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Honda cuts motorcycle outlook for India as economic growth cools

LiveMint logoLiveMint 21-05-2014 Ma Jie

Tokyo/Osaka: Honda Motor Co., the world’s biggest maker of motorcycles, lowered its forecast for India’s two-wheeler market as economic growth in the region cools.

“Industry deliveries will probably expand to 20 to 25 million units by 2020 in India, fewer than Honda’s earlier forecast of 30 million,” Shinji Aoyama, operating officer in charge of motorcycle operations, said in an interview on Tuesday. Motorcycles accounted for more than 20% of the Tokyo- based company’s operating profit last fiscal year.

India’s economic growth will probably hold below 5% for a third straight year in 2014, amid expectations incoming Prime Minister Narendra Modi will moves to spur investment and tame inflation. Two-wheelers were the only vehicle segment in the country that expanded in the year ended in March, with deliveries rising 7.3% to 14.8 million units, falling short of Honda’s expectation.

“We thought about three years ago the Indian market could reach 16 million to 18 million units by now,” said Aoyama at Honda’s Tokyo headquarters. “The market is not growing as fast as we expected, even though Honda sales are in line with our own projections.”

Honda sales in India rose 37% to 3.6 million units last fiscal year, making it the second-largest two-wheeler maker in the country, after former partner Hero MotoCorp Ltd. Its market share rose to 26% in the January-March quarter, compared with 12% in 2009.

Gujarat plant

The car maker is opening a fourth motorcycle plant in India’s Gujarat in the second half of fiscal year 2015, which will bring its capacity to about 5.8 million units a year, said Aoyama. Honda will have a total of 3,400 sales and service dealers by March, 2015, which will probably increase to 5,000 in a few years, according to Aoyama.

Operating profit jumped 50% to 165.6 billion yen last fiscal year, on revenue of 1.66 trillion yen at the car maker’s global motorcycle business. That translates into an operating margin of 10%, compared with 4.4% for cars.

Honda intends to maintain margins by streamlining production as material costs rise and the company invests more on engine technology to meet emissions standards, Aoyama said.

“We need to keep 10% percent margin when business is operating normally,” he said. “Otherwise we can’t guarantee a certain level of profits when there’s some unexpected crisis.” Bloomberg

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