Hero Motors Eyes Non-Auto Acquisitions for Growth

Hero Motors is evaluating acquisitions and strategic alliances outside the automotive industry as it searches for its next phase of growth. Chairman Pankaj Munjal said the new businesses could eventually become larger than the company's existing operations, although he did not disclose the sectors under consideration. The company has spent the past two years assessing potential partners and acquisition targets, including their technology, customer bases and research and development capabilities. Potential transactions are being considered mainly in North America and Europe, but discussions remain ongoing and no agreements have been signed. The diversification strategy comes as Hero Motors prepares for its maiden public offering and seeks opportunities that can deliver substantially higher growth.

Hero Motors Evaluates Non-Automotive Expansion

Chairman Pankaj Munjal said Hero Motors is considering both mergers and acquisitions and strategic alliances as part of its diversification strategy. He described the potential opportunity as substantial, saying a successful new business could be “bigger than who we are today”. Munjal declined to identify the industries being evaluated, emphasizing only that they would need to provide significantly higher growth than the company's existing activities. The company has spent approximately two years examining potential opportunities, including the technology, customers and R&D capabilities that prospective partners or acquisition targets could bring. The focus is largely on North America and Europe, while discussions have not yet resulted in signed agreements or finalized transactions.

IPO Provides Funding for Growth Initiatives

The diversification strategy is being pursued as Hero Motors prepares to launch its first public offering. The company has established a ₹79-84 per share price band for its ₹1,000 crore IPO, with subscription scheduled from September 16 through September 18. At the upper end of the price range, the offering implies a valuation of approximately ₹3,815 crore. The IPO consists of a fresh issue of up to ₹600 crore and an offer for sale of up to ₹400 crore by promoters O P Munjal Holdings and Hero Cycles. The fresh proceeds are intended for debt repayment or prepayment, capacity expansion, potential acquisitions, strategic initiatives and general corporate purposes.

Planned Use of Fresh IPO Proceeds

According to the Red Herring Prospectus, Hero Motors plans to allocate ₹190 crore from the fresh issue toward repayment or prepayment of borrowings and ₹200 crore toward equipment purchases for capacity expansion at its Gautam Buddha Nagar facility. The remaining funds are designated for unidentified acquisitions, other strategic initiatives and general corporate purposes. The prospectus also places limits on how much of the fresh proceeds can be used for these purposes. Spending on inorganic growth and other strategic initiatives cannot exceed 25% of gross fresh issue proceeds, while inorganic growth combined with general corporate purposes cannot exceed 35%. These restrictions provide a defined framework for the company's potential expansion activity following the offering.

Earlier Acquisition Plans Did Not Materialize

Managing Director and CEO Amit Gupta said Hero Motors had previously considered several acquisitions when it was planning a larger fresh issue, but those transactions ultimately did not materialize. Rather than raise capital before it was required, the company reduced the size of the fresh issue. Gupta said the company remains open to opportunities, stating, “We were earlier thinking of some acquisitions, which we were not able to do. And now, we are exploring options.” The comments indicate that the current acquisition strategy is still exploratory rather than tied to a completed transaction. The company has therefore retained flexibility to pursue opportunities as suitable targets emerge and as discussions develop.

From Components to Complete Powertrain Systems

Hero Motors' willingness to enter new businesses reflects an expansion that has taken place over roughly two decades. The company began with component manufacturing before moving into gears, transmissions, electric motors and complete electric drive systems. Munjal described this evolution by saying, “Hero Motors has evolved,” while highlighting its experience in nurturing new businesses, entering new technologies and developing joint venture relationships. Today, Hero Motors describes itself as a fully integrated powertrain systems provider, covering design, prototyping, validation, development and manufacturing for system-level and component-level products across electric and conventional powertrains. This broader capability provides the foundation for its current diversification approach.

Business Portfolio Covers Multiple Mobility Applications

Hero Motors supplies products for two-wheelers, performance cars, e-bikes, off-road vehicles, electric and hybrid cars, heavy-duty vehicles and electric vertical take-off and landing aircraft. Its customer base includes BMW, Ducati, enviolo, Formula Motorsport, HWA and Hummingbird EV, along with global e-bike manufacturers and customers in aerospace and other mobility applications. The company operates through Powertrain Solutions and Alloys & Metallics, with Powertrain Solutions divided into Gears & Transmissions and Bike Powertrain. Gears & Transmissions develops transmissions and related systems for two-wheelers, passenger cars, commercial vehicles and performance vehicles, while Bike Powertrain focuses on micro-mobility products including CVT systems, electric motors and integrated electric drive units.

Powertrain Solutions Becomes the Largest Revenue Contributor

Hero Motors' financial performance shows the increasing importance of its powertrain operations. Revenue from operations increased 9.1% to ₹1,188.35 crore in FY26 from ₹1,089.59 crore in FY25. Powertrain Solutions grew approximately 19% to ₹637.75 crore, lifting its contribution to 53.7% of total revenue from 49%. Gears & Transmissions generated ₹488.88 crore, representing 41.1% of company revenue, while Bike Powertrain revenue climbed to ₹148.87 crore from ₹81.51 crore, an increase of approximately 83%. The Bike Powertrain business was entirely EV-linked in FY26. By comparison, Alloys & Metallics revenue declined marginally to ₹550.60 crore from ₹555.35 crore.

