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After the stake sale, the Hero Group continues to be the largest investor in Hero MotoCorp with a 36% stake. Photo: Mint
After the stake sale, the Hero Group continues to be the largest investor in Hero MotoCorp with a 36% stake. Photo: Mint

Hero MotoCorp | Munjals look beyond auto with $300 mn share sale

The sale proceeds could be utilized to fund new growth opportunities, one of them being defence

New Delhi: Hero Group, which controls India’s largest scooter and motorcycle maker, has sold a 3.5% stake in its flagship Hero MotoCorp Ltd to raise funds to diversify into other business areas.

The group sold 7 million shares of Hero MotoCorp for as much as $306 million. The sale proceeds would be utilized to fund new growth opportunities, the group said in a statement on Wednesday.

“The Prime Minister’s “Make in India" platform has opened up new vistas, some in very high growth areas, and the Hero Group—with its experience, scale of operations and brand equity—is uniquely placed to leverage these emerging opportunities," Hero said in a statement.

One such opportunity is defence.

With 60% of India’s defence requirements met through imports, local defence production is the heart of Make In India programme, Prime Minister Narendra Modi said at the inauguration of Aero India 2015 in Bengaluru on Wednesday.

An analyst said that the Munjal family may be inching closer to a deal with Pipavav Defence and Offshore Co. Engineering Ltd.

The Munjals of Hero Group could invest in their personal capacity, this person added, speaking on condition of anonymity.

Mint could not independently confirm this.

After the stake sale, the Hero Group continues to be the largest investor in Hero MotoCorp with a 36% stake.

Reacting to the news, shares of HeroMoto Corp fell 5.09% to 2,663.43 on BSE, while the exchange’s benchmark Sensex gained 0.63% to 29,320.26 points.

According to Joseph George, an analyst with Mumbai-based brokerage IIFL Ltd, the move is “negative" for minority shareholders.

“It is clear that money is going into a new venture. From our perspective, why are promoters cutting their stake in the company when they themselves claim that two-wheeler business is going strong?" George asked.

Sunil Munjal, joint managing director of Hero MotoCorp, did not respond to phone calls seeking comment. A Hero Group spokesperson declined to share more details apart from those mentioned in the press statement.

On 5 February, The Economic Times reported that Mahindra and Mahindra Ltd, the Hero group and a French shipbuilder have started separate discussions with the promoters of Pipavav Defence to purchase a 19% stake in the company that has facilities to build warships, submarines and LNG carriers. On 12 February, Pipavav informed the BSE that “there are no negotiations/agreements which the company has entered into which requires disclosure under clause 36 of the listing agreement".

The owners of Hero Group, who migrated to India from Pakistan before India’s independence, started selling bicycles and later went to form Hero Honda Motor Ltd, a joint venture with Japanese automaker Honda Motor Co. Ltd that lasted for 27 years before the two sides decided to pursue their own business interests separately on 16 December, 2010.

Even before that, and, in a much more aggressive way since, the Munjal family has sought to diversify its business interests, primarily to identify new growth areas for the group and also accommodate third-generation family members

Rahul Munjal, son of the late Raman Kant Munjal, founded Hero Future Energies Pvt. Ltd, a renewable energy firm in 2013. Rahul’s younger brother Abhimanyu founded the Hero Group’s financial services business Hero FinCorp Ltd the same year. Hero Future Energies hopes to produce 1 gigawatt power by 2016-17; Hero FinCorp expects to have a 5,000 crore loan book by 2016-17. On Sunday, Rahul Munjal’s company committed to install renewable energy capacity of 5,150 megawatt.

Akshay, Rahul’s cousin and son of Suman Kant Munjal, managing director of Rockman Industries Ltd, entered the education business by opening a university in Manesar, Haryana. Akshay’s brother Ujjwal works with his father at Rockman. The current managing director and chief executive of Hero MotoCorp., Pawan Munjal, has two daughters and a son. The son, Anuvrata, studies abroad; Vasudha, the elder daughter, runs a chocolate boutique under the brand Choko la; the other daughter, Supriya, has a clothing line. Sunil Munjal, the youngest son of family patriarch Brijmohan Lall Munjal and joint managing director of Hero MotoCorp, has a daughter, Shefali Munjal, who assists him at Hero Corporate Service Ltd, a company in the business process outsourcing segment.

In an interview with Bloomberg, Sunil Munjal declined to share details and said that the group is looking at “different opportunities".

The share sale transaction was brokered by Kotak Mahindra Bank Ltd and Barclays Plc. and the shares were offered in a range between 2,664 and 2,720, a discount in the range of 3% and 5% from Monday’s closing price of 2,805.

Hero said in a statement that it remains committed to the two-wheeler market.

“The Hero Group remains strongly committed to its core two-wheeler business, where it sees enormous potential, both in India and overseas."

Munjal told Bloomberg that the diversification wouldn’t be in the two-wheeler industry.

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