Paul Edgerley | We’d like to be investors in Hero for 5-7 years and then we’ll exit

Building internal capability in R&D is part of the strategy and they (Hero) have made significant investments in it.

New Delhi: Bain Capital invested $550 million (Rs. 2,800 crore) in Hero Investment Pvt Ltd in March 2011. The money, a part of the Rs. 4,000 crore that the private equity firm invested along with Lathe Investment Pvt. Ltd—a unit of Government of Singapore Investment Corp. (Ventures) Pvt. Ltd (GIC)—helped the Munjal family-controlled Hero group fund its purchase of Honda Motor Co.’s 26% stake in Hero Honda Motors Ltd, now renamed Hero MotoCorp Ltd. Bain’s global managing director Paul Edgerley, who sits on Hero’s board, spoke in an interview about his firm’s partnership and expectations from the investment. Edited excerpts:

Why did you invest in Hero at a time when it was separating from Honda?

Investment goal: Edgerley says Bain Capital seeks to profit from partnering with Hero in developing in-house design and aiding its geographical expansion.

We always try to invest in situations where we feel like investing in companies that have a chance to become the market leader; and in this case, it already is a market leader.

We think that we can be a good partner in bringing in not only capital but actually can help the company in its evolution, although here is a well-established company that has got the best-in-class performance. It is going to go through significant transition with Honda leaving.

We think it is a company that will create larger shareholder value over the next five-seven years as it expands in export markets and continues to broaden its product line-up.

So it’s going to be in a situation where it needs to expand geographically and have a chance to think about bringing in design in-house. These are the areas where it would be an interesting transition for us to partner with them and help to expand the business and, hopefully, we will get an attractive financial return.

What kind of returns are you expecting from the transaction?

Generally, we target somewhere in the mid-20s kind of IRRs (internal rate of return) for any investments in that range. So it depends on how long we are going to hold the investments… so it could be two-and-a-half times the money in four-five years. (This is in line with Hero’s aim to cross $10 billion annual turnover in five-six years.)

            GAURAV KUMAR

PGDM 2^ND