Over a year after breaking up with Japanese partner Honda, Hero MotoCorp has now unravelled a Rs 2,575-crore investment blueprint.
This will help it enhance capacity, acquire technological expertise and expand into export markets.
A large portion of the funds will be used for setting up fourth and fifth plants in Rajasthan and Gujarat, respectively.
R&D centre
It will also build a 250-acre R&D centre at Jaipur, while spending the rest of the funds on its three existing plants and other areas internally. These will also be followed by a new global parts distribution centre in Rajasthan.
“We have already signed the State Support Agreement with Gujarat, but land acquisition is yet to be completed. In Rajasthan, we already own the land for the plant and the R&D centre.
“It will be the biggest such R&D centre in the country and will have the longest test track for high-speed bikes,” said Mr Pawan Munjal, Managing Director. Mr Ravi Sud, CFO, added that the investment will be made from internal accruals. “We're sitting on over Rs 4,000 crore of cash. We add about Rs 2,500 crore every year.”
Bike assembly plants
The country's largest two-wheeler maker is also signing deals to set up bike assembly plants with new partners in markets such as Brazil, Kenya, Nigeria and Columbia.
These are markets which either have high import duties, or non-tariff barriers which require significant modifications on its products.
Combined with the fresh domestic capacity, this will take its annual output to nine million units by next year, and then 10 million afterwards. The current capacity is about seven million units across three plants in Gurgaon, Dharuhera and Haridwar.
Asked of the demand outlook for the domestic market, given the tough macro-economic scenario, Mr Munjal said, “We are very bullish. We need to be ready with the capacities. We expect double-digit growth.”
Hero expects a 25 per cent growth in its export sales this fiscal to about 2.5 lakh units. In 2011-12, it sold three per cent of its 6.2 million unit sales in overseas markets.
Merging of HIPL
The company's Board has also approved the merger of Hero Investments Private Ltd (HIPL), the investment arm of Hero Group with parent firm Hero MotoCorp.
This is now subject to the approval of the Delhi High Court.
While increasing the number of public floating shares by 12.29 per cent, this will give HIPL promoters - the Munjal family and private equity players Bain Capital India and Lathe Investment (GIC, Singapore), a more direct representation in the company.
Currently, the shareholders of HIPL include the Brijmohan Lall Om Prakash (BMOP)'s 71.63 per cent stake, apart from Bain Capital (19.81per cent) and Lathe Investment (8.56 per cent). BMOP is a partnership firm, through which members of the Munjal family hold a stake in HIPL in their representative capacity.
Hero MotoCorp shares, on the BSE, were up 1.16 per cent to Rs 1,843 on Monday.