R. N. Bhaskar

The 'Majestic' Munjals

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Cover Feature
BusinessIndia April 21-May 4, 1986

Excerpt from: Bicycle Reference Manual for Developing Countries. Edited by Barbara Gruehl Kipke, April 1991.

Beginning as small time bicycle traders in 1943 the Munjals of Ludhiana are today the largest makers of bicycles in India and one of the leading manufacturers of mopeds. Now, with its collaborators Honda of Japan, the group is all set to become a leader in the two-wheeler market within the next couple of years, with a turnover of over Rs 300 crore.

It's almost like a rags to riches story - a small tune family ending up very big indeed. At present the Munjals of Ludhiana control an empire with a colleclive turnover last year of over Rs 143 crores, which is slated to cross Rs 300 crores by mid-1987. Today the Munjals' Hero Cycles is the largest manufacturer of bicycles in India with one-third of the market share, Hero Majestic is the third largest among moped manufacturers with 20 per cent ot the market share, and Hero Honda is poised to become the largest motorcycle manufacturer in India.

Behind these successes lie some very basic factors that make tor corporate excellence - shrewd management techniques, ancillarisation, and the development of a strong, dynamic marketing team with an excellent relationship with the retail network. Theirs is a pursuit of excellence, not the way the Harvard Business School teaches it, but in tune with the way things eventually work in India.

Like most successful groups in India the Munjal group oi companies is also dominated by members oi the Munjal family. At the head of the group is 63-year-old Brijmohan Lall Munjal. In 1943, his father Bahadur Chand Munjal and four sons (two of his sons began doing business only at a much later date) began their career as bicycle traders in Amritsar and Ludhiana. As the market grew in size, Brijmohan Lall managed to persuade the family lo move into the manufacture of handlebars, chain, wheel cranks, frame lugs and pumps for cycles in 1951. In 1956, by which time sales had crossed the Rs 25 lakh mark, the Munjals began to manufacture complete cycles.

As Lall reminisces, "In 1956, the government of India opened the floodgates by allowing as many as 52 new entrants lo manufacture a maximum of 5,000 cycles a year each." This was in addition to those already in the field (see box 1). Hero Cycles itself had a capacity of 7,500 cycles a year.

"When we look back now we can only smile. What we produced then in one year, we now produce in a day," says Lall's son, Sunil Kant Munjal, who is presently in charge of Hero Fibres, another unit of the group which manufactures synthetic fibres and acrylic yarn. Today Hero Cycles has not only overtaken all other cycle manufacturing companies in India - it produces more cycles than the UK, France, Holland or Belgium - it also boasts of the highest productivity per worker and the cheapest cycle in the country.

By 1978, the Munjals moved into the manufacture of mopeds sold under the name Hero Majestic, and by 1984 got Honda Motor Company of Japan to enter into an equity collaboration with them to manufacture 100 cc motor cycles to be sold under the name Hero Honda. It was this collaboration that brought the group into the limelight.

What made them succeed where others did not? The successful evolution from making spare parts to making cycles, and from there to making mopeds and motorcycles - thus becoming a significant presence in the light engineering industry - can be attributed to three vital factors.

The first is the strong financial control the Munjals have exercised all alone. "All trough we have tried to plough back as much as we could into our companies," says Lall. He points to the family's simple life style. "We live in the same large house in Ludhiana that we bought in the fifties," says Lall. "Even the new generation foreign cars we now move around in were acquired only two years ago and that too when we began having guest~ from abroad who were potential collaborators," he says.

The group has maintained an extremely sound debt equity ratio all along. Even as late as 1985 the group's companies had a debt equity ratio of 0.8:1. "It wasn't even that much till 1980," explains Suresh Shetty, deputy general manager (finance), Hero Honda. "Till then the company hardly borrowed any money at all. The real borrowing began only when Hero Fibres was set up in 1980. Even today if you look at the group's capital structure, you will find that Hero Fibres alone accounts for 78 per cent of the total term loans totalling Rs 6.15 crores (excluding Hero Honda of course). The borrowings of the other concern is negligible."

Raman Kant, Lall's elder son, who is the managing director of Hero Honda, points out that the promoters (both Honda and the Munjals) pushed in their share of the capital one year before the public issue. "Our company thus got around Rs 6.2 crores for one year without interest," he says. "That is one more reason why, in spire of our issue opening in the wake of the Delhi riots following Mrs Gandhi's assassination, it was oversubscribed around 11 times."

