Hero MotoCorp to invest Rs2,500 crore in new plant

Hero MotoCorp, India's biggest two-wheeler manufacturer, will spend Rs2,575 crore on two new factories to be operational by the second quarter of the next financial year, the automaker's managing director said on Monday.

The two new plants will take the company's total capacity to above 9 million vehicles from 7 million currently, Pawan Munjal said.

“From our perspective, this is the best time to invest, so that when growth comes in, we are prepared for it," he said.

Hero MotoCorp has also approved a proposal to merge the investment arm of its parent into the automaker, the company said, 18 months after it announced its split from Honda Motor.

Private-equity funds Bain Capital and the Government of Singapore Investment Corp (GIC), which helped fund the company's buyout of its former partner Honda last year, will take direct stakes in the company after the merger.

The investment will be funded through cash reserves of 40 billion rupees, Chief Financial Officer Ravi Sud told reporters.

Hero, which sold over 6.2 million motorcycles and scooters in the fiscal year that ended in March, has a market share of around 55 percent in the overall domestic two-wheeler market.

The Munjal family, Hero’s promoters, announced in December 2010 that they would buy Honda's 26 per cent stake in the automaker, ending a 26-year-old joint venture partnership.

In March 2011, Bain and GIC, through wholly-owned Indian units, made investments in Hero Investments, a holding company, which were used to help repay debt from the $851 million purchase of the Japanese company's stake.

After the merger, which is subject to approval from the Delhi High Court and shareholders of the companies involved, Bain and GIC will own 8.58 per cent and 3.71 per cent respectively in the automaker, the company said in a statement.

Shares in Hero, which has a market capitalization of around $6.5 billion, have risen more than 20 percent since the Honda buyout was completed in March last year.

 The two new plants will take the company's total capacity to above 9 million vehicles from 7 million currently, Pawan Munjal said.

“From our perspective, this is the best time to invest, so that when growth comes in, we are prepared for it," he said.