- Naveen Munjal, MD of Hero Electric Vehicles, has the rights to sell EVs under the Hero brand, as per family pact
- Analysts say the family pact offers Hero MotoCorp a chance to create a new range and grow its customer base-------------------------------------------------
A family pact may force Hero MotoCorp to drop the Hero brand name and coin a new tag if it chooses to introduce electric two-wheelers and exploit a government push towards eco-friendly vehicles.
Pawan Munjal, promoter and Chairman of India’s largest two-wheeler company, is currently prohibited from using the Hero brand to sell any electric scooter or motorcycle under a Family Settlement Agreement of the New Delhi-based Munjal family finalised in 2010, said three people aware of the development. The agreement was to split the multibillion-dollar Hero empire comprising business verticals including automotive among various family members.
As per the agreement, Naveen Munjal, a cousin of Pawan Munjal and promoter and Managing Director of Hero Electric Vehicles Pvt, was vested with the rights to use the Hero brand for selling electric vehicles in the domestic market.
The agreement also states that any other member of the Munjal family cannot use the Hero brand for any new venture that might compete with the existing businesses of the other family members, said the people cited earlier, who declined to be named as the matter is sensitive.
Hero MotoCorp, the flagship business of the Munjal family, has been developing two electric scooters, but the company is yet to announce plans for their commercial launch.
A spokesperson for Hero MotoCorp said it has a range of popular two-wheeler brands such as Splendor and Passion and also showcased an electric scooter, the Hero Duet E, at the Delhi Auto Expo in 2016.
“Similarly, going forward, we will continue to bring new products—also on new technology platforms — which we may choose to give different names — but all under the umbrella Hero brand. Accordingly, we will continue to sell our products — irrespective of their respective brand names—from our own dealerships," the spokesperson said in response to emailed queries. The spokesperson did not comment on the 2010 pact and whether the company can sell electric two-wheelers under the Hero brand.
A spokesperson for Hero Electric did not respond to emailed queries.
Hero Electric has been facing tough times in recent months as sales nosedived since the implementation of strict localization norms by the Union government for producers of eco-friendly vehicles to avail subsidies under the second phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme.
The first person cited earlier said that as per the 2010 agreement, “members can use the Hero brand only for existing businesses, which means Hero MotoCorp doesn’t have the right to the Hero brand when it comes to electric vehicles”.
The person said, however, the family pact is unlikely to dampen the prospects of Hero MotoCorp as it might create a new brand for its electric two-wheelers or the issues might be resolved “within the family". Also “some of the auto companies have already stopped using the mother brand on their products. So, there will be some way out of this", the person added.
The second person cited earlier said Hero Electric may not have come out with convincing products in the electric vehicle space and has already struggled to comply with the localisation norms under the FAME scheme but has the right to use the Hero brand for eco-friendly ventures, which includes electric vehicles.
“Both the companies will either find a solution to coexist or Hero MotoCorp might have to remove the brand from its products. It remains to be seen if they can sell those electric two-wheelers from their existing outlets, which are branded as Hero,” the person said. “Also, Hero MotoCorp has been working on a couple of projects in the electric space but they have never made any announcements regarding them. This may be one of the reasons why they don’t want to rush into electric."
The development assumes significance as policy think tank NITI Aayog is considering a proposal to ban all internal combustion engine-driven two-wheelers under 150cc by 2025 and three-wheelers by 2023. Hero MotoCorp, the biggest maker of two-wheelers below 150cc, along with Honda Motorcycle and Scooter India Pvt, will be hit the most, if such a blanket ban or a partial shift to electric wheelers comes into effect.
Analysts said the family agreement offers Hero MotoCorp a chance to create a new range of products and grow its customer base.
“It is a terrific opportunity for Hero MotoCorp to create a fresh new brand, with the core idea, promise and values very different from Hero. That will help them reach out to an individual who does not appreciate or aspire for what Hero stands for," said Avik Chattopadhyay, founder of Expereal. “It is not a roadblock or a problem at all. And this new brand need not be sold from a traditional showroom at all. It will belong to the Hero group, but will not have anything to do with the Hero brand."According to a 2017 study by the Automotive Component Manufacturers Association of India and German consulting firm Roland Berger, almost 34.5 percent of total two-wheeler sales volume in India has the potential to be converted into electric.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.