Hero MotoCorp: Introduction
Hero Company or officially known as Hero MotoCorp Limited is an Indian multinational scooter and motorcycle manufacturer company, and it was formerly known as Hero Honda Company. Hero Company, which is currently headquartered in New Delhi, India, was previously known as Hero Honda Company as it was a joint venture between Hero Company of India and Honda Company of Japan. Currently, Hero Company is the largest two-wheeler manufacturer in India as well as in the world, and the market share of this company is about 31.7% in the two-wheeler Indian market. As per the latest report of May 27, 2021, this company's total market capitalization worth was USD 7.8 Billion (Approx INR 59,600 Crore). The shares of this company are currently listed and traded on NIFTY, Bombay Stock Exchange (BSE), and NSE (New York Stock Exchange).
Hero MotoCorp: History
Early Days and Foundation
After mutually deciding to have a joint venture between Honda Company of Japan and Hero Cycles of India, Hero Honda formed and started its operations in 1984. After a smooth running of the business by this joint venture, Hero MotoCorp decided to merge the investment arm of the parent company with the automaker. To implement this decision, Hero MotoCorp passed (later approved it too) a proposal regarding merging the investment arm of Hero Investment Private Limited, the parent Hero company, with the Hero automaker company. It is a very interesting fact that this decision from Hero MotoCorp came just 18 months after the split of Hero Honda into two different companies.
At first, Hero was a brand name that was used by the Munjal brothers (founders of Hero company) for Hero Cycles Limited, the flagship company of the brothers. In the year 1984, a joint venture to launch the Hero Honda Motors Limited company was established between Honda Motors company and Hero Limited at Dharuhera, India. Both Honda Motors group and the Munjal family initially owned an equal share of 26% in the newly formed Hero Honda Motors Limited.
After the formation of Hero Honda Motors Limited company in 1984, the company started introducing two-wheelers (specifically motorcycles) in the Indian market, which became very popular among Indians in a very short span of time because of their low cost and fuel economy. The company wanted to grab all the Indian customer's attention about the cost-effectiveness and lower-fuel consumption features of their motorcycles, and therefore, it chose the mass media platform to reach out to the maximum audience. 'Fill it - Shut it - Forget it', company's popular slogan at that time, was based on company's advertising strategy to emphasize more on the company's motorcycles fuel efficiency which helped the company to grow at a double-digit pace since its formation. It not even took two decades for the company to become the biggest brand in the Indian motorcycle market, and it was the year 2001 when the company became the largest two-wheeler manufacturing company in India as well as globally. The company became so successful even after that, and it is still maintaining the global industry leaders to date. The technology used in the bikes manufactured by the Hero MotoCorp company (earlier by the name Hero Honda) came from the Japanese counterpart Honda for almost 26 years (1984-2010) since the formation of this two-wheeler company.
Renaming of the company and ending of the Joint Venture
From the late 2000s, the news about the termination of the joint venture between Hero Company and Honda Motors Limited started circulating in the market. It was circulated that the joint venture between the two companies would be terminated soon so that both companies could focus on different sectors of the Automobile industry. Finally, an official confirmation of this news came at the end of 2010 (December 2010), when the board of directors of the company released a statement in which they stated that Hero Honda group had decided to terminate the joint venture of the two companies in a phased manner. In this phased manner of termination, it was decided by the board of directors that Hero Company would buy out the 26% stake of the Honda in JV Hero Honda. When this joint venture was formed between the two companies, there was a clause added to the contract, and according to this clause, Hero Group of India was not allowed to export to international markets except for some countries. Following is the list of countries in which Hero group of India was allowed to export their automobile as per the clause of the joint venture between the two companies:
When this joint venture between the two companies was ended, it also meant that this clause was also stood forfeited, and Hero Group was now able to export its two-wheelers to the international market. But from the very beginning of the company, Hero Group of India always relied on its Japanese counterpart Honda Motors Limited for the technology used in their bikes. That's why the termination of this joint venture would also mean that the Hero company cannot rely on Honda Motors Limited from now onwards.
