Livemint: September 06, 2016
New Delhi: Hero MotoCorp Ltd has developed three motorcycles for Africa as it seeks to establish itself in overseas markets, six years after the company ended a partnership with Honda Motor Co. that restricted exports.
Powered by 100cc, 125cc and 150cc engines, the Dawn brand of motorcycles will go on sale in some African markets by March, with a large focus on Nigeria, the region’s largest two-wheeler market, according to Hero MotoCorp’s annual report for 2015-16.
“Entering new markets such as Nigeria and brand building in western Africa will be our focus in FY 2016-17,” Hero MotoCorp, India’s largest two-wheeler maker, said.
In 2010, Hero and Honda ended a 26-year partnership that had kept Hero Honda models outside export markets. After the separation from the Japanese giant, Hero has been seeking to make a mark in overseas markets.
The development of Dawn 100, Dawn 125 and Dawn 150 is the first step in bolstering its position in Africa. The company sells two-wheelers in 29 countries.
Hero will also look to cater to the bike taxi segment in the African market and the designs of the Dawn series of two-wheelers are suitable, said a person with direct knowledge of the matter.
“The two-wheeler taxi market is huge in all these three markets,” the person said, adding that the Dawn series will be sold in markets including Nigeria, Kenya and Tanzania.
“Industry size put together of these three markets itself is close to 1.5 million annually,” the person added.
A spokesperson for the company declined to comment. Hero will share specific details at an appropriate time, the spokesperson said.
To be sure, a global slowdown in prices of commodities such as oil and metals has hit mineral-dependent economies in Africa and across the globe, while importing countries such as India have benefited.
This has led to a slump in dollar inflows to African markets, putting pressure on the balance of payments position of these countries.
The exposure to currency risk has hit some Indian companies, especially automobile makers, a majority of which rely on African markets for their shipments.
The main impact has been in Nigeria, where the local currency, naira, has depreciated more than 50% after the Nigerian central bank on 20 June allowed the currency to float freely, removing the exchange rate peg at 197 to the dollar. On Monday, the naira was trading at 315.25 to a dollar.
Currency fluctuations have been a problem for rival Bajaj Auto Ltd for the past three years, said Mahantesh Sabarad, deputy head of equity research at Mumbai-based brokerage firm SBI Cap Securities Ltd.
“Exports (for Bajaj) have been de-growing. We don’t know the country-wise break-up. That’s the sense we get. Therefore, African foray of Hero at this juncture is not timely,” Sabarad said.
Hero will be wary of that.
It has an ambitious export plan that is crucial to the company’s chairman and managing director Pawan Munjal’s dream of turning Hero, which was primarily an Indian company until 2010, into a global two-wheeler maker.
In 2012, Hero announced that it was looking at $10 billion of sales in five years with unit sales of 10 million, out of which 10% was to come from exports.
Later, in 2014, it revised its projections upwards to sell 12 million units by 2020 without disclosing export targets.
On the exports front, the company is far from achieving even its initial target.
In 2015-16, its exports grew 5% to 210,409 units.
“Targets have been kept at 300,000 units, for 43% growth during the year,” the company said in its annual report.
The company will focus on key markets such as Sri Lanka, Nepal, Bangladesh, Colombia and Nigeria. It will push sales of scooters in Nepal and Bangladesh while the 100cc motorcycle segment will be targeted in countries such as Sri Lanka, Bangladesh, Colombia and Nigeria.
“Somehow, of all the things that Hero has done, exports have been their weak link despite their assertion and aspiration,” said Sabarad.
“We have not seen any material impact so far. In Africa, you have Bajaj and TVS (Motor Co. Ltd), Hero’s later entry may not move the needle for the company though it has been doing much better in Latin America,” he added.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.