Car News

Expects to sell 1 million 2-wheelers abroad by 2016-17 and generate
10% of its total revenue from exports by 2020

Hero MotoCorp Ltd will start exporting scooters and motorcycles
sometime in the April-June quarter this year, a year after it broke up
with Japan's Honda Motor Co. Ltd after a 27-year-long partnership that
effectively prevented it from tapping overseas markets for its
products.

"We will start exporting very soon, maybe in the first quarter of the
next financial year," Hero's chief executive and managing director
Pawan Munjal said in an interview last week. "We have identified some
distributors in Latin America and Africa."

Currently, Hero exports to Sri Lanka, Bangladesh, Nepal and some Latin
American countries, but these account for a very small portion of the
6.5 million vehicles it sells every year.

In 2010-11, for instance, it exported 114,581 scooters and
motorcycles, according to data from the Society of Indian Automobile
Manufacturers. According to the company, it expects to sell one
million scooters and motorcycles in overseas markets by 2016-17, and
generate $1 billion, or Rs.5,060 crore today, (10%) of its total
revenue from exports by 2020.

A senior Hero executive, on condition of anonymity, said the firm is
also identifying overseas locations for assembly plants (factories
that assemble vehicles from parts). "We're open to set up an assembly
plant if (the) volumes justify it. There are (also) some countries
where import duties are on a higher side...that may require us to
assemble locally," he said. Typically, import duty on a complete
scooter or bike is higher than that on parts.

As part of the joint venture pact between the Hero Group and Honda in
1984, Hero was not allowed to export motorcycles to most large markets
where Honda had its own assembly units. After breaking up with Honda,
Hero created a separate arm focused on export markets, Hero
International Business.

The African market for two-wheelers is estimated to be one million
units per year, according to Sugan Palanee, senior regional leader and
auto expert (South Africa) at consultancy Ernst and Young.

Hero will compete with Bajaj Auto Ltd in the region. Bajaj, the only
Indian motorcycle manufacturer that exports to African markets, has
around a 30% market share of the entry-level motorcycle segment in the
continent, while Chinese manufacturers have the rest. In 2010-11,
Bajaj exported 972,437 vehicles to markets around the world.

Hero has identified at least 50 overseas markets for its products. It
will start with Africa and then move to markets in West Asia and Latin
America. "It is excited about the Latin American market, but expects
lead time of at least two years before it can enter them due to
dual-fuel usage," Jinesh Gandhi and Mansi Verma, sector analysts at
Motilal Oswal Securities Ltd, a Mumbai-based brokerage firm, wrote in
a report.

Gandhi explained that the current range of Hero's engines may not
perform well in countries such as Brazil, Argentina, Mexico and Chile
that use ethanol-blended fuel.

Brazil is Latin America's largest two-wheeler market and saw sales of
at least one million scooters and motorcycles in 2011, Gandhi said. It
is also the world's largest producer of sugar cane. Ethanol is
produced in significant quantity by the Brazilian sugar cane industry,
and it is blended with petrol or diesel.

Hero won't immediately make money from exports, the Motilal Oswal
analysts said in their report. "Going by the experience of Bajaj Auto,
exports in the initial ramp-up phase could be loss-making," they
wrote.

In order to build its brand overseas, the firm also plans to be
present at prominent motor shows, Munjal said. "Last year, we were
present at Milan Motor Show and this year we'll be going to Brazil,
which is also famous for motorcycles," he said.

A year ago in March, Hero Group bought Honda's 26% stake in Hero
Honda, now Hero MotoCorp, at half the market value. Hero Investments
Pvt. Ltd, the investment arm of Hero Group, paid Rs. 3,842 crore to
buy Honda's stake in Hero Honda.

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