'We cannot export under our own brand so our exports are limited'

Munjal says there is a lot of potential as penetration of bicycles in India per 1000 households is only 60 as compared to 147 in China

Hero may today be largely identified for its motorcycles’ business but it is the humble bicycle which had put the Munjals at the fore of the landscape in corporate India three decades back. 

With Hero Cycles today commanding a clear dominant share in the domestic industry, managing director Pankaj Munjal traces for Surajeet Das Gupta and Sharmistha Mukherjee, his vision to grow the brand globally through acquisitions in Germany and later on in the America. With a spate of manufacturers from Bajaj to Mhaindra and Piaggio talking on forays in the quadricycles segment, Munjal also shares his interest in the space for a possible entry. Edited excerpts :

 

 

Hero Cycles is already the largest bicycle maker in the domestic market but how do you compare with competitors in terms of value globally?

 

In numbers we are larger, but in standards and engineering there is clearly a gap. The bicycle industry is valued at $ 48 billion. We are on the road to gain 5% of this market by 2018. Volume-wise, we already have five% share. We sell around six million bicycles every year in a global market of 120 million units. But value-wise, we are currently at 2.5% of the global market. We want to climb up the value-chain by making better bicycles.

 

 

So what are the things you are doing currently to move up the value chain?

 

I am going to Germany to conclude a deal which will give us a larger footprint in bicycles. We are buying stake in a company and will give us knowhow of German engineering capabilities. We will be good in products, both volume and value-wise with this acquisition. They make more high-end products but the more competitively-priced bicycles we can bring to India in the premium segment. The products will be priced between $100 and $300.

 

As far as sales in India are concerned, how is the market looking like? What kind of potential do you see to grow your business in the local market and how much additional investment would it entail?

                                                                                               

We make around 20,000 bicycles every day. Of these 10,000 units are sold in the eastern parts of the country in Bihar, West Bengal, Assam.

 

There is a lot of potential as penetration of bicycles in India per 1000 households is only 60 as compared to 147 in China, 600 in Germany, 700 in Netherlands. We have set up one new facility in Delhi for bicycles which can produce one million units and can go up to three million units. Another will become operational in Bihar in June, adding a million units. At the Ludhiana unit, we produce six million bicycles. So by 2018, we will have total production capacity of 10 million units.

 

We have earmarked an investment of Rs 350 crore for acquisition of the German bicycle company and for expanding capacity. We pack 800,000 boxes every day into 55 trucks. We can improve our logistics and automate it. We are also looking at investing money in supply chain efficiency and picking up equity stake in a logistics company.

 

 

State governments in India have taken to promote use of bicycles. What quantum of sales occurs because of government initiatives in the industry?

 

State governments have realized how important it is for people to have bicycles. It is empowering and generates employment – people can sell newspapers, deliver milk. Last year various state governments including those of Karnataka, Tamil Nadu, Punjab, Jharkhand bought two million bicycles. Total bicycle sales in the industry were 15 million units.

 

 

What proportion of your production do you export out of the country?

 

We cannot export under our own brand so our exports are limited. We exported 20,000 units in the first year, then after that 80,000 units and later 150,000 units. But with the acquisition of this company in Eastern Germany, we can grow our footprint in Europe. In America, we have started talks for acquiring a local brand. It is difficult to nurture a new brand in the American market so we are looking at inorganic growth.

 

 

Hero Motors earlier used to produce mopeds and then you moved out of that business. Are there new segments you are looking at diversifying into in future, may be in the quadricycle space?

 

We have the ability to put a chassis together. We have cost leadership and electronic drive units (EDU). ZF Hero makes chassis modules for General Motors. We have been nominated by BMW, we are setting up a facility in Chennai and will do rear axle assembly for 3-series, 5-series, 7-series sedans for them from January, 2015. It will only be for models assembled in India.

 

But we have all the strengths, the reach and the numbers to take this game forward. I am looking at the market closely for quadricycles.

 

Besides, we are putting in Rs 1000 crore in Ritz Carlton. This would be the second hotel for the brand after the one in Bangalore. It will become operational in mid 2015. Projected turnover is Rs 180 crore in the first year.   Overall, along with our hospitality venture, investments range at around Rs 1300 crore. But we will largely remain focused in these three areas – bicycles, auto components and hospitality.

 

 

In terms of financial how are your ventures faring. How do you see business panning out in your different units going ahead?

 

 Our turnover from the bicycle business will grow by around 10% to Rs 2400-2450 crore in 2014. We sold around 5.5 million bicycles in 2013 and will double this to 10 million units by 2018. In auto components, our business is growing. Turnover from component business will be around Rs 600 crore.

 

Munjal Kiriu is now the number one player in disc and drum. ZF Hero now has this contract with BMW for rear axle assembly. Our transmissions unit supplies to BMW Motorrad. What we want to do in ZF Hero is expand our chassis module business. We are putting up new venture for ZF Hero back-end integration. We are looking at down-streaming as we have the synergy with metal buyers because of our bicycle business unit.