Honda to invest Rs 800 cr this year, defer new capacity addition

Honda Africa Twin is a 1000cc off-road bike priced at Rs 12.90 lakh

Honda Motorcycle and Scooter India (HMSI), the country’s second largest two-wheeler maker, has announced a Rs 800 crore investment for the current fiscal with a promise to launch 18 upgrades and one new product during the year.

The full range of scooters except the newly launched Grazia and entire line-up of motorcycle with the exception of X-Blade, CBR 250 and CBR150 will get cosmetic upgrades this year. The earmarked investment will be also used to strengthen Honda’s inroads into the rural market from where it generates 30 percent of its volumes.

Almost the entire investment of Rs 800 crore will be used in upgrading Honda's current range of BS-IV products to BS-VI before the deadline of April 1, 2020.

Despite operating at 95 percent of its existing installed capacity the Delhi-based company has deferred plans for investing in a new capacity for the time being. Last year the company clocked 6.1 million units sales, which was a growth of 22 percent over 2016-17.

Minoru Kato, president and CEO, HMSI, however, has targeted a double-digit growth in volumes for the current financial year. All the four plants (Haryana, Karnataka, Gujarat, Rajasthan) put together HMSI has an installed capacity of 6.4 million units. Considering a minimum increase of 10 percent in volumes the company will end up selling 6.7 million units during the year.

The maker of Activa and Unicorn will squeeze out extra volumes from its existing plants by improving efficiency and removing bottlenecks thereby negating the need for a new plant. HMSI is expecting a correction in demand post April 1, 2020 which is when prices of all two-wheelers will go up.

“We expect overall two-wheeler volumes of the industry to go down post the implementation of Bharat Stage VI (BS-VI). There will be a price increase because of the mandatory implementation of ABS technology from April 1, 2019 and because of the BS-VI from April 1, 2020”, added Kato.

 Kato however mentioned that new capacity, which could come up in Gujarat, could come up only in 2020. Typically it takes 2 years for a new facility to start operations.

 To further increase its penetration into India HMSI will add another 400 touch points this year taking the total to more than 6000 from the current 5700. About 70 percent of HMSI’s last year’s touch point expansion of 400 came from the rural market.

Honda is pushing scooters into the hinterlands as more practical alternative to the motorcycle. However due to restricted development of roads and lower mileage compared to bikes, scooters have not been able to make faster inroads into the rural market.

Last year India’s two-wheeler market grew 15 percent selling more than 20 million units. It grew in double digits for the first time in since FY12. Within that the motorcycle segment grew by 14 percent, again a double digit growth for the first time in six years.

Honda said today that it came one step closer of its long term target of becoming number one in India. It grabbed a further 2 percent share of the domestic two-wheeler segment during last financial year.