Through a complete series of off-market transactions, Honda's counterpart of the Hero Honda Motors Limited company exited the joint venture between the two companies and gave an additional 26% stake to the Munjal family, who already held a 26% stake in the company. The main reason stated by Honda Motors Limited for the termination of this joint venture was that the company now only wanted to focus on its independent, fully owned two-wheeler subsidiary. And following this plan, HMSI (Honda Motorcycle and Scooter India) Limited company exited the joint venture of Hero Honda Motors Limited and got over INR 6,400 Crore. The amount 'INR 6,400 Crore' paid for the stakes of Honda Limited in the joint venture was so huge, and its current value stands for USD 160 Million or INR 120 billion as of 2020. Even though Honda Motors Limited paid such a huge amount for exiting the joint venture between the two companies, still the shares of the company held by Honda Motors Limited were sold with a discount between 30% and 50% to the current value of the stake hold by later in the joint venture as per the price of the stock after the market closed on 16 December 2010.
In the joint venture, many differences were rising between the two partners, and gradually these differences started emerging in the market as an irritant. Because of a complete variety of issues, these differences between the two partners started emerging many years before the joint venture was terminated. Following are some common differences that were started raising between Hero Company and Honda Motors Limited many years before the split:
All these differences in later years resulted in multiple disagreements between the two partners of the joint venture, and finally, these disagreements started to become irritant for both partners (especially for the Japanese counterpart, Honda Motors Limited). Therefore, both partners mutually agreed that these differences were only causing a loss of customer base for both the companies, and that's why these joint ventures should be terminated so that both partners can effectively run their business.
Therefore, many agreements were made between the two companies to end their joint venture, and as per the agreement, a two-leg deal was proposed by which the partnership between the two partners would end strategically. According to the first part of this deal, the Munjal family, led by Brijmohan Lal Munjal group and also leading Hero company, planned to buy out the entire stakes of the Honda Motors Limited in the joint venture. As per the first part of the deal, the Munjal group formed an overseas-incorporated SPV (special purpose vehicle) corporation, which was specially incorporated to buy out the entire stakes of the Honda Limited. Bridge loans from various financial institutions backed this overseas-incorporated SPV of the Munjal group, and with the help of this newly incorporated SPV, Hero company was able to purchase off all the stakes of Honda Motors Limited in the joint venture. When this SPV was incorporated, it was primarily opened for private equity participation, and this participation included Carlyle Group, Bain Capital, KKR (Kohlberg Kravis Roberts), and Warburg Pincus.
New Company Formation and Development
When the joint venture between the two partners ended on December 16th, 2010, it was only a matter of time before the brand identity would be changed from Hero Honda Motors Limited. Everyone was waiting for the new name and identity of the company since the termination of the joint venture became official on the date described above. The Munjal group, who was managing the Hero Company, was also looking for a new identity and name along with a new logo for the company. This new identity, along with the name & logo, was very important because, according to the termination agreement, the company cannot do business with the Hero Honda name furthermore. Therefore, to continue business in the market and regain the lost customers, the company was looking for a new identity as soon as possible. The company was looking for many designers all over the world who could recreate the company's identity along with a new logo. Finally, the company was able to find a firm that could do the company's work.
