Hero Honda Motors Ltd, the country’s largest two-wheeler maker, may be considering the export of motorcycles to Africa, and is talking to its Japanese partner Honda Motor Co. in this regard, according to an analyst report dated 8 February that cites a senior executive at the company.
Interestingly, the same executive as well as another at the motorcycle maker said the company, which sells one of every two motorcycles and scooters sold in India, had no immediate plans for Africa.
As part of the joint venture agreement between the Hero Group and Honda Motor in 1984, Hero Honda Motors is not allowed to export motorcycles to most of the large markets where Honda has its own assembly units.
According to a report by Mumbai-based brokerage firm India Infoline Ltd, the company is discussing the possibility of exports to African markets with Honda Motor. The report was based on comments made by Surender Chhabra, Hero Honda’s general manager (finance), at an investor conference organized by India Infoline.
“We have been talking to Honda to expand our export destinations, but there is no specific talk on Africa,” Chhabra told Mint on Saturday.
“As far as talks with the joint venture partner is concerned, that is a continuous exercise, it’s premature to talk of anything specific,” said Ravi Sud, chief financial officer of Hero Honda Motors. “As and when something comes out, we will be the first one to talk about it to the world.”
“The partners have been talking about it for several months and have been trying to sort out details like branding, etc.,” said an analyst with a domestic brokerage, who did not want to be identified because he is not authorized to speak to the media.
In the India Infoline report, analyst Jatin Chawla wrote that Honda Motor does not have an assembly unit in Africa, and has a presence only in the higher engine capacity models, while at least 95% of the models sold in Africa are 100cc models.
“Given Hero Honda’s strength in 100cc markets and (its) low-cost structure, we believe it makes for a strong case for Honda to allow exports to Africa from Hero Honda,” Chawla wrote, adding that if Honda agrees, “this could be a big opportunity for Hero Honda”.
Hero Honda exports to Sri Lanka, Bangladesh, Nepal and some Latin American countries but these account for a very small portion, around 100,000 units, of the 4.5 million units it sells every year, said Sud. Hero Honda sold 389,802 two-wheelers in January, 23% more than that in the year-ago period.
The African market is estimated to be worth half a million to one million units annually. If its Japanese partner agrees, Hero Honda will compete with Bajaj Auto Ltd in the region, said Umesh Karne, an analyst with Brics Securities Ltd.
Bajaj Auto, the only Indian motorcycle manufacturer that exports to African markets, currently has around 25% market share of the entry-level motorcycle segment on that continent, according to the India Infoline report, while Chinese manufacturers have the rest.
“The move augurs well for Hero Honda,” added Karne, because it gives the firm an opportunity to compete with Bajaj.
With Honda Motorcycle and Scooter India Pvt. Ltd, the local arm of Honda Motor, entering the entry-level segment that has been a stronghold of Hero Honda in India, Hero Honda’s argument for exports to destinations such as Africa may find favour with its Japanese partner, said an analyst with a domestic brokerage firm, who declined to be identified.
Hero Group and Honda Motor inked a joint venture to make two-wheelers for the Indian market in 1984. The companies have been renewing the equity and technical collaboration every 10 years. The renewal in partnership in 2004 allowed the companies to enter into each other’s product segments—Honda Motorcycles into motorcycles and Hero Honda into scooters. The partners also formed a model coordination committee to minimize the scope of cannibalization with competing products.