Part of the investment would also be used in the company's foray into electric vehicles, an area where it has lagged compared to rivals Bajaj Auto and TVS Motors, which recently launched its first electric two-wheelers.
Hero MotoCorp has lined up an investment of Rs 10,000 crore in the next five-seven years towards product development, new manufacturing facilities and network expansion, as part of efforts to hold on to its market leadership position while strengthening its presence overseas.
The fresh investments announcement by the country’s largest two-wheeler maker comes at a time when the demand has slumped to a decade low, forcing several manufacturers to revise their annual capex plans. So far this fiscal year (April-January), two-wheeler sales, including that of Hero MotoCorp, have fallen over 16% year-on-year (y-o-y), impacted by the rise in prices on account of new safety and emission norms, hike in insurance premium and costlier loan rates.
Pawan Munjal, chairman at Hero MotoCorp, said over the next five-seven years, the company would aim to create mobility solutions that are relevant to customers across the world. “The Rs 10,000 crore will be utilised towards research and development of alternative mobility solutions, modern and sustainable manufacturing facilities, network expansion and brand building across the globe,” Munjal said.
Part of the investment would also be used in the company’s foray into electric vehicles, an area where it has lagged compared to rivals Bajaj Auto and TVS Motors, which recently launched its first electric two-wheelers. Hero MotoCorp, which has a market share of around 36%, aims to become a carbon neutral company by 2030, and would also make suitable investments in its facilities towards that. While competitors have put in place a clear road map as far as electric vehicles are concerned, Hero had so far remained silent on its plans.
The investments announcement at one go has happened for the first time since Hero’s separation from its partner Honda Motor Corp in 2010. Post the separation, the company has invested $600 million towards research and development unit, including setting up a facility near Jaipur, and spending another $1 billion towards product and new factories globally. Honda Motor Corp now operates with its local unit Honda Motorcycle & Scooter India (HMSI), which is the second-largest manufacturer by market share.
Since 2011, Hero MotoCorp has increased the number of factories from three to six by 2020. A new facility at Chittoor in Andhra Pradesh has also been built and production is likely to commence soon. The company has two factories outside India — one each in Bangladesh and Colombia.
As auto sales across segments — passenger vehicle, two-wheelers and commercial vehicles — have started falling since the second half of 2018 impacting revenues, manufacturers like Maruti Suzuki, Tata Motors, Mahindra and Ashok Leyland have deferred their capital expenditure as capacity utilisation fell sharply, obviating the need for more capacity creation. Hero had also cut down down its capex by `300 crore for FY20 while also deferring part of the expansion plans at the Chittoor plant. Hero’s revenue from operations fell 11% y-o-y during the quarter ended December 2019, hit by a 14.3% decline in volumes. Profits, however, rose 14.5% y-o-y at `880 crore, largely driven by sharp fall in tax cost and lower commodity prices.
The company on Tuesday showcased three products with BS-VI engines — Glamour 125, Passion Pro 110 and Xtreme 160R.