Munjal group finalized Wolff Olins, a Britain-based firm for designing and recreation, for recreation of the company's identity and a new logo for the company. After a few months' wait, it was decided that the company's name would change to Hero MotoCorp Limited. Finally, on July 29th, 2011, the company officially announced that the name was officially changed to Hero MotoCorp Limited from Hero Honda Motors Limited. The new logo for the company was also developed at that time, but this logo was officially revealed after two weeks after the announcement, on August 9th, 2011, in London, UK (United Kingdom). The official revelation of the company's logo was held to coincide with the third test match between England and India. With these changes and developments occurring in the company, many restrictions were also removed from the company with the termination of the joint venture and the formation of a new identity for the company. Following are some major changes seen in the company with the formation of the company's new identity:
Hero MotoCorp Limited is now looking for small automaker manufacturers in the neighboring countries to form a joint venture with them in their native country so that the company can supply vehicles manufactured by them in that country. Following this plan, the company announced its plan of INR 254 crore (the current value of this fund equals USD 45 Million or INR 345 Crore as of 2020) on April 21st, 2014. According to the company's plan, with this fund, the company would come into a joint venture with Nitol-Niloy Group, an automaker group in Bangladesh, for the next five years. In this joint venture, Hero MotoCorp Limited would set up their plants in Bangladesh so that they could supply vehicles manufactured by them in Bangladesh. Even though the plan of incorporation of the manufacturing plant in Bangladesh was officially announced in 2014, the plant started production three years after the announcement (in 2017). The plant incorporated by Hero MotoCorp Limited started production of Automobiles under the name "HMCL Niloy Bangladesh Limited". As per their agreement of Joint Venture, Niloy motors, a subsidiary of the Nitol-Niloy Group, own 45 % as a secondary stakeholder of the company, and the Hero MotoCorp Limited owns 55% stake as the major stakeholder. Except for the Hero Dawn model, Hero MotoCorp Limited also updated its 100cc engine range in the year 2014 to the 110cc engine range.
Hero MotoCorp: Equity Investment
After becoming the sole owner of Hero MotoCorp Limited, mostly managed by the Munjal family, the company started to invest equity in other automaker companies from multiple nations. The company's equity investments ranged from very small to major investments in multiple companies. The company planned to capture maximum automobile markets in multiple nations through these equity investments in their native automaker company. This plan of Hero MotoCorp Limited also got success in multiple nations, and working on their plan; the company gradually invested in many small automaker companies all over the world. If a list of all equity investments made by Hero MotoCorp Limited is prepared, it will take a lot of time to prepare and read all the information from the list, and therefore, only the major investments made by the company will be discussed. Following is the description of two major equity investments made by the company in other automaker companies:
(1) Buying More than 49% shares in Erik Buell Racing:
Erik Buell Racing, racing and street motorcycles producing motorcycle company based in the United States, declared itself Bankrupt in 2015. The headquarter of Erik Buell Racing is located in East Troy, Wisconsin, United States, and it was 2015 when the company filed for bankruptcy because of multiple reasons and stated that it needed urgent funds for continuing operations of the company. At that time, Hero MotoCorp Limited acquired certain assets for INR 18.2 crore (which is roughly equal to USD 3.4 Billion or INR 26 crore as of 2020), and it also acquired 49.2% shares of Erik Buell Racing back in July 2013.
(2) Gaining Stakes in Arther Energy:
Arther Energy is a start-up automaker company that primarily focuses on manufacturing electric scooters only. In October 2016, as a series of B rounds of funding, Hero MotoCorp Limited invested INR 205 crore or USD 30.5 million in Arther Energy and gained nearly 32.31% stakes in the company. In the year 2018, the company further invested USD 19 million or INR 130 crore in Arther Energy, and with this investment, the share of the company in Arther Energy Limited grew up to 34.58 %
Hero MotoCorp: Operations
Hero MotoCorp Limited has grown strongly over the years since getting its new identity in 2011. The company incorporated its multiple manufacturing plants across the nation to increase its production. Over the years, the company started many new plants in India and increased existing plants' capacity. Apart from India, the company is running operations in various regions across the world, and not just manufacturing plants, but many Research and Development plants are also set up by the company in multiple nations to work on the latest technology. Following is the list of some popular Indian cities where Hero MotoCorp Limited's plants (manufacturing as well as R&D plants) are located:
These are the cities where the high production plants of the company are located, and now, most of these manufacturing plants are also working as the research and development center for the company.