Hero Motocorp Ltd : UPDATE : Hero MotoCorp To Invest $464 Million On Expansion, Research
06/04/2012| 10:11am US/Eastern
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("UPDATE: Hero MotoCorp To Invest $464 Mln On Expansion, Research," at 1333 GMT, misstated the target region of exports in the eight paragraph. The correct version follows:)
--To invest INR11 billion to build Gujarat plant, INR4 billion in Rajasthan plant
--To invest INR4 billion in new research, development center
--To start exports to central America, Nigeria shortly
By Nikhil Gulati and Santanu Choudhury
NEW DELHI--Hero MotoCorp Ltd. (500182.BY) said Monday it will invest as much as 25.75 billion rupees ($464 million) until the end of March 2014 to build two new factories and expand research and development capabilities.
The investment plan is part of efforts by India's largest maker of two-wheeled vehicles by sales to keep its leadership position amid growing competition from Honda Motor Co., Bajaj Auto Ltd. and Yamaha Motor Co. The plan is significant also for Hero to expand its international sales as a partnership with Honda that ended early last year had prevented the New Delhi-based company from aggressively tapping into overseas markets.
Hero said the first of the two plants will be built at Neemrana, in the northwestern state of Rajasthan, while the second plant, the company's fifth facility, will come up in Gujarat, mainly to tap into the western state's ports for exporting vehicles worldwide.
Pawan Munjal, Hero's managing director and chief executive, told a news conference that INR4 billion will be invested at Neemrana with an initial capacity of 750,000 vehicles a year. A sum of INR11 billion will be spent to build the Gujarat facility that will initially produce 1.2 million vehicles a year, going up to 1.8 million in the second phase.
Both the factories are to open by July-September 2013, Mr. Munjal said. An additional INR4 billion will be invested to build a research and development center near Jaipur, the capital of Rajasthan state.
"My expectation from the two-wheeler industry is very bullish," Mr. Munjal said. "We have years and years of growth available to us."
He said Hero MotoCorp will invest INR5 billion to expand capacities at its existing three plants--two in northern Haryana state and one in Uttarakhand state, also in the north.
The company is aiming at a combined annual capacity of more than nine million vehicles by the end of March 2014 from about seven million now, Mr. Munjal said. He said also that the company will start exporting two-wheelers to some countries in central America as well as Nigeria by the end of September and is also considering building assembly plants overseas.
"Our initial focus is on markets where the volumes are large, and products can be sold with minimum changes. So right now, our existing products with suitable modifications will be made available in these new international markets," Mr. Munjal said.
He said the company is expecting a 25% rise in its international business in the first year with the new export initiatives.
Chief Financial Officer Ravi Sud said the fresh investments will be made from the company's INR40 billion cash reserves as well as the INR25 billion cash generated every year.
Write to Nikhil Gulati at nikhil.gulati@dowjones.com and Santanu Choudhury at santanu.choudhury@dowjones.com
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