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Honda going full throttle
We spoke to the management of Honda Motor, Japan regarding its plans
in India. In 2Ws, HMSI is aiming at becoming the No. 1 company in the
Indian market and will launch multiple 100cc bikes alongside a large
expansion of capacity and network. In cars, Honda will launch a new
small car ‘Brio’ by Oct-11 at a price below Rs500,000. Focus on market
share seems to be rising as evidenced by the recent price cuts in the ‘City’
and the ‘Jazz’. Rising competition from players like Honda underpin our
negative stance on Maruti and Hero MotoCorp. We maintain U-PF on both.
HMSI to turn aggressive in 2Ws soon
q Honda Motorcycles & Scooters India (HMSI) will expand capacity to 4mn units by
end FY13 from 1.6mn in end-FY11. Honda will take a call on expansion beyond
FY14 depending on demand. The capacity will be meant only for the Indian market.
There are no plans as yet to export 2Ws out of India.
q HMSI is also planning to more than double its dealership network in India (currently
850 strong). Honda said that HMSI was thus far only focusing on setting up a
network in urban India and will now focus on rural areas as well.
q Honda said that HMSI’s new product strategy in the Indian motorcycle market (incl
the premium bike segment) was thus far “very hesitant” due to the Hero Honda
joint venture. Going forward there will be no hesitation on this front. HMSI is
planning to launch multiple bikes in FY13, including 100cc bikes. The number of
bikes planned was not disclosed for confidentiality reasons.
q Honda did not specify any particular volume or market share target but did say that
they are aiming at becoming the No.1 player in the Indian 2W market without
specifying a timeframe.
q When asked about the split with Hero Honda, Honda said that a split became
inevitable due to a rising conflict of interest and diverging goals of the
managements of the two companies with Hero Honda wanting to export to
countries where Honda had an existing presence. We did not get a clear response
from Honda on the reason for selling its stake at a big discount to the market price.
Honda will launch a new small car by Oct-11
q Honda will launch a new small car – ‘Brio’ – by Oct-11. The ‘Brio’ will be priced
under Rs500,000, which will make it Honda’s cheapest car offering in India. At this
price point, the ‘Brio’ will compete with most of Maruti’s models.
q The ‘Brio’ will come with a petrol engine. Honda is in the process of developing its
own small diesel engine but this is not likely to come out soon.
q Profitability seems to have taken a back-seat for Honda in India. Management
admitted that the recent price cuts on the ‘City’ as well as the aggressive pricing of
the new ‘Jazz’ is on account of rising competition and is motivated by a desire to
maintain and boost market share.
q The ‘Brio’, too, will have lower margins with localization levels of ~80%. However,
Honda is aiming at increasing localization and improve margins going forward.
Eventually (but not initially), Honda has plans to export small cars out of India.
q Honda’s outlook for India’s car industry growth is very positive.
Competition set to rise sharply in cars and 2Ws
q The upcoming launch of the ‘Brio’, the aggressively priced ‘Jazz’, Toyota’s ‘Liva’
coupled with the launch of Hyundai’s ‘Eon’ (competitor to Maruti’s ‘Alto’) by FY12-
end is set to sharply increase competition for incumbents like Maruti.
q Unlike the new small car entrants of 2010 (GM, Ford, VW & Nissan), the companies
launching new small cars in 2011 (Toyota, Honda, Hyundai) have a superior brand
image in India. We believe that the worst phase of competition lies ahead.
q A more aggressive HMSI will convert the Indian 2W market from a 2-player market
into a 3-player one and this poses risks to the market share and profitability of
incumbents like HMCL and Bajaj. While these stocks are good near-term
defensives, we find valuations rich in case of both and maintain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Honda going full throttle
We spoke to the management of Honda Motor, Japan regarding its plans
in India. In 2Ws, HMSI is aiming at becoming the No. 1 company in the
Indian market and will launch multiple 100cc bikes alongside a large
expansion of capacity and network. In cars, Honda will launch a new
small car ‘Brio’ by Oct-11 at a price below Rs500,000. Focus on market
share seems to be rising as evidenced by the recent price cuts in the ‘City’
and the ‘Jazz’. Rising competition from players like Honda underpin our
negative stance on Maruti and Hero MotoCorp. We maintain U-PF on both.
HMSI to turn aggressive in 2Ws soon
q Honda Motorcycles & Scooters India (HMSI) will expand capacity to 4mn units by
end FY13 from 1.6mn in end-FY11. Honda will take a call on expansion beyond
FY14 depending on demand. The capacity will be meant only for the Indian market.
There are no plans as yet to export 2Ws out of India.
q HMSI is also planning to more than double its dealership network in India (currently
850 strong). Honda said that HMSI was thus far only focusing on setting up a
network in urban India and will now focus on rural areas as well.
q Honda said that HMSI’s new product strategy in the Indian motorcycle market (incl
the premium bike segment) was thus far “very hesitant” due to the Hero Honda
joint venture. Going forward there will be no hesitation on this front. HMSI is
planning to launch multiple bikes in FY13, including 100cc bikes. The number of
bikes planned was not disclosed for confidentiality reasons.
q Honda did not specify any particular volume or market share target but did say that
they are aiming at becoming the No.1 player in the Indian 2W market without
specifying a timeframe.
q When asked about the split with Hero Honda, Honda said that a split became
inevitable due to a rising conflict of interest and diverging goals of the
managements of the two companies with Hero Honda wanting to export to
countries where Honda had an existing presence. We did not get a clear response
from Honda on the reason for selling its stake at a big discount to the market price.
Honda will launch a new small car by Oct-11
q Honda will launch a new small car – ‘Brio’ – by Oct-11. The ‘Brio’ will be priced
under Rs500,000, which will make it Honda’s cheapest car offering in India. At this
price point, the ‘Brio’ will compete with most of Maruti’s models.
q The ‘Brio’ will come with a petrol engine. Honda is in the process of developing its
own small diesel engine but this is not likely to come out soon.
q Profitability seems to have taken a back-seat for Honda in India. Management
admitted that the recent price cuts on the ‘City’ as well as the aggressive pricing of
the new ‘Jazz’ is on account of rising competition and is motivated by a desire to
maintain and boost market share.
q The ‘Brio’, too, will have lower margins with localization levels of ~80%. However,
Honda is aiming at increasing localization and improve margins going forward.
Eventually (but not initially), Honda has plans to export small cars out of India.
q Honda’s outlook for India’s car industry growth is very positive.
Competition set to rise sharply in cars and 2Ws
q The upcoming launch of the ‘Brio’, the aggressively priced ‘Jazz’, Toyota’s ‘Liva’
coupled with the launch of Hyundai’s ‘Eon’ (competitor to Maruti’s ‘Alto’) by FY12-
end is set to sharply increase competition for incumbents like Maruti.
q Unlike the new small car entrants of 2010 (GM, Ford, VW & Nissan), the companies
launching new small cars in 2011 (Toyota, Honda, Hyundai) have a superior brand
image in India. We believe that the worst phase of competition lies ahead.
q A more aggressive HMSI will convert the Indian 2W market from a 2-player market
into a 3-player one and this poses risks to the market share and profitability of
incumbents like HMCL and Bajaj. While these stocks are good near-term
defensives, we find valuations rich in case of both and maintain U-PF.
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