Don’t miss the latest developments in business and finance.

Desire for exercise in Covid times: A boom and a shortage for Hero Cycles

The surge in cycle demand could not have come at a better time for India's largest manufacturer, yet it is struggling to meet sales orders.

cycles, bicycles, hero
“I have not seen anything like this in my 30 years of work life,” says Pankaj Munjal of Hero Motors Company on the staggering increase in demand
Amrita Singh New Delhi
7 min read Last Updated : Sep 22 2020 | 2:29 PM IST
The dug-up roads in Park Lane in London may be causing traffic jams but they fill Pankaj Munjal, chairman and managing director of Hero Motors Company, with optimism. “Two of the four lanes on the new road will be dedicated to cycles,” he says. “This is the emphasis the world is laying on cycling.”
 
Maybe it is concern for the environment; maybe it is anxiety about taking public transport; or maybe it is a desire to exercise in the open air, but the fact that people globally are moving to a more basic form of transportation is creating a world of opportunity for Hero Cycles.
 
“I have not seen anything like this in my 30 years of work life,” says Munjal.
 
In the first few months of the lockdown, Hero Cycles saw a staggering 600 per cent surge in demand in the UK over the same period in 2019. The scene was similar in Germany and the trend is picking up in India, too, although the country still lags in demand momentum, he says.
 
The result has been a shortage of components and products that is likely to take a while to sort out. There is a seven-month backlog in the European market. In India, the waitlist runs to three months for some e-bikes and the Firefox range.
 
All this means frenetic activity at the Ludhiana-based manufacturer. Munjal has currently parked himself in London and everything is on the agenda: From acquisitions to tying up new suppliers.
 
The biggest problem right now, he says, is to restore lockdown-induced disruptions to supply chains, particularly for premium cycles, which relied heavily on China for components.
 
All the company’s three factories in India are operating at only 70 per cent capacity. “The labour shortage is particularly acute for its suppliers because workers are scared to come back fearing a second lockdown,” he says.
 
So the company is going the extra mile to bring workers back: Sending buses and cars to villages to collect them, and offering them cash incentives when they return.
 
A similar drive is underway for the dealers, too. To meet their need for operating capital, channel finance is being organised to ensure they have enough to buy inventory and parts. And to clear the backlog, orders are rationalised, focusing on products that are in demand.
 
The demand post-Covid has been led by the premium category that is priced at Rs 12,000 and above in the domestic market and for electric cycles in the European market. The electric segment has seen a 100 per cent jump in sales in the first quarter over the same period last year, according to the company.
 
“We are quite aggressive in the premium category today. In fact, the demand for a mass segment or black cycles in India is plateauing and the growth is being witnessed in premium categories,” says Munjal.
 
Keeping with this trend, two new smart electric cycles (C8i and C5i) were launched soon after the lockdown was lifted in India. Hero also launched a new roadster (the common man’s black cycle) for rural markets, but the demand has been tepid.
 
Although no one could have anticipated the current surge in global demand, the timing could not have been better for Hero.
 
An additional capacity of 4 million units will come on stream on December 15 at its Industrial Park in Punjab, which is part of the state government’s ambitious International Cycle Valley project. This will take the company’s total capacity to 10 million units.

In rolling out expansion plans, however, Hero wasn’t really being prescient but only logical in its approach. “India accounts for one-seventh of world production or 12.5 per cent, but our cycles by value make just 1 per cent. That bothered me,” says Munjal. From his visits abroad, he could see the world moving toward e-bikes or towards light automotive engineering and that prompted him to start building capacity early last year.
 
By 2023, he wants the share of exports in revenue to be 50 per cent from 10-15 per cent currently. He suggests that on an average if Hero makes Rs 4,000 cycle per sale in India, the company fetches about £400 [approximately Rs 3.8 lakh] in the UK.
 
More than amassing volume, Hero wants to realise more value from its products, and e-bikes are the centrepiece of that plan, where the range varies from Rs 1.5 lakh to up to Rs 8 lakh.
 
The exports push is also going to be a Make-in-India story, and one area that Hero Cycles is working on is to ease its dependence on China for components. Currently, only 10-15 per cent of the high-end bikes have local content, says Munjal, but since March the company has been trying to reduce this reliance. China is a large supplier of component to manufacturers globally and the Covid-19 disruption to production has created an international shortage of components.
 
According to the All India Cycle Manufacturers’ Association (AICMA), China’s share in India’s import of bicycles and components has been at 70-75 per cent over the past five years but the industry is looking to tie up with new suppliers in Taiwan, Japan and Europe.
 
Hero’s efforts, however, could still be just a drop in the ocean in putting Indian cycles on the world map, says former Maruti boss Jagdish Khattar, who has been working to promote cycling in the National Capital Region.
 
“To be able to compete effectively in the global market, one first needs to create a vast domestic market, a supply chain network and scale. All of which is lacking in the country,” he says. He doesn’t mean this in the context of Hero but for the country’s cycling industry overall.
 
“Most component manufacturers are small operators who function from Ludhiana and the market hasn’t changed over the years,” he adds. The numbers corroborate this:
 
60 million of the 90 million cycles sold globally are from China, according to AICMA.
 
Yet India is also losing out on the opportunity in the domestic market. The vast majority of Indians who need a cycle can’t afford it in the absence of bank finance and our cities are not built around cycling, says Khattar. More than 35 per cent of people own a cycle in Delhi but fewer than 4.5 per cent take it out even for a distance less than 4 km, according to a Niti Aayog’s Task Force on Clean Transportation report. By comparison in Copenhagen more than half the trips to work and school are made on cycles.
 
For now, though, cycles have a role to play in people’s lives. Kabir Chugh, co-owner of The Turkey Project restaurant in Delhi who rides to his work, says cycling has come back as gyms stay closed because it’s a rite of passage for everyone. “Your parents may or may not have taught you cricket or football, but it’s one sport that all of us were taught at one point,” he says. “Plus, you do not need buddies to enjoy this sport.”
 
While a desire to exercise has prompted people to take to cycles, to make the shift permanent more than just a desire will be needed: for one, safer roads. “I do not know why India is lagging behind,” says Munjal.
 

Topics :CoronavirusHero CyclesbicyclesTransportation

Next Story