HMSI mulls third plant to meet rising demand

Honda Motorcycle and Scooter India Limited (HMSI) is considering setting up a third facility in the country to scale up operations after the termination of the joint venture between parent company Honda Motor Corporation (HMC) and Hero Honda Motors Limited.

HMSI President and Chief Executive Officer, Shinji Aoyama, said, “We are the number one two wheeler brand in the world and would want to be the number one player in India as well. Our current sales volumes do not reflect the actual demand for our products in the market. Our dealers are not being able to cash in on many potential sales due to constraints in supply. The additional capacity from our second plant too, is expected to be exhausted immediately. We have to set up a third plant to boost volumes in India.”

The company has not finalised a location, but is keen on setting up the third manufacturing unit in southern or western India. “As much as 30 per cent of the demand in the overall two wheeler market is from Tamil Nadu, Andhra Pradesh, Kerala and Karnataka. Together, south and west India represent half our business. It is a natural decision to move south to ensure the speedy delivery of our products,” Aoyama said.

Company executives say according to estimates with dealers, had HMSI met the demand in the market, it could have sold an additional one million units. HMSI’s best-selling product, Honda Activa, alone has the potential to clock in a million units annually, compared with the current 0.70 million units, if production constraints are overcome. Similarly, sales volumes of the CB Shine (125 cc) and the CB Unicorn (150 cc), can also be raised to double their current levels.

HMSI has already invested Rs 500 crore to set up a second facility at Tapukara in Rajasthan. Once the plant is operational in September-October 2011, the combined capacity at the two manufacturing units – the other being at Manesar (Haryana) -- would increase by around 37 per cent to 2.2 million units per year. This would partially bridge the gap with market leader Hero Honda, which has the capacity to roll out 5.2 million units annually. HMSI’s Manesar facility has the capacity to manufacture 1.6 million units per year.

Currently, HMSI products have waiting periods ranging from six weeks to six months. The company takes around seven months to deliver a Honda Activa in south India. It expects to sell 1.6 million two-wheelers in the current financial year, a rise of 26 per cent over the 1.27 million units it sold in the last financial year.