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Hero scouts for technology partner

June 03, 2011 11:50 IST

After termination of the joint venture with Honda Motor Corporation (HMC), the world's single largest two-wheeler manufacturer Hero Honda has begun scouting for partners globally to source technology and designing expertise.

Chief Financial Officer, Hero Honda Motor Ltd (HHML) Ravi Sud said, "We are looking at tie-ups to source technology for aggregates such as engines and transmissions and have initiated talks with a few companies. We are also in discussion with design houses." Most of these firms, he said, are based out of Europe and Japan.

The measure is significant since prior to the termination of the joint venture, Honda supplied technology to Hero Honda, while the Munjals-promoted Hero Group marketed the products.

Last December, the Hero Group and Honda had agreed to end their 26-year-old joint venture Hero Honda, with the Indian partner agreeing to buy out Honda's 26 per cent stake in the company for Rs 3,841.83 crore (Rs 38.41 billion).

The company is further upping investment to develop its own research and development capability.

Sud added, "We have 175 engineers working at our R&D centre in Dehradun. While the designs came from Honda, our engineers worked on developing and testing prototypes along with HMC. We have experience and will work on enhancing our capability in design and development."

Hero Honda is looking at investing Rs 250 crore (Rs 2.5 billion) in R&D activities in the current financial year.

"According to the industry norm, 1.2-1.5 per cent of net sales is invested in R&D initiatives. We will follow a similar guideline," he said.

HHML had invested around Rs 32 crore (Rs 320 million) in R&D in 2009-10. The arm would look at developing an indigenous motorcycle in due course.

Anil Dua, senior vice-president (sales & marketing), HHML said, "Developing our own product is a vision and it will happen eventually. An entire team works on developing a product. We may develop a product ourselves or in collaboration with a partner."

In the meantime, the company has worked out a new licencing agreement with HMC, which would enable it to source new products from the Japanese auto major till June 2014.

Hero Honda will continue the practice of launching seven to eight models every year. Of these, there will be one or two new products, the remaining will comprise refreshes and variants.

"We will, of course, focus on the mass commuter segment, but we will be dynamic in other categories as well. Our sales in the premium segment grew 30 per cent last financial year. We will adopt a multi-focal approach and continue to create strong brands like Splendor, Passion, CD Deluxe and Hunk," said Dua.

Hero Honda is looking at selling 6.15 million units in 2011-12, an increase of 14 per cent over the 5.4 million units it sold last year.

The company, which has a combined capacity of over 6.15 million units across its three plants in Dehradun, Gurgaon (Haryana) and Hardwar (Uttarakhand), has earmarked an investment of Rs 500 crore (Rs 5 billion) to set up a fourth facility in course of the current year.

Dua, while declining to specify the location of the new plant, said, "The investment would happen very soon. We are working at 100 per cent capacity and we would require the new facility for sales next year."

Another Rs 100-400 crore (Rs 1 - 4 billion) has been kept aside to remove bottlenecks at the existing facilities.

The company has also commenced work to put in place a distribution network to export products overseas in the coming months.

"In our existing exports' market we will strengthen our presence. We are in talks to put in place distribution networks," he said.

The company is looking at exploring markets in South Africa, South Asia, Latin America for exporting products.

Hero Group's joint venture with HMC had earlier prevented it from scaling up exports globally.

Sharmistha Mukherjee in New Delhi
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