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Honda Going All Guns Blazing

2018 will be a defining moment for the company as it gears up to attain market leadership in the two-wheeler market

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Minoru Kato, one of the youngest expats to helm Honda Motorcycle & Scooter India (HMSI), may be a man of few words, but he’s certainly high on action. The 53-year old company insider, who took over as the president & CEO of Honda’s two-wheeler arm in India on 1 April, 2017, is confident about breaching the 6-million (60 lakh) annual sales mark by the end of this financial year on the back of the company’s widening rural base.

“As we (had) already announced, last fiscal year we achieved 5 million (units) including exports. This fiscal year our target is 6 million units, a 20 per cent increase. As of today, we are in line (with the target). (The) Next fiscal year, however, is under consideration. We foresee the motorcycle market will increase again. Our internal target is more than industry growth,” says Kato.

Evidently, 2018 will be a watershed moment for HMSI; from 1 April all two-wheelers above 125cc are mandated to be equipped with anti-lock braking system (ABS) and two-wheelers with engine displacements less than or equal to 125cc have to be fitted with either ABS or combined brake system (CBS), but Honda’s product portfolio in India already has CBS with equaliser as a standard fitment, and majority of its premium and high-end bikes are also equipped with ABS.  While most other players will have to shell out extra money to comply with the new safety norms, Honda will be naturally ahead of the competition. It has been learnt from reliable sources that Honda will begin the development of BS-VI specific engines in 2018.

The new year is also tipped to be one of the most crucial years for the HMSI head, who is determined to make ‘Honda’ a household name across the length and the breadth of the country in the next two to four years. Though mindful of the fact that it won’t be a cakewalk for him to wrest control from market leader plus former partner Hero MotoCorp (formerly Hero Honda), he is confident that Honda’s aspirational value coupled with its ground-breaking products can shake up the whole two-wheeler market. Rolling out disruptive products, augmenting retail channels, expanding production capacities, beefing up marketing infrastructure, streamlining service and supply operations, improving customer satisfaction and setting up greenfield facilities are some of the strategies that Honda would be actively working on under Kato’s guidance.

“We want to become a company that people trust. Depending on competitor’s strategy and market conditions, we will set a target in terms of numbers. But marketshare wise, it depends on the competitors’ promotions, products, etc., and of course total (size of the) industry. We have a strong intention to improve the quality of not only our products, but also of the daily operations at (our) dealership network. That is the most important strategy to maximise customer satisfaction,” says Kato, who has an innate understanding of the fast evolving South-East Asia markets.

According to him, India’s current contribution to Honda’s two-wheeler sales is almost 32 per cent and in future it can rise further depending on the sales volumes in emerging markets such as Africa, Latin America, Pakistan, Bangladesh and other markets.

Avik Chattopadhyay, an auto industry veteran and co-creator of brand and business transformation consultancy Expereal, “Nothing can really stop Honda from becoming the market leader in the two-wheeler market by 2020. This is due to a combination of three factors. First, the aspirational Honda brand. Second, its robust technological prowess and product portfolio, especially in scooters. And third, it has already become a benchmark for product reliability and cost of ownership. Honda can focus and lead in segments other than the entry-level commuter segment.”

Honda’s strategy is very similar to what construction and agriculture equipment manufacturer JCB did in the domestic construction equipment segment in India after breaking off ties with its local partner Escorts.

Market Size And Honda’s Current Ranking

The booming Indian two-wheeler market, which recorded 18 million units per annum last year, has surpassed China’s. HMSI owns 59 per cent share in the overall scooters market, and ranks number two among motorcycles in India. The company’s overall share in the two-wheeler market is 30 per cent. In the current financial year, Honda remains a strong market leader in the scooter segment, with a market share at 57.4 per cent (8 million units in FY18 so far), and in the motorcycle space, it is 15.7 per cent, claiming third spot and right after Bajaj Auto. Honda also remains a market leader in the 125 cc motorcycle segment.

