“Hero Cycles has reserved about 40 million euro for the acquisition of a German bicycle company and for expanding capacity of Hero Cycles,” said MD Munjal in the New Dehli Business Standard last Sunday. India’s biggest bike maker is negotiating with Mitteldeutche Fahrradwerke AG (MIFA), the German-listed maker of traditional and electric bicycles. In July 2013 MIFA announced such negotiations that would see the sub-continent’s largest maker take a minority stake in the Sangerhausen, Germany based company.
The tie-up between Hero Cycles and MIFA ranges from market access to production efficiencies. The link would allow MIFA to source frames and semi-manufactured bikes from Hero Cycles that could be fully assembled at Sangerhausen for sale in European markets. Opportunities also could arise from a know-how transfer, particularly of the automated production techniques that allow MIFA to produce around 5,000 bikes and e-bikes per day at a unit cost of around € 18.
Desire to expand international reach
Hero’s interest in MIFA is being driven by a desire both to expand its reach in international markets, as well as to boost offerings at the upper end of the product range offered for sale via its network of more than 2,200 dealers in the Indian market, according to sources close to the negotiations. Next to that Hero is searching for a production location in Europe for producing its A2B e-bikes. Hero Cycles bills itself as the world’s largest manufacturer, producing more than 5 million units annually.
Hero MD Pankaj Munjal recently
Last Sunday Pankaj Munjal said in the Indian business paper, “In numbers we are larger, but in standards and engineering there is clearly a gap. The bicycle industry is valued at USD 48 billion (€ 35bn). We are on the road to gain 5% of this market by 2018. Volume-wise, we already have a 5% share. We sell around 6 million bicycles every year in a global market of 120 million units. But value-wise, we are currently at 2.5% of the global market. We want to climb up the value-chain by making better bicycles.
“I am going to Germany to conclude a deal which will give us a larger footprint in bicycles,” continued Munjal. “We are buying stake in a company that will give us knowhow of German engineering capabilities. We will be good in products, both volume and value-wise with this acquisition. They make more high-end products but the more competitively-priced bicycles we can bring to India in the premium segment. The products will be priced between USD 100 and USD 300.
On January 21 Bike Europe reported that Hero Cycles is planning a rapid expansion in India. The company is building a new plant in the Central – Eastern State of Bihar which involves an investment of close to USD 6 million. The new facility gets a capacity of 1 million bicycles per annum with the possibility to expand.
Hero Cycles is part of the Hero Group that has sales reportedly in excess of € 1 billion. In addition to traditional bicycles, privately held Hero Group and Hero Cycles has both electric bike and motorcycle divisions, as well as interests in information technology and financial services.