Hero Cycles will surprise its customers soon, says Pankaj Munjal
Pankaj Munjal is dreaming big and taking the world’s largest bicycle maker, Hero Cycles, into areas that it has never ventured into
It’s a little over a year since Pankaj Munjal became the chairman of the OP Munjal Group and its flagship company, Hero Cycles, is already making smart moves and showing promising results. The world’s largest bicycle maker by volumes sold over 1.2 million units in the first quarter of this financial year. That apart, it made three acquisitions to strengthen its brand positioning in India as well as its global reach.
In March 2016, it acquired a 60 percent stake in BSH Ventures, a Sri Lankan bicycle maker. Prior to that, in September 2015, it took over Firefox Bikes for Rs 150 crore to fortify its position in India’s premium cycling space. This came on the back of its August 2015 acquisition of a majority stake in UK-based Avocet Sports to enter the high-end bicycle market of Europe—its first overseas acquisition. Hero Cycles plans to close three more acquisitions this year.
In another significant move, the group engaged with consulting firm Boston Consulting Group (BCG) to chalk out an aggressive growth strategy, which includes investments in its hospitality arm and acquisitions of established brands to enter new, global markets. The group will also launch a new vehicle for urban mobility this year.
Besides Hero Cycles, the OP Munjal Group has an auto parts manufacturing business under Hero Motors Ltd, ZF Hero Chassis Systems Pvt Ltd and Munjal Kiriu Industries Pvt Ltd; a hospitality arm, Munjal Hospitality Pvt Ltd, and a luxury home decor brand Oma.
The group had a topline of Rs 2,591 crore for the year ended March 31, 2016, and is eyeing revenues of Rs 8,000 crore by 2019 with investments of Rs 1,000 crore across its various businesses. Munjal, 53, tells Forbes India that he is visibly excited about the growth prospects of Hero Cycles given India’s and the world’s love for cycles. Edited excerpts:
Q. What makes you bullish about the cycles business?
There are four social issues that concern all of us today: Congestion on roads, India being the diabetes capital of the world, burning fossil fuels and [degradation of] the environment. Bicycles eliminate all four problems. Stockholm, for instance, has become a car-free city. Cars are not efficient for going from point A to B; you burn fuel, you occupy space and the vehicle emits carbon monoxide. Urban mobility is going to see a change. The way we have known cycles and their shapes are constantly evolving. We have cycles ranging from Rs 3,000 to Rs 4 lakh. We have grown by 23 percent in the last quarter and it’s not on a small base. The market saw a growth rate of 7 percent.
Q. How are you breaking into rural markets where many people cannot afford a cycle?
A few years ago, we had to go to a village from Azamgarh, Uttar Pradesh. We had to get off the car because there were no motorable roads. There, we met a man who used to milk cows and sell the milk; his wife would knit and sell yarn. That’s how life was for the 1,000 people living in the village. There was no cinema hall, no paanwala, no cycle repair shop. This is the Bharat that’s untapped. There are 400 million people who cannot afford a bicycle [in the country]. But last year, we sold 1 lakh bicycles [in such rural markets] and we expect to sell 1 million (10 lakh) of them this year. The growth rate from zero to 1 lakh is huge, but it’s even steeper from 1 lakh to 1 million.
We approached microfinance institutions (MFIs), but they said it’s unviable for them to follow up on a Rs 3,000 loan. The processing fee for a Rs 5 lakh loan is the same, but the EMIs for the two are different. So, these MFIs have started bundling products. A villager buys a solar torch, his wife a sewing machine, and a cycle apart from that… so the bundling would be a loan of Rs 15,000. The business is very lucrative now and our rural penetration is rock solid. We are moving Bharat… we are moving the bottom of the pyramid.