New plant, expansion signal Honda’s intent

New plant, expansion signal Honda’s intent

New Delhi: Honda Motorcycle and Scooter India Pvt. Ltd (HMSI) will build a new factory near Bangalore and expand capacity at one of its other factories as it gets serious about India and enters the market for entry-level motorcycles after breaking with its joint venture partner of 26 years Hero Honda Motors Ltd earlier this year.

On Thursday, HMSI said in a statement it would build a factory with a capacity of 1.2 million motorcycles a year in Narsapuram near Bangalore and double capacity at a factory in Tapukhera in Rajasthan, which will start production next week, from 600,000 motorcycles a year to 1.2 million. The existing factory at Manesar in Haryana has a capacity of 1.6 million motorcycles a year.

Two persons familiar with the matter, but who did not want to be named, said the firm will spend a total of 1,500 crore on the new factory and the expansion that together will increase the company’s capacity from the current 1.6 million two-wheelers a year to 4 million a year by 2013 (the capacity expansion will kick in next year and the new factory will be ready in 2013).

“Our parent company is very serious about India operations. We’re aiming at the No. 1 position in the country by 2020," said one of the persons, a top official in the company.

An HMSI spokesperson did not comment on the investment.

An expert said HMSI’s move was expected given its recent split with the Hero group and sporadic worker strikes at the Manesar plant. “This is a very strategic move. The company has had labour issues in Haryana, which has affected it in the past," said Akshay Bhalla, managing director of Protiviti Consulting Pvt. Ltd. “This will help it continue production (atthe other plants) even if there are disruptions (in Manesar)."

India is the world’s second largest motorcycle market after China, with total domestic sales of 10.1 million units, according to the Society of Indian Automobile Manufacturers.

Hero Honda dominates India’s motorcycle market with 15 models, including six 100cc models such as the Splendor+, Passion Plus and CD Dawn. With a 44% market share, almost every second motorcycle sold is made by the firm. In 2010-11, Hero Honda sold 5.4 million two-wheelers, more than triple HMSI’s 1.5 million. Recently, Hero Honda raised its capacity to 6.1 million units per annum. HMSI sells Activa and Dio scooters and motorcycle models Twister, Shine, Stunner and Unicorn. Second-placed Bajaj Auto Ltd has a 21% market share. HMSI is at fourth position by sales, after TVS Motor Co. Ltd.

“In order to realize Honda’s vision to provide good products with speed and affordability, the third plant will be built in the Bangalore area..., which will enable HMSI to more efficiently serve the vast motorcycle market of India together with the first and second plants in northern India," HMSI added in its statement.

After ending its relationship with Hero Honda, HMSI said it would increase its focus on the former’s stronghold, the mass-market segment, where it had been restricted from operating. It plans to launch its first 100cc motorcycle next year. It expects to sell 2.1 million two-wheelers in 2011-12, 27% more than it did in 2010-11.