Post Honda, Hero Group to split R&D unit into 4

The Hero Group plans to spruce up its research and development wing for bridging technology deficit following the severing of ties with Japan’s Honda Motors.

The company has decided to break up its research and development (R&D) wing into four independent verticals, which would look into product development, research, design and production.

The move comes amidst fears that although Hero Honda’s two-wheeler brands and marketing & distribution network can do well without Honda’s support, the technology gap could play the spoiler.

According to sources, the Munjals are looking at hiring expatriates for the new technology set-up. Hero Honda’s R&D associate vice-president Harjeet Singh would be heading this division and reporting directly to managing director Pawan Munjal.

Eventually, the group could also look at forging a technological alliance with another foreign partner.

“Hiring experienced expatriates would be the first step towards forging an alliance with a foreign partner. The strategy would be two pronged: sourcing technology from a third party while developing its own indigenous R&D network,” a company official told FE.

A company spokesperson, however, did not reply to an email query on the subject. Following Honda’s exit, analysts have maintained that the Hero Group would have to quickly identify a technology partner to be able to upgrade its emission norms to Bharat Stage 4, which would become mandatory for two-wheeler manufacturers by 2015. “The company still has four years to develop it. This would require heavy investments in R&D which could impact its bottom line in the short-run,” the official said.

As per the current understanding between Honda Motors and Hero, the technology pact would continue beyond 2014, however the royalty pay out would decrease gradually. In fact Hero would not be paying any royalty on the existing products after the deadline.

“The royalty going forward will be in line with what we pay now and we will not be paying any royalty on existing products after 2014,” Hero Honda chief financial officer Ravi Sud said last month during a conference call with analysts.

Angel Broking auto analyst Vaishali Jajoo said, “This is a sound step by the company. It needs to improve R&D soon to be able to maintain its dominant position in the market”.

The Hero Group is also revisiting its corporate strategy. While the company has lined up plans for exports under a new brand name, it is also looking at entering new product segments. As part of this strategy, Hero would first enter the three-wheeler segment and later launch small four-wheeled commercial vehicles. This would bring Hero in direct competition with Bajaj Auto, which is the market leader in the three-wheeler segment.