Hero Cycles, the country?s largest bicycle maker, is looking to raise about R1,200 crore by listing 10% stake through an initial public offering (IPO) sometime next year. The company will use the funds to partly fund an acquisition of a cycle company in Eastern Europe that will be announced in January. Ludhiana-based Hero Cycles is part of the Rs 2,300-crore Munjal Holdings, which also owns auto component firm Hero Motors.
Pankaj Munjal, managing director of Hero Cycles, told FE, ?We are very close to making an announcement of the acquisition of a cycle company overseas. With one target company, we are in talks for a 33% stake, and with another for a majority share of 51%, but we are yet to decide which deal to go for. We will initially borrow from banks to finance the purchase, and then raise money through an IPO to partly retire the debt.?
Munjal also said that ICICI had recently valued Hero Cycles between R10,000 and R12,000 crore. The valuation exercise was undertaken after the four wings of the Munjal family untangled the cross-holdings across 17 Hero companies in 2010. Hero Cycles (as part of Munjal Holdings) is now under OP Munjal, father of Pankaj Munjal and brother of Hero MotoCorp chairman, Brijmohan Lall Munjal.
In 2010-11, Hero Cycles? net profit fell 44% to R162.38 crore. Its total income was up 10% at R2,046.52 crore, according to the data filed with the registrar of companies. The company has so far not filed its earings for the fiscal 2011-12. However, a sector analyst said that valuation seems to be on the higher side as it is 5-6 times the turnover. Ideally it should be around 3-4 times the turnover for these kind of firms. A clearer picture would emerge once the latest earnings data is filed by the company with the RoC.
Though Munjal did not mention the investment required for the European acquisition, he said that the buy would give Hero Cycles access to new technology and significantly expand sales of premium cycles in the higher-margin developed markets.
As part of its global foray, Hero Cycles also aims to set up a manufacturing unit in Eastern Africa, for which it is looking at countries like Kenya and Mozambique. The target is to reach 10 million unit sales by 2017, from 6 million today.
Hero has a 5% share of the 120 million global bicycle market. Exports are expected to touch 2.5 lakh units in FY14, from 1.1 lakh this fiscal. The company sells cycles under several brands such as ?Urban Trail? and ?Hero Sprint? (priced between R3,000 and R2.5 lakh).
?We feel that by recently setting up an aluminium frame plant and R&D centre in India, we now have both the cost and technology leadership to be very successful in the global bicycle market,? Munjal said.