According to Subrata Ray, senior group vice-president of credit rating agency ICRA, “Honda strengthened its leadership position in the 110-125cc sub-segment of motorcycles during the current fiscal, expanding its market share to 44 per cent on the back of a healthy traction for its CB Shine model, supported by its attractive price positioning and brand equity. Overall, Honda’s performance in India has been aided by successful models in each of the relevant product categories.”

A wholly-owned subsidiary of Honda Motor Company (HMC), the two-wheeler India business is already seeing the fruits of its hard work as it sits on the number one spot, with an average market share of 35 per cent in 17 markets countrywide, including Maharashtra, Gujarat and Tamil Nadu among others. However it is trailing in other critical markets such as Uttar Pradesh, Rajasthan, Madhya Pradesh and West Bengal, which are tipped to be its next growth destinations thanks to unprecedented demand for scooters.

Plans Re-Activated

Incorporated in 1999, HMSI commenced production in the year 2001. However, the turning point came with the launch of Activa, a unisex scooter that rewrote the rules of the game. Heralding the ‘scooterisation’ of modern India, HMSI’s Activa has emerged as the largest selling two-wheeler brand in India; it notched up 2.75 million units last year, which was more than 2.55 million units of Hero MotoCorp’s leading model Splendor. Incidentally, Splendor was not only the Indian auto giant’s largest selling model but for India as well for more than a decade.

“Activa is now the only brand in the Indian two-wheeler industry to cross 20 lakh units in sales in just seven months. While it took seven years since its launch (2001 to 2008) for Activa to deliver 20 lakh Indian customers, the latest 20 lakh customers (20,40,134 unit sales) joined in just seven months from April to October 2017. During this period, Activa sales nearly tripled from 7.3 lakh units in 2012-13 to over 20 lakh units in 2017-18,” HMSI stated in a release recently.

Currently, Honda has offerings under six brands in the scooter segment: Activa, Dio, Aviator, Navi, Cliq and the recently launched Grazia for the metropolitan and cosmopolitan cities.

Rural Expansion Clubbed With Disruptive Products

After gaining a strategic foothold in the tier-1 cities of the country, the Japanese auto giant is now exploring the countryside, which currently contributes around 30 per cent to its total sales. Honda is aiming to ramp up its distribution network to 5,700 touch points, and nearly 70 per cent of its 500 new outlets, earmarked for this fiscal, will be in the semi-urban and rural belts. Hero MotoCorp, on the other hand, has over 6,000 touchpoints with 50 per cent of them in the hinterlands.

Apart from widening its reach in the rural belts, Honda is working on a number of products that  will increasingly cater to tier-2 and tier-3 markets. Honda has recently rolled out a 110-cc scooter from its flagship Activa stable, Honda Cliq, priced at Rs 42,499 and targeted at non-urban markets. “We have an ongoing strategy to penetrate the rural areas. We are going step by step; our market share is getting better. Our latest offering (Cliq) is developed on the expectations of a sub-segmentation to maximise utility with additional value of comfort and convenience for commuters apart from providing better value for money. It is our next big step on taking scooterisation beyond the metros,” reveals Kato.

‘Make in India’ Adding To Momentum

Firing on all cylinders, HMSI is at the forefront of making products for the domestic market. With its new fourth production line in Narsapura, Karnataka going on stream, HMSI can now churn out 64 lakh units per annum. If industry sources are to be believed, HMSI wants to expand its scooter-only plant at Vithalapur in Gujarat, which is the largest such facility in the world that already produces close to 12 lakh units per year. There is also a lot of buzz that with the addition of a new assembly line at this plant, the brand wants to come close to eliminating unwanted minimum waiting period (between four and six months) for Activa.

When asked about the company’s plans for expansion of production capacity, Kato says, “This year July, we started a new production line in our Karnataka factory. Next is still under investigation. We are yet to take a call on it as there is an expectation that the industry could go down a bit with BS-VI norms coming in force from April 2020.”

