Last summer, Hero Cycles made its first acquisition in the UK, taking on a majority interest in Steven Walsh’s Avocet Sports. In the unfamiliarly swanky surroundings of the Four Seasons Hotel in Park Lane, BikeBiz managed to secure a chat with Chairman and MD of Hero Cycles Mr Pankaj Munjal on why the giant is now turning to the UK and Europe.
What’s the background to the deal with Avocet Sports?
Hero Cycles is a $500million group and we make close to 5.5 million cycles per year or 19,000 cycles per day. I took over from my father [OP Munjal] about four years ago after running the automotive business for Hero.
It’s an exciting time for the company and we’ve done a lot. We bought a business called Firefox from a Taiwanese owner, a year back and we bought a 51 per cent stake in Avocet Sports. We looked at these companies and realised we didn’t have the manufacturing capabilities to support them, so we bought a 60 per cent stake in a company in Sri Lanka called BSH Ventures.
The Sri Lanka facility is state of the art factory, is opening officially in May. It will look after Firefox and Avocet and strengthen the whole supply chain, from the customer to the assembler and back to the parts maker. Along with Steven Walsh, who is the driver of Avocet Sports, we looked at the market and we found a unique strength. We believe that we can serve the UK market in a manner that very few companies could do.
Our focus is on IBDs, the independent bike dealers. It is time for development in that segment. In India the big brand is Hero, the parent brand. We also have Sprint, Sprint Pro, UT and Firefox.
Will those brands come to Europe?
Do you have a timescale for that?
Steven is busy with his 2016 launches, but in Friedrichshafen we will put on a big show to promote our new range. In addition to those brands, we also manufacture and distribute components as we believe that the parts makers control the market, such as the Shimanos and SRAMs. So we have invested into a company called SPUR. It makes components for other brands, e.g. front suspension forks, BB cartridges, rims and free wheels.
Hero’s automotive arm has joint ventures with Global leaders from Japan and Germany and makes brake systems, chassis systems and transmission gears, supplying them to big automotive brands like BMW. We have good quality processes and best practices that we’ve adopted from our automotive companies SPUR will be a unique bicycle component brand based on those best practices.
Is that brand already out there?
We launched it a year back in India. All of this put together means we can make waves in the UK. We will sell hundreds of thousands of bicycles in the UK, substantially higher from last year. We will operate in all price points in the IBD market and it is our intention to open an office in London too.
So you have high hopes for the UK cycle market?
It is very inspiring. The government has done a lot. I took a picture and sent it to my Chief Minister of State and said: “Look what is happening in England. They have respected the cyclist and there is the cycle to work scheme…” We have a lot of ideas to take back home.
They have done some great stuff in London – it’s the golden example – the segregated highways they are building, etc. In Hyde Park you have people in suits and ties cycling with high vis yellow jackets. There are hundreds of them. I took a video – a picture doesn’t get it across.
The market here is growing – it is a billion pound market. In the UK, Avocet Sports has a 70,000 square foot warehouse and distribution centre in Manchester where dealers can experience over 200 products on display. Hero will help Avocet to continue to be a dominant player within the UK.
Are you looking at other countries too?
We are focussed on Europe and have been holding a series of meetings with potential acquisition targets.
Germany is a strong market, especially in e-bikes…
Agreed, but the UK will catch up. Avocet is a leader in the UK e-bike market and is introducing more models through 2016.
Are e-bikes big in India?
No. Maybe one day.
How big is Hero’s share of the Indian cycle market?
We have a 35 per cent share, with three plants in the country and now in Sri Lanka too. We have a 70 per cent share in the top end of the market.
There have been a few changes with Avocet already, in terms of rebranding and a new website. Have there been any changes behind the scenes?
There has been some investment in IT systems and office infrastructure, but Steven Walsh knows the company better than us. We are just co-drivers. He steers the ship and we support him. With our support, he has big plans for Avocet.
What are your plans for the next five years for Hero and Avocet.
It’s about the IBD focus. About 45 per cent of the market in value is down to the IBDs. Avocet has to serve the right people. We have two senior executives from Hero to support Steven Walsh. We will create value and put money behind brands.
Avocet will double – it will grow 100 per cent. Hero is behind Avocet. We have an ecosystem where we can supply and support the IBDs. Together we will succeed.