New Delhi: Honda Motorcycle and Scooter India Pvt. Ltd (HMSI), maker of Activa scooters, is looking to build a second factory in India, in a bid to tap increasing demand in the world’s second-largest two-wheeler market.
The Manesar, Haryana-based company is conducting a feasibility study for a new plant, said Yukihiro Aoshima, president and CEO of HMSI. He declined to say where the new factory would come up.
India’s robust economic growth is fuelling an annual double-digit growth in demand for two-wheelers, which are the most popular means of daily transport. Domestic sales of two-wheelers are likely to rise to 10.2 million by 2012 from seven million in 2006, according to the National Council for Applied Economic Research.
HMSI, which entered the market in 2001, makes 7.2 lakh units a year in its Manesar factory. This plant has the capacity to scale up to 1.2 million units a year, for which the company will invest Rs300 crore.
HMSI, which has an 8.5% market share in two-wheelers, wants to produce two million units a year by 2010. “We also plan to make a 100cc motorcycle soon,” Aoshima said.
This will mark Honda Motorcycles’ entry into the largest-selling category of bikes. Eight of every 10 motorcycles sold in India is a fuel-efficient 100cc vehicle, a segment dominated by Hero Honda, a company in which HMSI’s parent has a 26% stake.
“A 100cc (bike) from Honda can change the market if they get the pricing right,” said S. Ramnath, vice-president at SSKI Securities. “It could be a major negative for Hero Honda.” The company’s stock closed 12% down at Rs640.25 on the Bombay Stock Exchange on Monday.
A 9% economic growth is creating more jobs and increasing disposable incomes in the country. Salaries in India increased 11.9-16% in 2006, the highest in the world, according to an annual salary survey by human resources consulting firm Hewitt Associates. This has driven up demand for consumer products such as mobile phones, cars and two-wheelers.
But this same growth potential has also prompted Hero Honda and Bajaj Auto, to invest Rs4,500 crore in building factories to try and consolidate their lead. Hero Honda, India’s largest two-wheeler maker, is launching as many as eight new models and variants every year to defend its 47% share in the motorcycle market. The company is building a factory in Hardwar, Uttarakhand, which will add 0.5 million units or 13% to the existing annual capacity of 3.9 million units.
Bajaj is also building a new factory in Pantnagar, Uttarakhand, to ramp up its bike-making capacity by a third to 3.6 million units by April 2007.