Despite slowing 2-wheeler market, HMSI prepares to add capacity, models, network

Company had a 20% growth in sales to 4.45 million units in the financial year ended this March

A capacity constraint can be a boon or bane, depending on the sector a company operates in. For Honda Motorcyle and Scooter India (HMSI), the country’s second largest two-wheeler manufacturer, its present capacity constraint has been opportune. A slowing rural market, impacted by damage to the rabi crop and projection of a sub-normal monsoon, is putting brakes on two-wheeler sales in general.

The Japanese manufacturer had a 20 per cent growth in sales to 4.45 million units in the financial year ended this March. The company targets to sell 4.7 million units this financial year, a growth of 5.6 per cent. It has annual capacity to make 4.6 million units, to be ramped up to 5.8 mn units by the last quarter of 2015-16. The full impact of this capacity will only be felt in the next financial year.

“We are running on full capacity in all three factories. Incremental volume is coming because some of the capacity addition came in the later part of the previous year. There will also be some contribution from the fourth factory in Gujarat that turns operational in the fourth quarter of this (year). Growth is being constrained by capacity,” said Yadvinder Singh Guleria, senior vice-president and operating head (sales and marketing).

He said the company was closely watching the economic situation in rural areas. About 30 per cent of its sales come from rural areas.

HMSI sales grew much faster than the industry average of eight per cent in FY15. Market leader Hero MotoCorp had growth of 6.2 per cent.

“If this slowdown continues, I might be able to retain my market share,” said Guleria. He expects the industry to grow at a lower single digit this year than last year.

Even so, HMSI will focus on expanding its dealer network by 800 to 4,600. It will also launch nine new models this calendar year.  “I will be preparing a base that can carry the momentum next year. I need to be closer to the customer, with more products. The moment I have capacity, the results will favour us,” he added. HMSI plans to invest Rs 1,775 crore in FY16 to expand range, dealership and capacity.

Slowing rural demand is also prompting HMSI to produce 800,000 scooters instead of motorcycles, said HMSI President & CEO, and Honda Motor India President Keita Muramatsu.