FY26 Revenue and Profit Mix

The difference between Hero Motors' two business segments is also evident in profitability. Powertrain Solutions generated segment profit of ₹104.09 crore in FY26, compared with ₹67.57 crore in FY25. Alloys & Metallics, however, reported a segment loss of ₹15.90 crore, reversing from a ₹6.23 crore profit a year earlier. At the consolidated level, adjusted EBITDA increased to ₹160.24 crore from ₹128.82 crore, while the adjusted EBITDA margin improved to 13.48% from 11.82%. Restated profit for the year rose to ₹41.17 crore from ₹32.80 crore. The figures underline the growing contribution of the powertrain portfolio as the company considers additional investments and diversification.

EV Business Gains Greater Importance

Electrification is another major component of Hero Motors' changing business mix. EV-related revenue increased to ₹273.29 crore in FY26 from ₹175.59 crore in FY25, raising its share of company revenue to 23% from 16.1%. Three years earlier, EVs represented about 12% of revenue. Management said approximately 60-70% of projects currently under development are related to electric vehicles, while a substantial portion of R&D spending is directed toward EV and hybrid applications. Hero Motors has developed these capabilities through internal development, acquisitions and joint ventures. Its portfolio includes a majority stake in UK-based Hewland Engineering, a Yamaha Motor joint venture for electric motors, and Hero EDU Systems under the ESYNC brand for integrated electric drive units.

Global Footprint Supports International Growth

Hero Motors operates six manufacturing facilities across India, the United Kingdom and Thailand and is establishing two additional facilities in Ludhiana and Bengaluru. Its international exposure is already significant, with 41.4% of FY26 revenue generated outside India. Europe was the company's largest overseas market, contributing ₹399.22 crore, or 33.6% of total revenue, while the United States contributed ₹45.88 crore. This geographic reach is relevant to the company's acquisition strategy because management is specifically examining opportunities in North America and Europe. Existing international operations and customer relationships could provide a platform for integrating new businesses while expanding the company's access to technologies, markets and capabilities.

European Manufacturing Disruption Creates Potential M&A Openings

Munjal believes disruption affecting global manufacturing, particularly in Europe, could create acquisition opportunities for Indian companies. He said pressure from Chinese competitors and slower growth are prompting European businesses to seek new markets and lower-cost manufacturing partners. Describing the situation, Munjal said, “Europe grows, they need us. Europe does not grow, they need cost saving, they need us.” He also suggested that the current environment could make some potential acquisition targets more affordable. “A few Indian companies will make it with this new turbulence, opportunity. We are trying to be in that,” he said. The strategy therefore combines geographic expansion with the possibility of acquiring capabilities during a period of manufacturing and competitive pressure.

Hero Motors' Evolution Toward Higher-Value Systems

The company's move from individual components toward complete systems has also increased the value it captures from each program. Hero Motors said complete systems and gear sets now represent a significant portion of its powertrain business, with more than half of its Gears & Transmissions and Bike Powertrain activity involving complete systems rather than individual components. The company also identifies capabilities in continuously variable transmissions, EV transmissions, electric motors, integrated drive units and gear sets as areas of strength. Its A&M business continues to manufacture sheet-metal, tubular and machined components such as swing arms, engine guards and cylinder blocks for automotive, bicycle and e-bike customers. This combination gives Hero Motors exposure across multiple levels of the mobility supply chain.

Financial Performance Supporting Strategic Diversification

Hero Motors enters its diversification phase with a business mix that is increasingly weighted toward powertrain systems and electric mobility. Powertrain Solutions has expanded faster than the company's overall revenue, while EV-linked sales have also increased substantially. At the same time, the A&M segment has faced weaker profitability, making the continued development of higher-value powertrain activities particularly important to the company's financial profile. The IPO is intended not only to support debt reduction and manufacturing capacity but also to provide capital for potential inorganic growth. However, the company has not disclosed specific targets or sectors, meaning the eventual impact of its diversification strategy will depend on whether suitable transactions can be identified and completed.

Industry Impact & Outlook

Hero Motors' strategy could broaden the role of Indian automotive suppliers in cross-border technology acquisition and industrial partnerships, particularly if European and North American companies seek cost efficiencies or new markets. For the automotive sector, the approach also highlights how suppliers with powertrain, electrification and systems capabilities can use their existing technical base to pursue adjacent growth opportunities. The immediate competitive impact remains limited because no transaction has been signed and the target industries remain undisclosed. The next meaningful developments are likely to involve identification of sectors or targets, completion of due diligence and potential deployment of IPO proceeds. The outcome will determine whether Hero Motors can turn its international footprint and technical capabilities into a larger diversified business beyond automotive applications.

Frequently Asked Questions

What acquisitions is Hero Motors considering?
Hero Motors is evaluating acquisitions and strategic alliances outside the automotive sector, with potential opportunities mainly in North America and Europe. The company has not disclosed the specific industries or acquisition targets under consideration. Chairman Pankaj Munjal said the businesses would need to offer significantly higher growth and could eventually become larger than Hero Motors' existing operations. Discussions remain ongoing, and management has confirmed that no agreements have been signed. The company is considering both mergers and acquisitions and strategic alliances as it seeks additional growth opportunities beyond its current powertrain, mobility and component businesses.