He also points to the way the project got ready for trial runs within a year without any cost overruns, reflecting the same concern with management of funds and time that had been in evidence while the other Munjal companies were being set up. Their financial conservatism was in some measure responsible for the absence of any real diversification fill 1978, when manufacture of mopeds began.

The second factor in their success is the group's philosophy of striving to supply the best quality product at the cheapest price possible. Today a Hero cycle is sold at around Rs 437, making it the cheapest cycle sold in the country.

Hero Majestic mopeds too enjoy the same distinction. They cost around Rs 3,000 to Rs 3,235 as against the Rs 3,060 to Rs 4.400 Luna manufactured by Kinetic Engineenng, and the Rs 3,795 IO Rs 3.970 TVS 50 manufactured by Sundaram Clayton Lld. Hero Honda motorcycles cost Rs 13,800 (Delhi) to Rs 14,712 (Bombay) inclusive of accessories, compared with the Rs 13,910 to Rs 14,512 of Ind Suzuki (excluding spares). Shetty goes on to point out how Hero Honda has achieved a fuel efficiency of over 70 km a litre against not more than 45 to 50 km a litre he claims is achieved by the competitors.

A crucial factor that has given the grpup its competitive edge is their highly successful move info ancillarisation. In fact, soon after Hero Cycles was set up, the Munjals began looking at the quality and price of vital components that went into the manufacture of cycles. For instance, aware of how supply of chains was irregular and the quality not good enough, the Munjals set up Rockman Cycle Industries Pvt Ltd to manufacture chains and hubs. Today Rockman manufactures 15,000 chains a day. Similarly, when the group found tnat the quality of free wheels that they purchased from local manufacturers was also rather poor, they decided to set up Highway Cycles Industries Ltd in 1971 to manufacture free wheels. Today this unit produces about 19,000 free wheels a day; around 20 per cent are meant for the markets in West Germany, UK and the US.

At the same time, to cut costs further, Highway Cycles also began modifying exisiting machines to make special purpose machines for the manufacture of components for cycles, mopeds, and now motorcycles. "These machines have helped us either in reducing costs, improving quality, or even in increasing productivity," says Umesh Munjal, executive director, Highway Cycles.

He points to the rotary milling machines as one example of how four of the new machines helped phase out 40 of the older ones. This has helped us increase our productivity over ten times what we used to achieve earlier. Moreover, the machines developed by us cost hall of what the conventional machines cost us," he adds. He also talks of how the machines have helped to achieve better quality products, and reduce the rejection rates. Over the years this unit has made over 150 special purpose machines which it has 'sold' exlusively to other units within the group - call does not intend selling them in the market. "At present, for instance, at least 30 per cent of the machines in Majestic Auto Ltd are those that have been developed and made in Highway Cycles," adds Umesh. Today, according to him, at any given time at least 15 special purpose machines are in the process of manufacture at this unit, while another 10 are in the designing stage.

Besides such units within the group, there are others that the Munjals have started, outside the group. These outside units fall into two catagories: the first, where the Munjals or their relatives actually own and run the units, and the second where the Munjals provide technical and financial support to friends and associates outside the circle of the immediate family.

The first category includes units like Munjal Gases set up in 1963 to help Sadanand Munjal set up in business. In this case the Munjal group contributed 50 per cent of the new venture's capital of Rs 40 lakhs. While the Munjal group has a stake in Munjal Gases, Sadanand and his descendants have none in the companies belonging to the Munjal group. Today this unit, with a Rs 70 lakhs turnover in 1984-85, supplies oxygen, nitrogen, and more important, aceteylene gases to the Munjal group of companies.

Similarly, another relative, Balamukand Munjal, was helped to set up a unit to manufacture saddles for cycles and mopeds. Again, the group has no stake in this unit. And like the gases unit, over 60 per cent oi this unit's production of saddles is used by the Munjal group of companies.

Group growth

*Low on account of writing off of Rs 75 lakhs capital expenditure on research and development.

Missing Table. Please contact me, if you are interrested in this table.

Then there are other units whose status is not clearly defined, like that of Munjal Castings (turnover for 1984-85 Rs 1.96 crores) Jnrl Munjal Steels (Rs 45 lakhs). This is because as these units technically come under the smallscale sector.

