Munjal’s Clean Bet: Hero Future Energies, A Third Generation Challenge

In 2013, Munjals placed their bet on diversification, a clean diversification rather. The word ‘Hero’ had become a household synonym for motorcycles in the country. It was the third generation that took the helm and the challenge of diversifying the $6 billion automobile group’s portfolio.

With no regrets of not playing an active role in his late father Raman Kant Munjal’s founded company, Rahul Munjal ventured on his own with Hero Future Energies (HFE) in 2013 and carried on the illustrious legacy of the group. Undertaking the clean task, Rahul Munjal and Sunil Jain celebrate 4 years in 2017 and are in a race to become one of the largest IPP (Independent Power Producer) in the renewable sector in India.

The core business of the company boasts of implementation of the wind, solar (Grid-connected) and rooftop solar projects in India. Coming a long way, the company today has a pipeline of 1100 MW of wind projects till 2018-19 and estimated to secure a 500 MW amount of solar projects under state and central bidding. In rooftop solar, the company has plans to implement 100 – 200 MW by 2018-19 and is optimistic about building a robust portfolio of 2.5 GW by 2020.

Asking the mandatory question, why renewables, Rahul expresses his own personal fascination with sustainability and environment. The company had been diversifying its risk profile by investing in businesses with completely different risk associations. The renewable energy business is an annuity business which is not entirely consumer driven. There is no consumer risk, this was something that we also considered before venturing into renewables”.

However, a diversification bet always comes with its own set of challenges. Rahul states how it took them quite some time to explain the stakeholders, including DISCOMs, banker and others on the feasibility of the projects and the anticipation of the falling prices. “Renewable energy was always associated being an expensive power so this was one of the challenges. Secondly, the target of 20 GW set by the government was not very well detailed, the varied policies then has now become more structured”.

However, despite the looming challenges initially, HFE always had an edge - The Hero Brand. The company has been family funded and promoter backed until recently. “Tatas, Hero and Adani are the only corporate promoted companies, the others are all PE-backed. The bankers are much more comfortable when a strong promoter is behind the company”, says Sunil, who explains how the majority of the sector is PE-backed with the founder of the company being the CEO, but not in majority control over the equity.

The company raised outside funding for the first time from IFC, a world bank arm, recently, as it plans for an aggressive expansion, domestic and global. “It is good to get an outside investor because that marquee investor verifies your diligence, stamping your business model and states what you are doing is right. It took us a year to close the deal. Make good partnerships and make the partnerships succeed’. That is our mantra!” elaborates Sunil.

The company has no plans of going for an IPO, but given condition, if it does, Sunil is confident of a runaway success. The company’s pipeline also includes its abroad expansion plans and hopes to see new projects coming in 2017-18. “We have already floated a company in London and Singapore and we are planning to look at more markets abroad including South- East Asia, Africa and some parts of Europe as well. So we are evaluating each country with regards to their merits and policies. India-specific plans have been consuming significant time share, so have not been very aggressive with foreign expansion”.

Despite demonetisation, setting the company slightly back, the company, is all geared up to achieve its immediate 1 GW target and the next phase of 2 GW. “With the falling costs, we would be requiring close to a billion dollar for the next phase. 75 per cent will come from debt and the rest from the equity, which is not an issue for us”, says Sunil. The company recently closed green bond issue and raised 300 crore and claims to be intact in the funding aspect.

A phenomenally fast growing sector, renewable is a big ticket for companies today, as the government is on an aggressive clean energy goal. The next big frontier for the company is the storage and HFE have been wanting to be a big player in this area. “The new technology today is storage and how you combine that with wind and solar is the big challenge.

Moving forward, both Sunil and Rahul bet on consolidation of the sector. The limiting life of the PE fund is bound to propel consolidation of the platform. The growing competition in the sector does not become a limiting factor for the company but rather a growing opportunity for sector growth, “The companies doing well, speaks well for the sector overall. The investors look at the entire industry positively”, says Sunil.

Rahul takes pride in the diversification bet and adds, “I am glad that today I have been able to create a large asset for both my family and the group”.