Hero Moto’s Gujarat plant faces delay on land issues

Hero MotoCorp has pushed back its plans to start production at its fifth plant in Gujarat by a year to the second quarter of 2014-15, as it faces delays in land acquisition. Only about half of the 250-acre plot has been acquired so far for the factory, where the two-wheeler market leader is investing around R1,100 crore for a total capacity of 1.2 million units a year.

"We are still acquiring land in Gujarat. Around 130 acres have been acquired from the government while another 120 acres are still in the acquisition process. The delay was because the state went to the polls towards the end of 2012. The Rajasthan plant would start in the second half of FY14, while the Gujarat plant should start in Q2, FY15," CFO Ravi Sud said at an investor call following the announcement of Q3 results last week.

The plant was to start in the second quarter of FY14, according to the plan announced last June by MD & CEO Pawan Munjal after signing the state support agreement with Gujarat. The Gujarat plant was to start right after the fourth plant in Rajasthan began operations in the first quarter of the same fiscal. Combined with the three existing plants at Dharuhera, Gurgaon and Haridwar, these two new plants would take Hero's totalcapacity to around 10 million units, from just under 7 million.

"The Rajasthan plant should take annual capacity to 7.7 million units in FY14, which should go up to 8.4 million units in FY15," Sud added while highlighting the production plans.

Plans to rapidly expand capacity come as Hero looks to guard its leadership position — 43% market share in two-wheelers (December 2012) — from erstwhile partner Honda and long-time rival Bajaj Auto. In fact, Honda has already staked its claim to the number one spot by 2020, with around eight plants (five new) and a domestic annual capacity of 10 million units being planned.

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