Why Hero is upping capacity in a slowing two-wheeler market

Have we got it wrong here or has Hero MotoCorp seen some green shoots in the two wheeler market growth story already?

The overall market for bikes and gearless scooters has not seen much growth in 2012 and in it, Hero has reported decline in both sales and market share over the last several months. But now that Hero has remained undeterred and has gone ahead with plans to set up a fourth manufacturing facility, perhaps a turnaround in the two wheeler market may not be all that far.

[caption id=“attachment_587944” align=“alignleft” width=“380”]  Hero has earmarked Rs 550 crore investment for the factory. Reuters[/caption]

As per data released by the Society of Indian Automobile Manufacturers (SIAM), overall two wheeler industry sales growth was just 4.09 percent during April-December 2012. But during this period, bike sales were almost stagnant at 0.77 percent growth while scooters zoomed at over 18 percent increase.

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Since Hero’s portfolio primarily comprises motorcycles and it has had a rough few months with the largest selling bike, Splendor, the confidence it has shown by going ahead with a new facility could be an indication of things to come.

The company today announced the commencement of construction of a new manufacturing plant and a new Global Parts Centre (GPC) at Neemrana in Rajasthan today. Hero has earmarked Rs 550 crore investment for the factory and the parts’ centre and both facilities are expected to be operational towards the end of 2013-14, which means around March next year.

“The commencement of work on the new plant is clearly indicative of our intention and strategy for the future. Thanks to overwhelming demand for our products, we have been consistently clocking in excess of five lakh unit monthly sales on an average. We foresee a revival in market sentiments sooner than later, and when it happens, we will be ready to meet the upsurge in demand,” said managing director Pawan Munjal.

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So what Munjal is saying is essentially that growth will be back and so much of it will be back that Hero will need to produce more than it is producing today. Workers at Gurgaon plant say Hero’s three existing facilities at Dharuhera, Gurgaon (both in Haryana) and Haridwar together make around 23,000 two-wheelers a day. And the company itself has said earlier it aims to reach the 10 million unit capacity mark in the next 3-5 years.

Already, Honda Motorcycle & Scooter India (HMSI) is snapping at Hero’s heels because of new capacity which has come onstream and a new product lineup and Hero needs to be well armed with new products and adequate production capacity to take on its erstwhile partner in the domestic market besides expanding its wings in overseas markets as well.