Capacity limits to slow Honda’s two-wheeler journey to be No.14 min read . Updated: 07 May 2015, 12:33 AM IST
Honda Motorcycles will be on course to sell as many as 6.4 million units in the first nine months of 2016-17
New Delhi: The Indian two-wheeler arm of Japan’s Honda Motor Co. Ltd hopes to overtake Hero MotoCorp Ltd and become the country’s largest maker of motorbikes and scooters in the next fiscal after its fourth factory opens and a new assembly line starts at an existing plant.
Honda Motorcycles and Scooters India Pvt. Ltd (HMSI) will be on course to sell as many as 6.4 million units in the first nine months of 2016-17 after an under-construction factory in Gujarat goes into production and its Karnataka plant expands capacity. That would be equal to what Hero MotoCorp, the two-wheeler market leader and Honda’s former India partner, sold in all of 2014-15.
In 2015-16, the maker of Activa scooters and Unicorn bikes hopes to sell just 5.6% more scooters and motorcycles against a compounded annual growth rate of 28.75% between 2010-11 and 2014-15, as it has run out of capacity to produce more at its three operational plants.
“In the next two years, when we have the Gujarat plant and additional capacity in the Karnataka plant ready, we may be able to be No.1," Keita Muramatsu, president and chief executive, HMSI, said at a press conference on Wednesday. In 2014-15, HMSI sold 4.45 million units, including exports.
Honda Motor and Hero Cycles Ltd jointly set up Hero Honda Motors Ltd in 1984, a partnership that ended in 2010 with Hero buying out Honda’s stake and renaming it Hero MotoCorp. Honda, however, continued selling scooters and motorcycles in India through HMSI, a fully owned subsidiary it opened in 1999. The firm is now India’s second largest two-wheeler maker.
“We are already running at full capacity," said Yadvinder S. Guleria, senior vice-president (sales and marketing), HMSI. “The only way forward is when the other plants get operational. The year 2015-16 is a base camp year for us. We are consolidating and getting ready for the next big leap," he said.
While capacity expansion is under way, the firm hopes to increase rural sales by expanding its sales and service outlets.
HMSI currently has factories in Manesar, Haryana; Dharuhera, Rajasthan, and Narsapura, Karnataka. The Gujarat plant at Vithalpur that opens next January will be the world’s biggest scooter plant, with a capacity to produce 1.2 million units a year. The Karnataka expansion will add a capacity of 600,000 units.
“At the cusp of its biggest transformation yet,...(this) strategy...will make Honda future-ready to grasp the opportunity of selling to 64 lakh (6.4 million) customers by 2016," the company said in a press statement.
A consultant who spoke on condition of anonymity called Honda’s ongoing capacity constraints a “blessing in disguise" as the two-wheeler market has hit a rough patch.
“Sales have been on a continuous decline if you look at month-on-month figures," the consultant said.
Firms are worried about weakening rural demand, with motorcycle sales falling for the sixth month in a row in March. Overall two-wheeler sales fell 1% in March, which was cushioned by a 11% increase in scooter sales. “So, in a way, the macro situation is working for Honda as they get more time to consolidate their operations," the consultant said.
The recent unseasonal rainfall, which damaged crops, is unlikely to have any impact on Honda’s sales. The weather office has also forecast below-par monsoon rains this year.
The company is closely watching the situation in the rural parts of the country, Guleria said.
“Our own team, including the senior management, travelled to the rural hinterland and we found that there is a lot of optimism for a quick recovery. Of course, a lot depends upon the monsoon," Guleria said.
The recent spate of unseasonal rainfall damaged crops in 14 states and may lead to a 4-5% loss in the wheat harvest, agriculture minister Radha Mohan Singh said in April. The government has already announced relief measures for affected farmers.
An estimated 3.9 million hectares of wheat has been damaged due to unseasonal rains, as per government data, which revised an earlier figure of 6 million hectares.
Honda also plans to introduce 15 products this year, out of which seven are brand new models. It will also start assembling high-end sports bike CBR 650F in India in two months’ time. HMSI already sells the CBR 250R and CBR 150R models in India.
“We have decided to make our flagship CBR 650F in India for India," Muramatsu said. “It is a very big challenge (to make here). We are almost half-way there (in terms of preparation). We will start producing the bike in the next two months."
The CBR 650F is likely to cost ₹ 5-8 lakh, though HMSI is yet to take a final call on the pricing.
The company will initially make two units a day and ramp up production once demand picks up and all its Indian workers are trained.
“If we succeed in this, we will make more such models here," Muramatsu said.