Will Pawan Kant Munjal’s mega makeover plan rev up Hero’s mojo?
The 58-yr-old big daddy of the world's largest two-wheeler company by volume is gearing up to go global at a time of dipping domestic sales.
Munjal's new Hero is a W.I.P. Since the Honda JV break up in 2010, he and his A-team have put in a lot of hard work adding teeth to the organization. Over a planning exercise in Delhi's Grand Hotel after the split, Munjal showed his men The King's Speech, where King Edward VI corrects a stammering problem with the right inputs. "The moral of The King's Speech is that nothing really is impossible - if you get after something and have the conviction, you will definitely achieve your goals," he says.
In April-October 2012, Hero MotoCorp sold 3.4 million units and registered a negative growth of 1.83% over the same period the previous year. Bajaj Auto too shrank by 4.5% in the same period, while Honda Motorcycles and Scooters India (HMSI) grew by 47%, albeit on a much lower base of 1.5 million units. In the fast growing scooter segment, Hero has a 17% market share, while Honda with 49.3% market share is by far the leader. The contest is rather close between Hero and TVS for the number two position.
What's going on? "When Honda came out with a 100% subsidiary in India (HMSI in 1999), they manufactured only scooters for the first 5 years of their operation since that was the deal with us," says Munjal, echoing how he fended off Honda's challenge in motorbikes long enough for Hero Honda to consolidate and add teeth to volumes. But the hiatus proved a boon for Honda to develop a market for scooters at a time when the segment was sliding. For Hero, it will now indeed be difficult to unseat its established erstwhile partner in a rapidly growing segment.
Nevertheless, it's worth noting that with approximately 70% share in the most popular 100cc segment of the two-wheeler industry, Hero has penetrated deep into the hinterland with almost 5,400 touch points encompassing dealerships, service and spare parts outlets and authorized reps of dealers, while nearest competitor Bajaj stands a distant second with 3,500 touch points. "We will be adding another 400 touch points to our network by the end of this year (taking the total to 5800)," says Anil Dua, Senior Vice President-Sales & Marketing, Hero MotoCorp, when grilled on the Honda challenge.
With the success of the Hero Honda venture behind him, Dua revs up for a repeat performance. "I'm not very concerned about market shares going up and down," he says matter-of-factly, pointing to a newfound vigor post the split with Honda. "I'm looking ahead." In a volume-driven market like India where competition is hotting up, despite being market leaders, Hero has stepped up its efforts to go overseas. "We've created an international business division with 16 people as of now and want to grow our international business five times in five years," says Dua. Earlier, Hero Honda had just two people in its overseas division and exported to four countries-Nepal, Sri Lanka, Bangladesh and Colombia-accounting for a mere 3% of its annual turnover. Today, the thinking has changed even though the turning of the tide can take longer.
While unveiling the new brand identity in London's O2 Arena last year, Munjal outlined the vision of his company through the 'Power of 10'. Simply put, in five years, he's eyeing $10 billion in revenues with 10 million units, and at least 10% of the total volumes coming from the international business. Very carefully, the company has recalibrated the nomenclature from 'exports' to 'international business', since it harbours hopes of setting up manufacturing facilities in some of the newer geographies it is venturing into. "We've appointed distributors in Africa, Central America and Latin America and are first tapping those markets where we believe our products will deliver," claims Munjal in the backdrop of Bajaj Auto's successful foray in the overseas markets, which now forms one-third of its total business by volume.
Along with Erik Buell Racing of the USA, Hero has also tied up with AVL of Austria for engine technologies and Italian design firm Engines Engineering (EE) for end-toend two-wheeler design solutions -who are working together to develop the next-generation Hero twowheelers. Hero is reportedly working on several models ranging from low engine displacement to higherpowered motorcycles and scooters.
However, the first bike on a new platform to hit the market will be a 250cc motorcycle by the third or fourth quarter of FY2014-15. Ever since Hero separated from Honda, the company has launched only four products, which could all be termed as Honda's babies in terms of technology. The Honda effect may well continue with a couple of fresh launches in the next fiscal.
But does that augur well for the group when the competition has the firepower to deliver more? "In the first 15 years of this company (1985-2000), we launched only six models. From 2001 to 2005, the company launched 15 models. Each year now, companies launch on an average 8-10 models," says Ravi Sud, Senior VP & CFO, Hero MotoCorp. Clearly, Hero falls woefully short of market expectations in the near term.
But the new tie-ups will surely come into force after that and Munjal is upbeat. "The premium segment is currently on the drawing board, well beyond the design board, and we've seen mock-ups and clay models….in 2014, we would have a completely new portfolio." It is learnt that the first bike from Hero will be sport a 250cc engine. But skeptics demur as analysts question the effectiveness of the tie-ups, save AVL, a trusted name in engine technologies. "While EBR is a boutique, EE is not a name to reckon with in auto design," says an analyst requesting anonymity.
There is also hint of an apprehension of a complete tech overhaul from the existing Japanese platform to the western domain. Dua dispels that fear. "Instead of completely replacing what our erstwhile partner has done, we need to know about engines, we need inputs on designing and styling, we need to know about racing," he says adding that currently, Hero engineers are working with these partners to "co-develop" the company's future SKUs.
Clearly, the competitors and market watchers know Hero still has a strong franchise and the massive transformation exercise will build a strong platform. "Hero has seen 70 years of evolution under Brij Mohan Munjal. Their understanding of the market is very deep. The competition can have better technology but that's not sufficient to win the market. Therefore, dislodging the current lead of Hero will be difficult for the competitors," says Ramdeo Agarwal, Jt. MD, Motilal Oswal. "In this very sector, there have been past instances of promoters doing well, inspite of their JV partners walking out. So there is no reason why Hero can't repeat that," adds Ravi Sardana, EVP, ICICI Securities.
Market watchers say Munjal's chemistry with stakeholders may not be as strong as his father's, Chairman Brij Mohan Munjal, around whom legends of benevolence have been woven. A source even said that once when an employee needed blood, it was Sr. Munjal who came to his rescue by donating his own blood. And the same thread of deep relationships runs through the dealers and distributors as well. Just when CD was interviewing Hero executives Brij Mohan Munjal and his wife passed through the reception of the Hero MotoCorp HQ. A couple of dealers standing at the reception offered him belated Diwali gifts and touched his feet. He blessed them and asked how they were doing, whether they faced any hiccups-all in first name terms.
However, the larger question is whether Hero will remain a twowheeler company. "It's about mobility and if Hero MotoCorp is a twowheeler company today, it could be anything tomorrow," says Dua hinting at larger plays in auto. And he believes that unity of command allows room for such adventures. "It enables you to do visioning, missioning, give a strategic thrust, alignment and then a plan to go for it and execute that plan," he says. With a heat wave as severe as one is witnessing in the two-wheeler category, Hero has a tough battle at hand. The overseas thrust may be one way to battle the crisis but a category leap calls for another round of introspection.