Hero plans major push into bigger, premium bikes
18 Jul 2016
Hero MotoCorp, after three years of riding on technology developed by its former partner Honda Motors, has finally launched a motorcycle developed completely in-house - the first time in the company's 30-year history.
After 26 years of being in a joint venture - Hero Honda - the companies separated in December 2010. The Splendor iSmart, a 110-cc motorcycle, is a ''significant milestone in our solo journey, as all future products will be developed in-house,'' says Pawan Munjal, chief executive and managing director of Hero MotoCorp last week.
Now, Munjal is embarking on premium bikes with bigger engines. For all these years Hero was a leader in entry-level motorcycles of 100-125 cc, with over two-third market share.
''The Indian market is maturing. Buyers will move to different segments with different engine sizes - towards premium and luxurious bikes,'' Munjal, who carries a rose gold iPhone 6S, loves bright printed shirts and socks, and buys most of his shoes abroad, told The Hindustan Times.
Munjal clearly understands the Indian buyer – the Hero part of the former partnership looked after Hero Honda's sales and marketing in the joint venture, and also gave inputs to Honda's research and development (R&D) team in Japan to makes bikes for India.
Numbers, too, support Munjal's reading. The 100-125 cc segment grew 3 per cent between April and June. The 125-150 cc segment grew 64 per cent, 200-250 cc grew 50 per cent, and 250-350 cc grew 40 per cent (Royal Enfield has a 99 per cent share here). The 125-250 cc segment is dominated by Bajaj Auto.
To break away from the 100-125 cc niche, in 2013, Hero bought a 50 per cent stake in US-based Erik Buell Racing (EBR), a specialist in heavy-engine racing bikes spun off from a Harley-Davidson owned company.
What happened thereafter was, in Munjal's words, ''unfortunate'' - EBR filed for bankruptcy in 2015.
EBR had committed 17 products to Hero. It delivered 12 - bikes which required minor technology upgrades. But there were also five new products. Hero acquired these projects for $2.8 million. The HX250R, a 250-cc sports bike, and Leap, the electric scooter, were nearing completion, and Munjal is now reviewing them.
Meanwhile, ''we have built capabilities … we started working on products in those ranges, segments and portfolios at CIT (Hero's R&D centre near Jaipur),'' says Munjal.
He has the financial muscle to backup his plans. Hero's market capitalisation is currently Rs64,954 crore - that's more than the gross domestic product (GDP) of Goa and Nagaland put together. In 2014-15, it generated Rs 2,250 crore of cash, and Munjal announced an investment of Rs 3,000 crore for new products.
He hired Markus Braunsperger, the man behind Splendor iSmart, from BMW, as Hero's chief technology officer. Two new premium products have been developed under his guidance - Xtreme 200S (S stands for sports) and the XF3R. Both these product have new platforms -industry jargon for the basic structure of a vehicle. Each platform can have two-three motorcycles.
''My appointment was not just to look at where we are right now … eventually people will move from 100-cc bikes to premium ones,'' says Braunsperger.
However, this is not the first time that Hero is trying to get a chunk of the premium motorcycle market. It already has six products, but an abysmal 3 per cent market share. Some of the bikes will be phased out next year. ''We will have new products in the 200-250 cc, and slowly go up to 300 cc and so on,'' says Braunsperger.
To help Braunsperger, in June, Munjal appointed Malo Le Masson from Infiniti, Nissan Motor's premium car brand, to head Hero's new product planning. Masson is already working on designs for premium bikes. ''We will have a family of higher capacity premium motorcycles to balance that side of the portfolio,'' he claims.
Munjal also wants to enter the US and European markets, which are dominated by high-end bikes. There is a market for 150-300 cc bikes, used mainly in intra-city commute, waiting to be tapped there, says Braunsperger. EBR was Hero's distributor is America. Munjal is now contemplating going there all by himself, else, the company will have to look for a new partner.