labels: M&A, Hero Honda
The UK's Ultra Motors opts out of collaboration with Hero Exports news
04 April 2008

Mumbai: The UK-based manufacturer of electric scooters, Ultra Motor Company, has opted out of a technical collaboration with the Hero Group for which they had together formed a joint venture company, Hero Ultra Pvt Ltd.

Under the joint venture, which the two companies entered into in September 2007, Hero Cycles was to launch  two new models ''Velociti'', an electric scooter with extra speed, and ''Optima''- an electric scooter with extra range priced between Rs29,000 and Rs34,000. The existing range of the company''s seven ''Hero Electric Ultra Powered'' two wheelers is priced between Rs14,400 and Rs27,900. (See: UK's Ultra Motor - Hero Cycles to sell electric bikes through Reliance retail outlets)
Ultra Motors already has operations in India through its 100 per cent subsidiary, Ultra Motors India, which sells over 11,000 electric scooters. 
Talking about the cancellation of the deal, Joe Bowman, chief executive officer of Ultra Motors, said, ''The opportunity cost of selling electric vehicles in India does not fit strategically under this joint agreement. We intend to create shareholder value and positively impact those markets where we operate. We have come to believe India is one of the largest markets in the world. So we are looking forward to develop it independently.'' 
Earlier in October 2006, Hero Cycles Limited had signed a technical collaboration-cum-joint marketing agreement with Ultra Motor Company, to produce and jointly market the current range of ''Hero Electric Ultra Powered'' electric two wheelers in India. Based on their marketing experience during a six months period, both companies aggressively rolled out 57 joint dealerships across north and west India. The company's range of electric two wheelers is available in Haryana, Punjab, Rajasthan, West UP, Madhya Pradesh and Gujarat and the National Capital Region of Delhi.

The technical collaboration was used for selling two electric scooter brands. The company sold 11,000 electric scooters in FY08.

Debu Ghoshal, marketing director of Ultra Motors India said that the company would now focus on ''stepping on the gas'' in making the category more visible, and creating more exposure. Ultra Motors India plans to grow by 200 per cent in this financial year.

This was in effect the primary difference between the Hero Group and Ultra Motors, with the former preferring a slower growth trajectory, and the latter wanting to grow fast. Ultra Motors wants to sell 60,000 electric scooters this year, and would independently marketing and selling its wares in India. Its first batch of electric scooters, under the company brand, will be rolled out in May, and it will invest around Rs150 crore over the next two years.

Giving Hero's version of the story, Munjal said the company had asked for a royalty for the use of the Hero brand, which Ultra was not agreeable to. Additionally, the change in Ultra management made it more difficult to continue with the partnership. Timex Group's former global CEO Joe Santana had joined Ultra in January this year, and is widely believed to be behind the strategic decision to go it alone in India. Santana is also reported to be keen on acquisitions of a software design business in India. Reports also indicate that Ultra Motors was not quite happy with the fact that Hero did not share its agreed burden of marketing and front-end expansion expenses, as originally planned.

The majority of the existing 150 dealer outlets are believed to have signed their letter of intent(LoI) with Ultra and will continue to be under its fold, though some may sell Hero Electric products. Ultra plans to double its network again this year to 300 dealers.

Ultra Motos will engage its Hyderabad-based local partner, Hindustan Batteries Ltd., for contract manufacturing its entire range of products.

The company, however, will continue to offer service support to existing customers of Hero Ultra at its dealer showrooms, despite the partnership falling apart. All outlets in which Hero and Ultra had co-invested would now become multi-brand outlets, co-housing both products. Direct dealers of Ultra Motors would become part of their exclusive dealer network. Ultra Motors is planning to set up 300 outlets, and enhance its retail reach through 20 hypermarkets via a distribution agreement with Reliance and Big Bazaar.

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The UK's Ultra Motors opts out of collaboration with Hero Exports