The Hero Group (Munjals’) Business Empire

The journey for the Hero Group began when Brijmohan Lall Munjal started as a bicycle maker along with
his three brothers Om Prakash Munjal, Dayanand Munjal and Satyanand Munajal in the 1940s. The group
officially came into existence in 1956.

Genesis:
By late 1970’s Hero group had managed to acquire license for mopeds- thus marked the venturing of the
company into 2- wheeler business. In order to start manufacturing Hero entered into talks with French
two-wheeler company Peugeot for a technological collaboration, but the talks failed. After this, Hero
went on further to make its own Mopeds largely based on the Peugeot machines designed in India. In
few years, Hero Majestic became a household name in the country, and by 1983 Majestic Auto Ltd,
India’s leading manufacturer of Mopeds captured ~35% of the Indian moped market.
In 1971 Munjals setup their own rim-making division for Hero Cycles & launched another company
called as Highway Cycles. After the onset of Highway Cycles, Hero Cycles restructured & streamlined in
order to expand rapidly. Within the next 6-7 years, the production at the Hero Cycles plant doubled such
that in 1975 Hero Cycles became the largest manufacturer of bicycles in India. By 1983 Hero hit another
milestone by collaborating with automobile company Honda of Japan. The JV Company, incorporated as
‘Hero Honda Motors Ltd’ rolled out their first motorcycle ‘CD100’ in the year 1985. Within a span of 5
years, the company touched 100,000th motorcycle produced by it.
The biggest milestone was in the year 1986 Hero Cycles registered with Guinness Book of World Records
as the largest bicycle manufacturer in the world; with production of ~19,000 bicycles per day. Amidst
success in the business front, yet another tragedy struck the Munjals when Raman Kant Munjal,
Brijmohan’s elder son who was instrumental in setting up of Hero Honda died suddenly in June 1991. His
death brought a huge shock to the family & Brijmohan who had retired from the business got back into
the business with his younger son Pawan Munjal. Moving along with loss, the group underwent further
diversification & expansion.
In the year the family split 4 ways, the cross-holdings realigned in a way that each family member gets
ownership of the business which they managed. Brij Mohan Munjal’s family got 26% stake in Hero Honda
Motors while Om Prakash’s sons got to control & mange Hero Cycles. Satyanand Munjal’s son got
Majestic Auto, Highway Cycle, Munjal Auto & Munjal Showa; sons of late Dayanand Munjal got Sunbeam
Auto & Hero Exports. By the yaer 2016 Sunil Kant Munjal opted out of Hero MotoCorp to focus on Hero
Corporate Services, a company that he owns. The founding members of the Munjal group- the Munjal
Brothers left for the heavenly abode within a year. OP Munjal passed away on August 13, 2015, while
Brijmohan Lall Munjal on November 1, 2015 and Satyanand Munjal passed away in April 2016.
Growth:
According to Kavil Ramachandran, executive director, Thomas Schmidheiny Centre for Family Enterprise
at the Indian School of Business, what worked for the Munjal family in its succession plan and its
execution over the years is their clear vision for pre-B M Munjal and post-B M Munjal era. "The family
has been deeply involved in the operations of the business with clarity in role of the family members,"
said Ramachandran. The succession planning and its execution were spread out over years with the
transition handled by the senior Munjal himself, helped mitigate any bumps on the way, said analysts.

There could be a lesson or two for those in the middle of the Bombay House battle on how B M Munjal
handled the transition and transfer of power in his $6 billion group to the next generation.

India's track record in succession planning and transfer of power, late Brijmohan Lall Munjal (B M
Munjal), the founder of $6-billion Hero Group and the two-wheeler major HeroCorp, could give a lesson
or two on how to go about any succession transition.

As the Hero Group prepared for life beyond its 26-year-old joint venture with Japan's Honda Motor
Company, B M Munjal first went about untangling cross-ownership of the family in the group's various
businesses.

Post the settlement, the B M Munjal family retained control over Hero Honda, Hero Corporate Services,
Rockman Cycles Industries, Hero Mindmine Institute, Easy Bill and Hero Management Service. Elder
brother Satyanand Munjal's son Yogesh Munjal took charge of Munjal Showa, while Ashok Munjal, son of
late Dayanand Munjal, controlled Sunbeam Auto.

A year later in 2011, B M Munjal and family bought out the Japanese joint venture partner to strike out
on its own under the flagship brand Hero MotoCorp. The group augmented its global presence to sell
products in 34 countries across Asia, Africa, Central and South America. Plans are now afoot to expand
its international presence to 50 countries by 2020.

