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How Hero taught itself to stay high without Honda

business Updated: May 16, 2016 11:48 IST
Sunny Sen
Hero MotoCorp

Hero MotoCorp’s chairman and CEO Pawan Kant Munjal says a leader has to be a leader everywhere(PTI)

In March, Hero MotoCorp’s chairman and CEO Pawan Kant Munjal was showing a bunch of journalists around at his research and development centre in Kukas, near Jaipur, in Rajasthan. Standing atop a watchtower, Munjal waved his right hand in a sweeping gesture that covered 16 kilometres of test tracks, and said: “Every single vehicle of Hero will now be developed here.”

There are 500 engineers working at Kukas, 100 more are to join. Many of them are working on premium motorcycles — an area where Hero has been trying to catch up with rivals. “I am not happy with small market shares, a leader has to be a leader everywhere,” says Munjal.

He is a soft-spoken man, seldom given to dramatic gestures. But to those who have followed the story of Hero’s partnership with Honda and their separation, Munjal seems to be answering a forecast by a Honda honcho.

Guardian of garages

Three years ago, Shinji Aoyama said that by 2015-16, Honda might overtake its erstwhile partner in India. The Japanese automobile giant’s chief operating officer’s prediction was based on sound reasoning.

The Munjals of the Hero group and Honda came together in 1984 to form Hero Honda, in which they held equal equity stakes. It went on to become the world’s single-largest motorcycle maker. All the while, the motorcycles and their technology was Honda’s, Hero looked after marketing, distribution, and dealerships.

By the time Aoyama made his prediction about overtaking Hero, the two companies had been separated for two years. Honda’s wholly-owned subsidiary, Honda Motorcycle & Scooters India (HMSI), formed in 1999, had become the largest scooter maker in the country and was making rapid strides in motorcycles. Aoyama was not the only one betting that HMSI would overtake Hero MotoCorp (the name the Munjals gave their company after the separation).

Honda was not leaving any stone unturned. In cities, HMSI opened dealerships in the vicinity of Hero’s. Hero was strong in villages, so Honda opened more dealerships there. It hired Akshay Kumar as its brand ambassador to counter Hero’s Ranbir Kapoor. Aoyama told a newspaper that Honda was gaining market share every month, and ‘someone’ was losing, a trend that would continue.

Except that markets, particularly those in India, tend to show a mind of their own. The year 2015-16, in which HMSI was to overtake Hero, ended with Hero boasting a 52.4% share of the motorcycle market; HMSI has 14%. This despite Hero’s not launching a single new motorcycle since the separation. If you throw in scooters, where HMSI has been dominant since it began its ride in India, the market share game is still comfortably in Hero’s favour — 39% to 26%.

“We were prepared to face everything — loss of market share, fall in stock prices, and decline in revenue and profits,” said Munjal in an interview to HT last week. For three years, over 162 meetings, one every Wednesday, he discussed with his team what the fallout could be. “It was like a chess game, calculating every move… We would not have new technologies or new products, but we had to maintain and grow sales.”

Munjal needed the loyalty of his partners. On the day he announced that Hero would be on its own, he met all his component suppliers. The next day he met 150 dealers. “An Apple or a Google is up there, but where did they start from? Garages. And we are in everyone’s garage,” Munjal said to his dealers and suppliers.

Government employees bought more when the Pay Commission award happened. So Hero reached out to them with easy finance. When the two-wheeler market slowed down, there was still demand in big villages. Hero tied up with micro-financiers and cooperative societies to provide loans to farmers. Hero Honda FinLease, which gave loans to Hero’s component makers and dealers, became Hero FinCorp and started offering loans to customers. With these, Munjal won his first battle — Hero remained the market leader, but he knew that it wouldn’t remain so without technology.

Tech it seriously

Soon after separating with Honda, Hero extended the warranty on its motorcycles from two years to five — a statement of faith in its technology, even though it was still Honda’s technology. That prevented loss of market share. Next, Munjal embarked on a `850-crore programme to build his “boulevard of wheeled dreams”, the R&D centre at Kukas. He hired former head of BMW’s R&D, Markus Braunsperger, to head it. February’s Auto Expo saw the first fruit of this labour: an indigenous 110cc motorcycle called Splendor iSmart.

Some of Munjal’s early bets went wrong. Erik Buell Racing, in which Hero picked up 49% equity, filed for bankruptcy. Hero wanted to make premium motorcycles and hybrid vehicles with EBR.

“It is a big setback. We lost time,” says Munjal, though Hero has managed to showcase an electric scooter. And it is going to international markets with a vengeance.

“We are in 30 markets now, from four in 2010,” says Munjal. His voice is soft as always. But he could again be answering to distant voices. Going international was another ground on which Hero split with Honda.