Hero MotoCorp to buy minority stake in EBR

Hero MotoCorp, the world's largest two-wheeler maker, will buy a minority stake in US motorcycle firm Erik Buell Racing (EBR) for an undisclosed amount.

"We have a flexible free-flowing pact with EBR, which would be developed into a equity partnership," Hero MotoCorp MD and CEO Pawan Munjal said. The move is aimed at securing uninterrupted technological support from the US racing motorcycle maker once associated with iconic brand Harley-Davidson.

After Hero parted ways with Japanese major Honda, its partner for 27 years, last year, industry watchers had identified lack of cutting-edge technology as the biggest challenge for the Indian firm to hold on to its leadership position in the market. Hero had last week announced a technology tie-up with EBR, its first partnership after splitting with Honda.

By buying a stake, Hero can have a higher say in the US marquee firm and use the partnership to get a foothold in overseas markets. As we turn global, which is our long cherished aim, EBR is a strategic fit that will help us gain traction in overseas markets," Munjal said.

He refused to give the financial details of the deal. The overseas investment, likely to happen early next fiscal, will be a step forward for the cash-rich company in its effort to get out of the shadow of Honda, which has become one of its toughest rivals in the domestic market after the March split.

Hero sells over six million twowheelers every year in India where it holds 56% market share. Under the joint-venture agreement with Honda, Munjals-owned Hero was restrained from exporting vehicles.

"We would look forward to have both technological alliance and partnership with Hero Moto-Corp in the future," EBR chief promoter Erik Buell said, adding, "A marriage would lead to huge synergies in the long-term." EBR has an annual capacity of 15,000 units. Hero has not ruled out more such partnerships.

"We are open to all options as we move into being a diversified automotive company," Munjal had said last week. While Hero was restrained from tapping foreign markets, other Indian two-wheeler makers, such as Bajaj Auto, have made successful forays overseas. Bajaj, which started as a minority shareholder in Austria's KTM, is now its biggest overseas investor with 40% stake.

After the collapse of the Honda JV, Hero has started setting up sales and distribution channels cross Africa, Latin America and Southeast Asia for its motorcycles and scooters.

The Munjal-family that owns 52% stake in the company plans to increase its exposure to overseas market which it wasn't allowed until 2010 by Honda that operates 28 motorcycle production bases in 21 countries (as of April 2011) globally.

Hero is largely India based entity with over 98% of its sales limited to the domestic market. The ownership in the American company is expected to enable Hero to develop fresh technology and churn out new products faster as it compete with its erstwhile ally Honda amongst others.