In August 2014, B M Munjal gave up the chairman's position to Pawan Munjal, while Sunil Munjal
continued to remain joint managing director of the company, while being chairman of Hero Corporate
Services.

Then, nine months after the demise of B M Munjal, the family decided to realign its businesses. Sunil
Kant Munjal quit the Hero MotorCorp board, while he continued to lead other Munjal family businesses
such as Hero BPO, Mindmine, Hero Realty, and Hero Corporate Service.

"The fact that the splitting of the family business did not have any negative impact on the flagship two-
wheeler brand is a huge positive," said a Mumbai-based auto analyst who tracks the group closely. Sunil
Kant Munjal is now expected to lead the group's foray into sectors like defence, power and realty.
Gen-Next:
Abhimanyu Munjal takes up the story: “They wanted local knowledge and technical know-how; what
they didn't expect to find was an Indian business that was already more advanced in 'Just In Time'
manufacturing processes than they were. When they came to our factory they found no inventory. We
didn't store finished goods, and we didn't store raw materials. They told us this was 'Just In Time' – as far
as my grandfather was concerned, it was just smart business practice. And that's why they gave us the
contract, even though we weren't the biggest player. The first motorbike rolled off the production line in
1984, and today we are the largest manufacturer of two-wheelers in the world, making about 6.8 million
motorcycles a year, and we're well on the way to becoming a global brand."

There are five members of the current generation working in the Hero Group, and the family has
empowered each of them to come up with their own idea for a business, to sit under the Hero umbrella.
"We were all given that chance, the family has faith in us and gave us the freedom to create something
of our own, as long as we meet certain criteria in terms of investment returns, and so on."As a result
Hero has become extremely diversified, from renewable energy, to education, to electronics, as well as
the original motorbike business, and - in Abhimanyu's case - financial services.

"After university in the UK, I worked for two international banks for a couple of years before joining Hero
in 2007. But it then took me five years to find my passion. I started with an idea for an insurance
business, which didn't work, then I was in the auto components division for a while, but I knew it wasn't
my real niche. So I went to my family, and asked them for money to set up a 'next generation' approach
to financial services. They considered it, and reluctantly agreed, and that's how Hero Fincorp was born.
Since then, I've been involved in every part of the business from designing the strategic plan, to hiring
every single employee. And in the last four years we have been incredibly successful."

There's clearly an advantage having the Hero name behind the business, but there's a big responsibility
too: "It's scary sometimes, how much one wrong decision can dilute the brand. People think it's easy for
people in our family, but there's so much more riding on everything you do, and it would be a much
bigger deal to fail as part of the Hero Group than to fail as a small independent start-up. The outside
world looks at you very differently too, and they're watching your every move so you're juggling a huge
number of different expectations - your family's, your employees', and the external world's as well."

But being part of a successful family business has enormous advantages too: "The fast decision-making,
the nimbleness, the agility of the company are all major positive factors, as is the engagement your
employees feel because they're part of 'the family'. But on the other hand, change management is a
challenge - the family may be reluctant to do things differently because they've been doing it that way
for 30 years. But life is dynamic. It's not the same as it used to be. Our generation wants to go digital, use
more technology, take more risks. But family firms are good at taking risks. And in many ways it's easier
for our generation because technology is a fantastic enabler, which makes it easier to do business at a
lower cost. That's why I love what I do: success is the most addictive drug in the world. There's nothing
like it."
Governance:
They started looking for growth opportunities. That was the time when major industries were reserved
for the public sector in India and private enterprises had to get licenses to start smaller businesses. They
chose to produce bicycles and got a license to produce a fixed quantity. Though demand was good, they
could not produce enough bicycles to sell. The main bottleneck was shortage of critical parts, which were
imported from the United Kingdom.

Build Partnerships:

To overcome the shortage of parts and improve production, the Munjal family began to talk to friends
and relatives to set up a business to produce bicycle parts. They offered these entrepreneurs knowledge
support and a purchase agreement. If Ludhiana is today considered to be a hub for cycle manufacturing
in the country, it is to a large extent on account of the partnerships that the Munjal family created. In
1984 they formed a joint venture with Japan's Honda Motor to build motorcycles. The joint venture,
which lasted 25 years, created the largest motorcycle manufacturer in the world.

Corporategovernance:

Even before many in the country understood the term, the Munjals began practicing it. "We told our
friends and relatives setting up businesses producing various bicycle parts that the dealings will be at an
arms' length. They will have to produce quality products and will be paid the right price. They were also
told that the family would not be making any equity investment in any of the ventures," Munjal said.