Apart from Narsapura and Vithalpur, HMSI has manufacturing plants at Manesar in Haryana and Tapukara in Rajasthan. With new models and capital expenditure on new plant, Honda will invest Rs 1,600 crore in the ongoing fiscal year. This will take its cumulative investment in the country to about Rs 9,500 crore by fiscal-end.

2020 And Beyond

ICRA has predicted the overall market size of two-wheelers to be at 23 million units per annum by 2020 and 32-35 million units by 2025. Honda maintained that it will have a technological edge over competitors such as TVS, Hero, Bajaj and Yamaha, especially when India leapfrogs towards ultra-stringent BS-VI emission norms.However, he ignored questions about the sales target for 2020. A former executive of the company, on condition of anonymity, revealed that HMSI had earlier set a sales target of 8-9 million units by FY 2019-20. This would still be less than 12 million units that Hero MotoCorp is eyeing by 2020.

“We expect to increase (sales) thanks to the rural regions where we are highly underpenetrated. Moreover, as you are aware, 2020 will bring new emission norms and that will be a big challenge not only for Honda but also our competitors. New equipment would have to be adopted to meet the next emission norms and we have the wherewithal to achieve that. We can even be more competitive than other brands,” says Kato.

HMSI is also looking to have a sustained double digit CAGR in its turnover, which was around Rs 22,000 crore (approx) in FY16-17 and is expected to reach

Rs 25,000 crore (approx) by FY17-18. If it is able to overtake Hero MotoCorp’s sales by going beyond the 12-million mark, there is a huge possibility that the Japanese auto giant may even out-earn the BSE-listed firm (which clocked Rs 31,368.55 crore during FY16-17).

Uninvited Challenges

All said it may not be all smooth sailing for Honda as there are a lot of disruptions such as zero emissions and shared mobility waiting to surprise the two-wheeler market.

As Chattopadhyay from Expereal points out, “If it is to be the leader by 2020, Honda needs to focus on two aspects:

a) bringing electric two-wheelers within the next 12 months and, b) creating specific variants /versions that cater to the rapidly growing shared mobility / two-wheeler taxi segment.”

Hero Remains Unperturbed

Despite the dwindling gap in total monthly sales with HMSI, Hero MotoCorp (HMCL) has affirmed that it will be able to hold on to its market share and record sustained double-digit growth over the next few years. The world’s largest two-wheeler maker in terms of volumes is looking at aggressive market share gains to further consolidate its leadership this fiscal (FY17-18), without compromising on the bottom line and margins.

Hero MotoCorp spokesperson says, “Even as we go for marketshare gains, we will preserve our unwavering focus on sustaining a healthy bottom line and margins through judicious utilisation of resources and rationalisation of costs. We have planned a capital expenditure of around Rs 2,500 crore up to FY18-19 towards new product development, digitalisation, phase-wise capacity installation and expansion of our existing facility.”

Currently, the company has five manufacturing facilities in India — Dharuhera and Gurugram in Haryana, Haridwar in Uttarakhand, Neemrana in Rajasthan and Vadodara in Gujarat — and two in Colombia and Bangladesh with  a consolidated annual capacity of 8 million units. It will be soon setting up another greenfield facility in Andhra Pradesh.

In 2012, the BSE-listed firm had announced that it was aiming for $10 billion sales in five years with total sales of 10 million units, out of which 10 per cent was to come from exports. Later, in 2014, it revised its projections upwards of 12 million units by 2020 without disclosing export targets.

“Even as the consolidation of leadership in the domestic market continues, we continue to expand on the global front. With the addition of Nigeria and Argentina — the largest two-wheeler market in Africa and the second-largest two-wheeler market in Latin America, respectively — the global footprint of Hero MotoCorp has now reached 35 countries spread across Asia, Africa and South and Central America. With this, we have taken a giant leap towards our stated vision of making ‘Hero’ a truly global brand. We will continue to expand globally with the objective of being in 50 countries by 2020,”adds the spokesperson.