Asia > Southern Asia > India > Hero targets Rs6,000 crore revenues from spare parts business

India: Hero targets Rs6,000 crore revenues from spare parts business

2015/05/07

India’s major two-wheeler manufacturer, aims to generate as much as Rs.6,000 crore, or about 10% of its annual revenue, through sales of auto parts by 2020, three people familiar with the development said, requesting anonymity.
The company started selling motorcycle components in 2013. It later announced a plan to set up a world parts centre (GPC) in Rajasthan with an investment of Rs.1,050 crore.
“The business has received tremendous response. In 2014-15, revenue from the parts business reached Rs.1,800 crore,” said a person familiar with the development, who declined to be named. “We aim to grow it to Rs.6,000 crore as we grow our sales and expand to various markets across the globe.”


The company has as well hired The Boston Consulting Group (BCG) as a consultant for the project, which Hero MotoCorp has internally named “Speed”. BCG has as well been asked to identify other high-increase areas. A spokesperson for Hero MotoCorp declined to comment on financials.
An auto maker typically gets into the spare parts business to “avoid the multiplicity of margins and duplicity of taxes” at various levels, said Mahantesh Sabarad, deputy chief of research, SBI Cap Securities Ltd.


“The parts supplied by component makers are sometimes sold at three times their original cost,” he said, and added, “Hopefully, GST will be of help.”
At the GPC, Hero makes some components on its own and procures others from vendors, a second person familiar with the project said. Currently, Hero makes 15% of the components that go into its motorcycles and sources 85% from vendors; 5% of the components are imported. The company sells the packaged components under the brand “Hero Genuine Parts”. The company has as a lot of as 80 distributors across the country. Some of its two-wheeler dealers as well sell components.


Two years ago, Hero created a separate vertical to promote this business by carving it out of the marketing, sales and customer care division. Sanjay Bhan, who before headed marketing, was put in charge of the auto parts business.
Typically, any auto maker generates 7-10% of its annual revenue from its spare parts business. “In that context, Hero’s numbers look reasonably good,” Sabarad added.


Right presently, 35% of the spare parts business has by presently been shifted from Hero’s warehouse in Gurgaon to the GPC and it aims to complete the transition by July-August. “The idea is to run it as an independent business unit,” said the third person cited above.
What remains unclear is how Hero’s parts business will affect its relationship with auto parts suppliers.
But Hero does not intend to increase production of components at the GPC; rather it is banking on the sales of its two-wheelers to grow the parts business.


Hero has sold as a lot of as 50 million two-wheelers in the country and aims to sell 100 million by 2020, which will be crucial for the increase of its parts business. “We have not even covered 30% of our total sold units in the market. So, the potential is huge,” the initial person cited said.
In August 2013, Hero announced plans to enter 50 markets by 2020 with a target of 20 manufacturing facilities across the globe and in general annual sales of Rs.60,000 crore. It aims to get 10% of its annual sales from overseas markets, or around 1 million units by 2017.

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