INDIA BUSINESS WORLD - APRIL 1st - APRIL 15th - 2008
HERO GROUP-ULTRA DEAL CALLED OFF, COMPANIES WIND UP BOTH TECHNICAL & MARKETING DEALS WITHIN A YEAR OF OPERATIONS
The proposed joint venture between Hero Group and UK’s electric vehicle (EV) firm Ultra Motor for electric two-wheelers is off. The two have decided to part ways within a year of launching co-branded scooters and bikes in India. While the existing technical collaboration-cum-joint-marketing deal has been disbanded, the proposed 50:50 JV announced in October’07 has also been scrapped.
Under the deal, Ultra provided the EV motor for the two wheelers while Hero Cycles, the privately held bicycle making arm of the Munjals, assembled the vehicles at its Ludhiana unit. Ultra also set up an exclusive distribution network of 150 dealers across India.
Ultra Motor chairman Joe Santana said: “Our vision did not match with that of the Hero Group. We wanted to expand at a much faster pace. The congestion in cities creates a natural market for electric twowheelers. Now, we have our own plans which is to invest Rs 150 crore over the next three years.”
Hero Cycles managing director Vijay Munjal said: “We have terminated our technical agreement with Ultra Motors. The proposed JV also stands cancelled. We have our own range of low speed EVs in the market under the ‘Hero Electric’ brand. We have a strong R&D base and we will soon foray into the high speed EV segment.” Under the previous co-branded arrangement products, two-wheelers were sold under ‘Hero Electric’ with an ‘Ultra Powered’ tag.
Pursuant to this break-up, Ultra is going to launch Ultra Motor branded electric two-wheelers independently. It will bring in motors from a production unit that it acquired in Taiwan last year, to be assembled through a Hyderabad-based partner in India. Hero Cycles is expected to bring in EV kits from China or Taiwan and assemble them under its own brand.On the reasons for the break-up with Ultra, Mr Munjal said, “We had asked for royalty for the use of the Hero brand, which was refused by Ultra. The change in Ultra management made it more difficult to continue with the partnership.”
Joe Santana, the former global CEO of Timex Group, who joined Ultra in January this year, is believed to be behind the strategic decision to go solo in India. He is also keen on acquisitions of software design business in India.
It is learnt that Ultra was unhappy with the fact that Hero did not share marketing and front-end expansion expenses proportionately as planned. While the UK-based firm, which is backed by Russian conglomerate Alpha Group besides British investors, was keen on expanding aggressively in India, the local partners was happy with a slow approach. The break-up between the two is reminiscent of the high profile corporate divorce between domestic and multinational auto makers in the past. In this case, the two decided to part ways at an early stage of their relationship.
The duo had started with a technical collaboration cum joint marketing deal for light electric vehicles, signed in late 2006. It was a precursor to a formal JV with plans of a new manufacturing facility. One of the prominent players in the nascent EV market in India, the duo had exceeded targets and clocked sales of 22,000 units in FY’08 capturing 20% market share.
The majority of the existing 150 dealer outlets are believed to have signed their letter of intent(LoI) with Ultra and will continue to be under its fold, though some may sell Hero Electric products. Ultra plans to double its network again this year to 300 dealers.
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