Why Honda is proceeding with caution even as demand picks up in run-up to festive season

Honda H’ness CB350 | expected Rs 1.9 lakh | The latest entry into this segment is the Honda H’ness CB350. Like the others, it gets proper retro styling but adds in a bit of modernity as well with LED lighting and smartphone connectivity. It is powered by a 348.36cc engine producing 21 PS and 30 Nm.

In the build-up to the festive season, most two-wheeler manufacturers are increasing production to refill distribution channels with fresh stocks in the hope of a sustained spike in demand.

A dealers’’ association, however, have already warned about inventory days climbing to nearly seven weeks — inventory for two-wheelers stands at 45-50 days, said the Federation of Automobile Dealers Associations (FADA).

With the festival season round the corner and elections approaching in Bihar, the risk of a Covid-19 resurgence may play spoilsport in certain regions.

Hero MotoCorp and Bajaj Auto recorded double-digit growth in wholesale volumes (sales to dealers) in September. Both companies together command a share of nearly 50 percent of the domestic market.

Honda Motorcycle and Scooter India (HMSI), however, has not changed its distribution strategy despite the challenges on the retail demand front. The second-largest two-wheeler maker does not deliver inventory on credit to its dealers and is the only company to operate on a cash and carry basis.

In other words, the company is not building up inventory in anticipation of higher demand, something that the rest of the industry seems to be doing.

Responding to a question from Moneycontrol, YS Guleria, Director (sales and marketing), HMSI, said: “Honda has only a cash and carry policy. We do not have any credit system for our dispatches to dealers. This means that whatever inventory they are building is done after paying advance to us.”

The festivals start from the second half of October, beginning with Navaratri, Dusshera and Diwali. With urban markets also opening up in the unlocking phases there is a gradual rise in retail demand from those markets as well, say manufacturers.

“We have to be cautiously optimistic about the approaching festival period. It won’t be like any of the previous years’ festival periods. We are far less in our inventory compared to the same period last year. Region by region we have calculated the response and accordingly the inventories are built up,” Guleria added.

Hero recorded a jump of 16 percent in wholesale volumes in September while Bajaj wholesales jumped by 24 percent during the same month, marking its biggest monthly growth this year yet. In comparison, HMSI’s wholesales grew a modest 10 percent during the same month.

But October, so far, has seen it record a robust jump in bookings. “The first eight days of October, as against the first eight days of September, we have almost a 43 percent jump in our bookings. We are seeing retails are getting the momentum,” added Guleria.

About 1.8 million two-wheelers were sold in September by six manufacturers, recording growth of 13 percent against 1.6 million sold during the same month last year, show company data. This is the biggest wholesale volume recorded by the industry in this year so far.