Honda Eyes the No.1 Spot – Gears Up for Long Run

The new dawn seem to be having arrived at Honda Motorcycle & Scooter India (HMSI), the wholly owned two wheeler subsidiary of $92 billion Honda Motor Company, after their separation from the Hero Group. Hondas aims to be No.1 as far as the two wheeler industry is concerned. Mr. Shinji Aoyama (President and CEO of HMSI) says that the challenge has become bigger and thus the company needs to improve their portfolio if they are to be on the top. He further says that the journey to the No.1 spot would take anywhere around a decade.

Honda is going to serve Hero Group with its technology till 2014. However after that they have no such obligation to extend any tech support to Hero Group but Honda can do so if they wish so. As a result of this independency, Honda has plans that will take the company to become No.1 two wheeler company. Industry experts have a diversified opinion on Honda.

Automotive expert Tutu Dhawan says that Honda is working hard enough to reach the top but it will not be easy. Angle Broking (broking firm) also has their own prospects to see the market as a whole. The broking firm is bullish on the automobile sector and expects it to record a compound annual growth rate (CAGR) of 12% and they expect HMSI to grow its market share.

Industry experts say that HMSI’s path to the top spot should be planned and strategically set. As far as the new launches are concerned, HMSI will only launch only one scooter and one 250cc bike. According to me if HMSI has to reach the No.1 spot it has to focus on its portfolio. However Honda is doing well in the two wheeler segment with the current portfolio as well.

In the next fiscal, Honda will mainly focus on their scooter segment as regards increasing the production of their scooters such as Activa. Honda is planning to address the shortage issues by opening up a new 600000 unit plant in Rajasthan. Later on Honda plans to roll out low-frills, conservative bikes of 100-cc displacement, which make up the bulk of the market.

Market for HMSI seems to be growing day in and day out but there is still a long way to go for the company. Presently, HMSI has 11 motorcycles; Hero Honda has 8 bike brands (a total of 14 including variants). Honda is keen to focus on the commuter segment in the coming years because they believe it to be the heart of Indian two wheeler industry. The commuter fever is and always will be on a rise in India. Of the two wheeler market segment, India constitutes three fourths. Out of this commuter bikes own a massive 72% of the sector. More than 70% of the sector is dominated by Hero Honda through their bikes like Passion and Splendor (Sells like hot cake). The second spot is taken by Bajaj Auto with a total of 27% of the stake in the sector. Especially Discover 100cc sells more than 80,000 annually. Next up is TVS with an overall market share of 7.5% with three bikes the 100-cc Star City and Sport, and the 110-cc Jive.

Mr. Dhawan (President and CEO) says that Honda is capable of producing the competition to Splendor and Discover 100cc and for that they need not change their way of working. Further has said that Honda has already done the same thing for Hero Honda and thus rolling out an efficient commuter is not such a great thing. The point of conversation here is the technology that is used to produce commuters. Can Honda do it better? Is the real question to ask in the situation of today.

Mr. Shrawan Raja (Editor, Indianautosblog) is of the opinion that Honda produces some high yielding petrol engines and thus there should be no problem for HMSI to roll out a competitor to Splendor and Discover. Honda is developing a low cost barebones bike in another country, he adds.

Mr. Natthan (Sales Head, HMSI) said that the company is expanding its production capacities and rolling out good and flawless commuters will take some time but it is one thing that will happen for sure. He also said that the commuter segment is growing at 20% and every now and then it’s being attacked by manufacturers. This is the reason that HMSI is taking too long to roll efficient commuters because they do not wish to leave no stone unturned.

Mr. S Sridhar (Baja Auto’s president) said that the company will roll out 2-3 bikes in the coming quarters. The much awaited reintroduction of Boxer is up for launch in the next 2 quarters, he said. He further said that the company wants to be through their planning and thus the reintroduction of 100cc Boxer will take time. It is also clarifies that Boxer wont be cheap and it will give a tough competition to Splendor. Mr. Pawan Munjal of Hero Honda said that the company will be launching 8 to 10 new models and refreshes every year half of which will be commuters. The competition in 100cc segment is just increasing day by day as Mahindra launched Stallio and Suzuki is also said to be planning a 100cc bike.

Reviving Scooters

Scooters have been like blood to HMSI in its early stages of development. The company tasted success through their Scooter Activa and for a while now the most selling scooter has been facing supply blues and thus HMSI is working on improving the supply capacity of their scooters. Due to these supply blues, HMSI has been losing their customers to their competitors and thus they are keen to revive this part of the two wheeler segment. Most competitors have gained themselves good market share because of the supply blues faced by Honda. However, HMSI still remains in the driving seat with a 43.3% market share in January 2011 as against 57% in 2008-09. Sources say that majority of the drop in market share is because of the short supply factor.

 

With a view to improve these conditions, HMSI has planned to start a new plant at Rajasthan which is expected to go live from August 2011. The main aim of starting this plant is to compensate for the short supply. Presently the company has plant at Manesar which produces 1.6 million two wheelers annually. We can just hope that people do not fall prey to supply blues once the plant kicks off. Sources say that the new plant will have a capacity of 600000 units and with this plant on board HMSI is likely to perform better. Again, Hero Honda seems to be following the strategy and is currently scouting land for opening up a plant capacity of 700000 units annually.

Other Issues

HMSI also needs to address other issues before they can eye the No.1 spot. First up is the dealership base issue. “The primary challenge for HMSI is to expand its distribution network vis-à-vis well-entrenched players such as Hero Honda and Bajaj,” says Angel Broking. Hero Honda has 4,500 sales and service outlets, and will add another 500 this year, while HMSI has 800 outlets, and will add 100 more this year. Also, 40 per cent of Hero Honda’s sales comes from rural and semi-urban areas, where HMSI has no presence whatsoever. Mr. Dhawal of HMSI says that Honda is not too popular when it comes to rural India. He also admits that Hero Honda is one company that is present in every rural area. It is thus clear that Honda will plan to build outlets in the rural areas.

Another hindrance that is keeping HMSI away from the No.1 spot is the ‘Premium bike maker’ tag. Industry experts say that company needs to look more towards commuter if they are to succeed in India. According to Bajaj, Honda should excel in rolling out commuters and it is something Bajaj has excelled in. Mr. Sridhar says that Bajaj has excelled in producing both commuters and premiums and HMSI shall have to do the same.

Another area where HMSI needs to concentrate is exports. Presently, HMSI’s export stands at 5%. But the company says that the export rate can grow up to 10% once their models grow and they meet local demand.

HMSI can create a buzz with 250cc bikes. The company says that there are many youngsters who like fun and powerful bikes. Recognizing huge potential in this segment, HMSI will launch its CBR250R in mid April which will be straight away competing with Kawasaki Ninja (Selling at 3 lakhs as Completely Build Unit (CBU)). Honda plans to sell more than 30,000 units of CBR250R in 2011-12 as the bike is priced at as low as 1.5 lakh and 2000 units have already been booked by the company.

Finally Mr. Aoyama said that Hero and Bajaj are very tough competitors and it will take a minimum of 3-4 years for Honda to be No.1 in the two wheeler industry. He said that a decade is more than enough to build plants, improve competencies, build strategies and stand on top of the competition. At the end of FY2009-10, Honda Japan had cash and cash equivalent of $12 billion (Rs 54,000 crore), thus they have got both money and time to play like they want. At last we hope that HMSI’s efforts to be No.1 do not go in vain.

[News Source – Business World.]

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