blended with petrol or diesel.
Hero won’t immediately make money from exports, the Motilal Oswal analysts said in their report. “Going by the experience of Bajaj Auto, exports in the initial ramp-up phase could be loss-making,” they wrote.
In order to build its brand overseas, the firm also plans to be present at prominent motor shows, Munjal said. “Last year, we were present at Milan Motor Show and this year we’ll be going to Brazil, which is also famous for motorcycles,” he said.
A year ago in March, Hero Group bought Honda’s 26% stake in Hero Honda, now Hero MotoCorp, at half the market value. Hero Investments Pvt. Ltd, the investment arm of Hero Group, paid Rs 3,842 crore to buy Honda’s stake in Hero Honda.