The joint venture, in which Hero MotoCorp will hold 55 per cent stake and rest will lie with the Bangladeshi partner, plans to set up a new manufacturing facility which will have an annual capacity of 1.5 lakh units when fully functional by second quarter of 2015-16.
The plant in Bangladesh will be the the first full-fledged manufacturing facility for the Indian two-wheeler major outside India.
The diversified Nitol Niloy group has interests in various sectors and also markets Tata Motors' vehicles in Bangladesh.
"The commencement of our operations in Bangladesh is a significant milestone in our strategic global expansion plans. In addition to our first overseas joint venture, this is also where our first manufacturing plant outside India will come up," Hero MotoCorp MD & CEO Pawan Munjal said in a statement.
Once operational by the second quarter of 2015-16 fiscal, the plant will have an annual capacity of 1.5 lakh units, he added.
"We are aiming to have around 20 per cent of market share here (Bangladesh) in the first year of our operation," Munjal said.
Commenting on the development, Nitol Niloy Group Chairman Abdul Matlub Ahmad said the aim of the joint venture is to provide technologically advanced, innovative and fuel efficient two-wheelers for customers in Bangladesh.
Hero MotoCorp will hold 55 per cent in the joint venture while 45 per cent will be held by the Nitol Niloy Group.
"There will be a total equity injection of USD 12.6 million in a ratio of 55:45 over a period of two years. The new venture will have a capex of USD 23.2 million in the first year of its operation and a total investment of USD 40 million over the next five years," the company said.
Already, Hero MotoCorp is selling a range of motorcycles in Bangladesh through the initial 50 retail outlets.
The range of Hero motorcycles being sold in the neighbouring country includes HF Dawn, Spledor+, Passion Pro, Glamour, Hunk and 100 cc scooter Pleasure.
Hero MotoCorp, after separating from Honda in 2011, has augmented its global presence and currently sells products across 18 countries, including Peru, Guatemala, Turkey and Egypt.
The company has established assembly units in Kenya, Tanzania and Uganda in East Africa through its distributors.
Last year, the company had announced plans to enter 50 new markets by 2020 with a target of 20 manufacturing facilities across the globe with an overall annual turnover of Rs 60,000 crore by that time.
As part of its global expansion plans, Hero Moto had said it would have six assembly lines spread across three continents by 2014.
The company had said it aims to sell around one million two-wheelers abroad by 2017.
Hero MotoCorp has three manufacturing facilities in India and is set to commission the fourth facility at Neemrana, Rajasthan thereby taking its total installed capacity to over 7.5 million units.
The company, which sold 6.25 million two-wheelers in 2013-14, is also in the process of building a fifth facility in Gujarat.