Hero MotoCorp to pump in Rs 2,575 cr to expand capacity

Company to set up two greenfield facilities in Rajasthan, Gujarat Country’s largest two-wheeler maker, Hero MotoCorp, on Monday said it will invest Rs 2,575 crore over next two years to expand its capacity by two million units and build a research and development (R&D) wing. The company will set up two greenfield facilities in Neemrana, Rajasthan (750,000 units per annum) by June 2014 and Gujarat (1.8 million units annually). The two plants and R&D centre will create over 3,500 jobs, the company said. The investment will be funded through internal accruals. With fresh expansions, the Hero MotoCorp’s capacities would go up to 9 million units per annum. The company will invest Rs 1,100 crore in the Gujarat plant while another Rs 400 crore in Rajasthan plant during the first phase. The company’s R&D centre to be located in Kukas in Rajastan will host a test track and will cost about Rs 400 crore. Another Rs 500 crore has been earmarked by the firm for expanding output at existing three factories in Dharuhera, Manesar and Haridwar. The combined output of the three existing plants will increase to seven million units per annum by the end of the current financial year. “We have chosen Gujarat and Rajasthan over others as we will get financial benefits from these states. We are bullish on the market and we believe this is the right time to invest in capacity so that we are ready to meet demand in future. These plants will also increase our proximity towards the southern part of the country,” said Pawan Munjal, managing director and chief executive, Hero MotoCorp. The company will launch a new 125 cc motorcycle named Ignitor in the next two days to boost its presence in the segment, Munjal said. The model will compete with Bajaj Discover, Honda Shine and Suzuki Slingshot. The company did not disclose the price of the model. Hero MotoCorp is also looking to increase its export volumes by 25 per cent (at 240,000 to 250,000 units) this financial year over last year’s 119,000 units. The company will start exporting Hero branded products to Central America and Africa including Brazil form July to September 2012 quarter. At present, it exports two-wheelers to nearby regions such as Bangladesh and Sri Lanka. “At many of these places we will set up assembly plants through CKD (completely knocked down) units. In places such as Brazil we will look at a manufacturing plant because volumes are good,” Munjal said. Overall export sales will be around one million units in 2015-16, Munjal added. Meanwhile, Hero MotoCorp board on Monday approved a proposal to merge Hero Investments (HIPL), the group investment arm with the two-wheeler firm. The Delhi-based Munjal family owns 52.21 per cent in Hero MotoCorp through HIPL. HIPL’s share in Hero MotoCorp consists of investment firm headed by Hero Group patriarch Brijmohan Lall Munjal named Brijmohan Lall Om Prakash (BMOP) that owns 43.33 per cent shares while another investment company Bahadur Chand Investment (BCPL) owns 8.67 per cent shares. After the merger, BMOP will hold 31.04 per cent in Hero MotoCorp while private equity players US-based Bain Capital will hold 8.58 per cent, Singapore-based Lathe Investment will own 3.71 per cent, the company said. Bain Capital and Lathe investment purchased stake in HIPL during March 2011 and these investments were used by Hero MotoCorp to repay Honda Motor’s 26 per cent stake valued at Rs 3,841 crore. The merger is subject to Delhi High Court approval. “The merger of HIPL into Hero MotoCorp is going to benefit the public shareholders of Hero MotoCorp, as this will result in increase in the public float of Hero MotoCorp by 12.29 per cent,” the company said. Ravi Sud, chief financial officer, Hero MotoCorp didn’t provide the timeline by which Bain Capital and Lathe Investment would eventually exit the company