New Delhi: Hero Cycles, the world’s largest bicycle maker, on Thursday announced the acquisition of Firefox Bikes Pvt. Ltd as it seeks to tap the potentially lucrative market for premium cycles.

While Hero did not disclose the size of the deal, people with knowledge of the matter said it had paid 150 crore in an all-cash deal, which happens to be the largest transaction in a shrinking bicycle market beset by an influx of Chinese and Taiwanese brands.

In a statement, Pankaj Munjal, managing director of Hero Cycles, said the acquisition will help the company expand its presence in all major categories of bicycles in India.

“The aim is to provide our customers with world-class products in every price range as per their fast-evolving tastes and requirements," Munjal said.

His son Aditya, 28, inducted on the board of Hero Cycles in 2014, was the chief architect of the deal.

The statement also said that the company will set up an innovation centre for designing and making the next generation of world-class bicycles.

As per the agreement, Firefox Bikes will remain a separate business entity post the acquisition. The deal includes the Firefox brand of bicycles, accessories and spares along with exclusive distribution rights of ‘Trek’ and other global brands.

The promoters of Delhi-based Firefox Bikes have divested their entire equity stake in the company.

Shiv Inder Singh, founder and managing director of Firefox Bikes, will, however, continue to lead it after the acquisition as its chief executive officer.

“This acquisition will help Firefox to penetrate further into the Indian market. This deal will also help Firefox to expand its marketing visibility and acquire an aggressive approach in reaching out to our prospective customers," Singh said.

Currently, Firefox sells over 70 different models of bicycles and 25 Trek models through a network of 160 company-owned and franchise outlets. Firefox also has tie-ups with international brands such as Tern, Shimano, Saris, Finish Line, Kryptonite, Super-B and Slime.

“We at Firefox were fortunate to have entered the cycling market (in 2005) at a time when Indian consumer had just started to expect more from their cycles. It was enriching and an exciting role to play where we not just created the premium cycle segment in India, but also introduced the next generation of performance and recreational cycles to the Indian consumer," said Singh.

Bicycle sales in India have plateaued for a while now. Growth rates have been in single digits for five of the past 10 years, and the market actually shrank 3.24% in 2012-13. But the premium category has witnessed a 25% compounded annual growth rate between 2000-01 and 2014-15.

According to Pankaj Chadha, director of the automobile practice at EY, health-conscious consumers who have taken up leisure cycling in a big way may have prompted Hero to buy Firefox.

“If you look at Hero’s current portfolio, it does not have very exciting brands for leisure biking for fitness enthusiasts in the country," Chadha said.

“In my opinion, Hero will look to capitalize in that segment apart from exports," he added.

According to bicycle makers’ lobby All India Cycle Manufacturers’ Association (AICMA), only 90 out of 1,000 people in India own bicycles, compared with 149 out of every 1,000 in China and 400 out of 1,000 in the US.

In the last decade, the premium bicycle segment in India has started to take off. More than 200,000 leisure bikes were sold in 2014-15 in a market whose estimated size is 15 million bicycles a year. The growth in the segment is largely on account of customers taking up cycling for fitness, recreation and lifestyle reasons.

Firefox was among the first to enter this segment in India in 2005 and created a niche for itself. It controls 40% of the premium bicycle segment as of 2014-15.

“I think with Hero’s distribution network and experience, Firefox will get a push in the market," Chadha said.

One of the reasons for tepid cycle sales in India is that most cities do not have dedicated cycling lanes. Delhi, which boasts the best infrastructure in the country, has just 14.5km of cycling lanes.

China, too, faced a similar problem not too long ago. But bicycle sales have picked up in recent years, with the government promoting cycling events such as the Tour of Beijing.

In 2010, production of bicycles in China declined 13.2% to 76.06 million units. By 2013, the rot had been stemmed and production was at 82 million, as per data provided by the China Bicycle Association.

To be sure, much of China’s production—close to 60 million bicycles a year—is exported, according to AICMA. In contrast, India exports less than two million bicycles a year.

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