In what is likely to be Hero MotoCorp’s first investment in an overseas company, the two-wheeler maker is believed to have invested $20 million (about Rs 110 crore) into US-based Erik Buell Racing (EBR).
With the fresh funds, EBR is expected to bolster Hero’s R&D efforts in modifying existing products and work on new bike design and development. This is critical for Hero to maintain its leadership in the local market and expand globally - the technology support from erstwhile partner Honda ends in June 2014.
According to industry sources, the investment will also help EBR expand its Milwaukee production capacity and hire more people in its own R&D team.
Hero had entered into a strategic agreement with EBR this February, and had also announced sponsorship of two EBR-powered teams in a US superbike racing championship.
“An investment in EBR was expected as Hero is set to receive a lot of technological support for more powerful bikes. Till now, they’ve only sponsored the EBR racing team, which helping them by spreading the brand awareness overseas.
“The question is if Hero has picked up a minority stake in return of the investment,” an analyst with a leading brokerage said.
When asked about the developments, Hero MotoCorp did not reply to e-mailed queries.
The investment in EBR is believed to be a part of the Rs 2,575-crore funding plan announced by the company in June. While a chunk of the funds (Rs 2,000 crore) are to go into the two new plants being set up in Gujarat and Rajasthan and expansion of the three existing facilities, the rest is expected to go into R&D efforts, including a new 250-acre facility for the purpose at Jaipur.
The company has already hired 300 engineers, including expats, to boost its own R&D. Apart from EBR, it has also tied up with Austrian auto engineering firm AVL for engine development.
“In our efforts to spruce up our R&D and to build the capability for the kind of aggressive product launch plans and international expansion that we have in mind, we are looking at both organic and inorganic sources of technology capability growth,” Anil Dua, Hero’s Senior Vice-President, Marketing and Sales, had said in a investor call recently.
After separating ties with Honda in March last year, Hero for the first time started its own R&D spends. Currently, it stands at up to 0.35 per cent of the top line, but as work on its self-developed models speed up, it is expected to go to one per cent of the net turnover.