Existing capacity is sufficient for this fiscal: Hero Honda

With its promoters heading for a split, Hero Honda's plan to set up its fourth manufacturing facility is getting delayed even as the company said its existing capacity would suffice for the ongoing fiscal.

"We are looking at several locations for our 4th plant, and we will take a final decision in due course of time. Our current installed capacity is enough to meet the market demand for this fiscal," a company spokesperson told PTI.

Without specifying details, the spokesperson said Hero Honda is adding capacities at its existing plants.

At present it has an installed capacity of 50 lakh units per annum at its three facilities at Dharuhera and Gurgaon in Haryana and Haridwar in Uttarakhand.

It sold 46,00,130 two-wheelers last fiscal.

Hero Honda top management had in the beginning of the year stated that by about September a final location of the 4th plant was likely to be announced.

Earlier in March, Hero Honda Managing Director and CEO Pawan Munjal had said that the company was conducting a feasibility study in 10 states to find the best suitable location for its fourth manufacturing facility and that the decision would be taken in the next six months.

"The feasibility study would come up with capacity, investment, models and the location. It is going to take us six months to take the final call," he had said.

Even, Hero Honda Senior Vice-President (Marketing and Sales) Anil Dua had  said during SIAM Annual Convention on August 25 that the company had completed its field work and "the finalisation (of the new plant) will hopefully be closing in a month or so".

The plans now seems to have altered with the Hero Group set to buy out the Japanese partner Honda's 26 per cent stake in their joint venture.

The Hero group and Honda hold 26 per cent each in Hero Honda, that started operations in 1984 to become the world's largest two-wheeler maker today.

It is understood that the Hero Group is arranging funds on its own to finance the buyout of Honda's stake.

According to sources in the know of the development, the two partners have already agreed that current royalty rate per model paid to Honda will remain unchanged.

The royalty paid in 2009-10 on an average was 2.3 per cent to 3 per cent of sales.

However, in the case of a separation, Honda will continue to provide technology and models to the Hero Group for a transition period, the minimum for which is till 2014 as per their existing joint venture agreement.

The shares of the company were trading marginally down during later afternoon at Rs 1,772 a piece on the Bombay Stock Exchange.