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Over a decade behind rival Bajaj Auto in developing its own technology, Hero MotoCorp has announced its first such effort on an alliance with US-based Erik Buell Racing (EBR).
An attempt to secure its own future product portfolio, the tie-up will become important as the technology support from erstwhile partner Honda fades out by mid-2014. The threat from Honda itself is also very imminent with the Japanese firm getting aggressive in India – the second largest two-wheeler market globally.
Tech for bigger bikes
The tie-up is expected to help Hero get the technology for bigger bikes. After the end of the Honda tie-up, Hero has been struggling to keep pace with the innovations unleashed by competition.
“This is in keeping with my objective of quickly scaling up our own in-house R&D capabilities to a global two-wheeler technology power-house by leveraging a network of strategic international alliances,” Mr Pawan Munjal, Managing Director & Chief Executive Officer, Hero MotoCorp said.
Till the break-up last year, Hero could not set up its own R&D or enter certain export markets under a binding agreement. This has given the competition a lead – both TVS and Bajaj since the 1980s have steadily been expanding R&D capabilities.
“After our tie-up with Piaggio ended in 1971, we were on our own. To avoid an adverse situation, most of our current technology has been developed by us. To be in the game for the long-term, this is the most effective way to deal with competition,” a top Bajaj Auto official said.
GROWING COMPETITION
Though Hero is the market leader in terms of volumes (45 per cent share, April-December, 2011), industry experts say that its share is under serious threat.
The company is highly dependent on the lower margin, up to 125cc mass category – it represents 88 per cent of its 4.53 million two-wheeler sales (April-December, 2011). Though this segment still has a 70 per cent share of domestic bike sales, segment growth has lagged at 12 per cent (April-December, 2011), versus a 14 per cent rise in total bike sales and a 17 per cent rise in the 125-250 cc premium bike category.
Also, competitor Bajaj's hold of the premium bike market makes it a highly profitable company – 21 per cent EBITDA margin in Q3, FY12 against Hero's 15.6 per cent. Bajaj has also made a strong headway in the higher margin export market – in the third quarter of 2011-12, 32 per cent of Bajaj's 9.46 lakh motorcycle sales were overseas.
Honda's pace too has quickened at home – sales rose 21 per cent in April-December 2011, against Hero's 18 per cent. A leader in scooters, Honda is already challenging TVS for the third largest domestic two-wheeler maker spot and is rapidly increasing output to four million units in early-2013 by adding a third plant in Bangalore. The aggression is visible since just this month it doubled the capacity at its second plant in Tapukara, Rajasthan to 1.2 million units.
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