The topic much in debate these days is what will happen to Hero Honda now that Honda is out of the venture. Will the Munjals, patriarch Brijmohan Lall and sons Pawan Kant and Sunil, hold on to their dominance of the motorcycle market? Or is this just what the opening rivals like Bajaj Auto, Suzuki and TVS were looking for? Whatever be the outcome, one thing is certain — new realities in the motorcycle market will unravel over the next quarters and years. If the Munjals pull it off, it will undoubtedly be their finest hour.
Even as father and sons debate scenarios and plan survival strategies, another Munjal has made some bold moves. Pankaj Munjal, the son of Brijmohan Lall’s brother, O P Munjal, will soon supply gear boxes to BMW for its bikes. BMW has actually placed the order with Canadian company Bombardier Recreational Products which, in turn, has decided to source it from Mr Munjal’s Hero Motors.
India exports equipment worth $5 billion every year; so what’s the big deal about the BMW order? Till now, the exports from India have been at the bottom end of the spectrum — low-tech products in which labour is the primary cost. Never before has an Indian company sold a gear box in mature markets. The gear box is crucial to the functioning of the automobile. So, most automobile makers like to do it in house. This order could be the leap of faith the Indian component industry was looking for. According to Mr Munjal, his men have been working on the gear box for almost seven years now.
Mr Munjal and BMW are no strangers. The two had joined hands in the 1990s to sell BMW’s big motorcycles in the country. The idea was perhaps ahead of its time. Sales were abysmal and the partnership was called off. The new alliance with BMW, though routed through the Canadian company, has resurfaced after more than a decade. About those days, Mr Munjal says the all-important Foreign Investment Promotion Board had ruled that Hero Motors would have to offset the foreign exchange spent on the import of the BMW bikes with equivalent exports, and Hero Motors found it difficult to do those exports. Hence the venture failed.
For Mr Munjal, more importantly, this could be a springboard for even bigger things. The 1,300 cc and 1,400 cc gear boxes that will be sold to BMW, he argues, are not very different from the ones used in cars in India. With BMW’s seal of approval, he feels, it won’t be difficult to sell similar transmission equipment to car makers in India. Mr Munjal feels Hero Motors has the wherewithal to produce the transmission equipment that is used by up to 85 per cent of the cars that get sold in India — a large market indeed.
Hero Motors had started life in 1987, as a division of Majestic Auto, to produce Hero Puch mini-motorcycles. The technology came from Steyr Daimler Puch of Austria, and the mini-motorcycles, in the 50 cc to 65 cc range, were launched in 1988. After initial success, the company was faced with dwindling sales as consumers, aided by the easy availability of finance, began to choose bigger, 100 cc and 125 cc, motorcycles. In 2004, the division was spun off as a separate company to focus on automotive components. The Munjals recently sorted out their cross-holdings, which resulted in Munjal gaining full control of Hero Motors and Hero Cycles.
Hero Cycles is the world’s largest maker of bicycles. It sells over 5 million bicycles in a year and its share of the Indian market is around 50 per cent. Mr Munjal was recently spotted in Patna in confabulation with senior Bihar officers over a cycle plant in the state. He says Hero Cycles sells 4,000 bicycles in Bihar every day; so a factory in the state makes sense. Chief Minister Nitish Kumar has launched a scheme to hand out bicycles to boys and girls who go to schools. This should keep the Bihar market for bicycles buzzing for a while.
Here the challenge Mr Munjal finds himself up against is that the bicycle market faces a stiff challenge from motorcycles. With easy finance available from banks and non-banking financial institutions, anybody with Rs 3,000 in his pocket can buy a motorcycle. Such schemes are not available for bicycles — one needs Rs 4,000 in one’s pocket to buy a bicycle. So, Mr Munjal is in talks with microfinance institutions that will help people with monthly household incomes less than Rs 2,800 to buy bicycles on installments of Rs 100 a week. That could help him expand the market. He is also agitated at the 1 per cent excise duty imposed on bicycles in this year’s Budget. For an aam admi product, he feels, the impact could be substantial. To move up the value chain, he plans to launch urban bicycles under a new brand name. The plan is under wraps and the product and the brand will be shortly unveiled.
There could be more. Mr Munjal discloses that he is sitting on liquid cash worth Rs 1,000 crore and plans to use it for a new venture soon. That will be the third leg of his business after automotive components and bicycles.