Explaining why the unit was set up, Ashok Munjal of Munjal Castings says, "There are very few units in India which can do quality aluminium die-casting jobs in the small-scale sector. This is because of the government policy which insists that manufacture of aluminium die-cast components below 750 gms is reserved for the small-scale sector." This presents a problem, because to get quality jobs done, a unit needs basic machines which cost over Rs 25 lakhs (not including the cost of tools, furnace premises and installauon costs), while to remain small-scale a unit's outlay should not exceed Rs 35 lakhs. He also points to the need to go in for all kinds of sizes of aluminium die-call components and castings if the unit is to be viable. Obviously, the Munjals need to have such a unit and are yet unable to have it on the scale they want.

While these are units run and managed by the direct descendants ol Bahadur Chand Munjal, there are almost 25 other units which the Munjals have promoted with technical, and even financial aid. The beneficiaries in this category are friends and not-so near relatives like jatender Mehta of Omax Auto which makes sprockets for Majestic Auto (and very soon for Hero Honda as well, or Jagdish Lal Raheja of Jyoti Industries (crank forgings) or Arvind Kapur of Rico Auto Industries Ltd (hubs and brake panels). The Munjals helped these entrepreneurs in the preparation of feasibility reports, developing special purpose machines to cut costs and ensure quality, and even helped with pricing decisions.

Not a small part of the Munjals' success is attributable to the relationships they have established with these ancillary units. Unlike what is conventionally understood by the term ancillarisation, where the purchaser merely approves the quality and price of the goods supplied by the ancillary unit but is otherwise uninvolved in their management, the Munjals have managed to exercise a much greater degree of control over these units. Their commitment to these units, and the degree of technical and manageriaI support they provide, is reflected in the fact that each unit is visited by a member of the family at least once a week.

Efficient management of ancillary supplies is in fact one of the group's greatest strengths. The Munjals take a very active role in ensuring that these ancillary units adhere to production schedules, that quaIity standards are Iaid and adhered to, and that the products are priced right. Often, the Munjals even help these ancillary units in the procurement of raw materials like steel, by clubbing these units' requirements with their own.

In this they are very much like the Japanese. Indeed, Honda Motor Company's senior executives say they felt very much at home with the Munjals' way of doing things - their close relationship with ancillary units, as also their methods of inventory control and their general work culture - which was certainly part of the reason they chose the Munjals as one of their Indian collaborators.

Ancillary manufacturers like Mehta of Omax and Kapur of Rico also talk of the way the Munjals have taken care not to let ancillary units feel stunted or too controlled. Such a view is articulated by Sunil Kant when he says, "We don't let any supplier of ours suffer. In case we teel he wants to grow, we even help identity growth areas for him. But at the same time we try not to depend on just one source of supply an to ensure that we always have a fall back."

What Sunil Kant says reveals the iron hand within the velvet glove - if an ancillary gets too dillicult to go along with, be it run by relatives or friends, the Munjals have always made it clear that they would not be too unwilling to develop alternate sources of supply.

That the Maunjals have been able to do this successfully for the last three decades speaks volumes for their management skills. In doing so they have departed with conspicuous success from the conventional beliet that busness should be run as business and that it is bad practice to permit encroachment by friends and relatives. The Munjals have time and again developed such connections and demonstrated that a rigid insistence on quality, price and delivery schedules is not incompatible with doing business with relatives and friends. And contrary to the belief held by some management pundits that a good manager should only select a supplier and then leave him manage his own business, the Munjals have instead shown the advantages of active participation ever in the day to day management of their ancillary units.

In order to ensure that ancillaries' supplies are not disrupted, the Munjals ensure that such units maintain raw material inventories of at least 15 days to 2 months. In turn they ensure that these units do not face stockpiling by litting finished goods almost every day.

Such practices have helped the ancillary units enjoy a regular cash flow (the Munjals settle bills every second week), as well as allowed the group to maintain average raw material inventory levels of not more than 7.5 days. While in some cases like that of steel stops the inventory goes up to one and a half months, in the case of ancillary goods like saddles or pedals, the inventory levels are as amazingly low as just two hours.

As in the case of ancillary units, finished goods do not stay within the plants for more than 12 hours. "This is no magic, but a process of harmonising," says Sunil Kant. Through trial and error we've honed our systems to this level of efficiency," says he. And nowhere is this better visible than at Hero Cycles, where the 7000 cycles produced every day are despatched by over 500 trucks every evening. By nightfall not a single cycle (save may be rejects) is left behind. "We don't have a godown. We don't want one - that would go against our syslems," says Lall.

This has in turn helped the Munjal group of companies maintain a healthy cash flow position. Till two years ago, before the polilical turmoil in Punjab began, letters of credit had to be opened before despatch of cycles and mopeds was made. Now, though despatch is done every day, payments come in within two 'weeks' time. At present only Hero Honda motorcycles enjoy advance bookings for as long as eight years.

Interestingly, when a computer manufaclurer approached the Munjals seven years ago to persuade them to computerise, he reportedly found that in at least 6 of the 14 departments of the Munjal companies, computerisation would have helped only marginally.

Now however, the Munjals have drawn up an ambitious programme for computerising to cope wilh the volume of work that has grown over the last two years. The first phase of this programme (expected to cost around Rs 60 lakhs) should be over by end 1986 and will be aimed al computerising accounts. A similar amount will be spent on the second and third phases of the computerisation process which will involve costing and production planning and later intelligence operations and planning CAD/CAM operations, all of which, according to Sunil Kant should be possible by end 1987. "We expect this process of computerisation to pay back the investments made in three years time by sheer improvement in efficiency alone."

Group financial profile - 1985

(Rs Iakhs)

Missing Table. Please contact me, if you are interrested in this table.

Family Tree

Late Bahadur Chand Munjal

Missing Table. Please contact me, if you are interrested in this table.

"To ensure that the introduction of compu ters will not wrinkle the work culture in the group companies we, have already begun holding exposure classes to explain the concept and to remove fears" says Sunil Kant who has emerged as the corporate planner and the most articulate spokesman for the group. To retain the culture that has enabled the group companies to function without a single days' loss of work (save 14 days afler operalion Blue Star when traspont facilities came to a grinding halt and a couple of days recently after the Ludhiana killing), the Munjals plan to induct no more than two EDP experts for proramming. "The best of the work will be done by the existing workforce which will be given the required training," says Lall.

Besides the obvious benefits to ongoing operations thal computerisation should ensure, it is the new and the most prestigious project of the Munjals, Hero Honda Ltd, that is expected to make a dramatic difference to the group's bottom line. By June 1986, Hero Honda should achieve a turnover of Rs 42 crores from sales of over 40,000 motorcycles (its bookings exceed 7 lakhs, which should take eight years to meet). By mid-1987, sales should cross Rs 82 crores from the 75,000 vehicles that are expected to be produced. And if informed sources are to be believed, the company is shortly expected to apply for doubling its licenced capacity from the present one lakh motorcycles per annum to two lakhs.

At the same time, the Munjals are going ahead full sleam for selling up Munjal Showa Ltd at a cost of Rs 12.5 crores for manufacturing 2 million shock absorbers every year, all of which are expected to cater to Hero Honda's needs and add another Rs 16.5 crores to the groups turnover by end 1987.

Expansion plans for Hero Cycles costing Rs 3.5 to 4 crores are also on the anvil according to which wheel rims will be manufactured each year (60 per cent to cater to the entire requirement of Hero Honda). A similar expansion at Highway Cycles at a cost of Rs 5 crores will produce pressure die-call parts (60 per cent of which will cater to Hero Honda's total requirement). All these developments are expecled to add Rs 40 to Rs 44 crores to the group's turnover in two year's time.

Another major expansion planned is that of increasing Majeslic Auto's capacity from 1.1 million mopeds to 2 I million mopeds. Most of the expanded capacity will be used to manufacture 'Poke' mopeds in collaboration with Styler Daimler Puch of Austria which Lall regards among the world's best as far as mopeds are concerned. These mopeds are expected to cost around Rs 1,500 more than the present range of mopeds. This venture should more than double this unit's turnover to around Rs 70 crores and make the Munjals also the largest moped manufacturer in India. Though the expansion plans have been okayed by the government, the project cost has yet to be worked out with Styler Daimler Puch.

Major bicycle manufacturers of India

Missing Table. Please contact me, if you are interrested in this table.

All these together should push the group's turnover to more than Rs 300 crores by end 1987. Market observers believe that once the expansion plans materialise, they should make the Munjals market leaders not only in cycles, vihich they are now, but also in mopeds and motorcycles.

That is, if everything goes right. Source close to the family point out that the Munjals have stayed together essentially hecause of Lall. Once his active involvement is no longer there, will the group remain a cohesive one or will it, like almost all Indian families splinter? While this is a question only time can answer, the fact remams that if the past is anything to go by, the Munjals clearly have a 'majestic' future ahead of them.