Chal­leng­ing Years Ahead with Stricter Emis­sion Norms & Safety Stan­dards

While Fe­bru­ary is show­ing nor­malcy in cities from note ban, ru­ral re­cov­ery may hap­pen af­ter the har­vest sea­son

The Economic Times - - Economy: Macro, Micro & More -

Con­sumer sen­ti­ment in ru­ral In­dia is re­cov­er­ing from the im­pact of de­mon­eti­sa­tion but de­mand is ex­pected to sta­bilise only by the end of March when the new har­vest sea­son be­gins, says

CEO at Honda Mo­tor­cy­cle & Scooter In­dia. The com­pany saw sales surge 79% month-on-month in Jan­uary af­ter a 20% fall in De­cem­ber. Mu­ra­matsu says the next three-four years will be chal­leng­ing for all ve­hi­cle mak­ers in In­dia as the gov­ern­ment im­ple­ments stricter emis­sion norms and safety stan­dards. But the lev­el­ling with global stan­dards will open up im­mense op­por­tu­ni­ties for the coun­try. Edited ex­cerpts of an an in­ter­view with ET’s Sharmistha You have been over­see­ing op­er­a­tions in In­dia for over five years now. Are you sat­is­fied with the pace of growth here? We have grown 2.4 times in the last five years. Our mar­ket share has dou­bled from 13% to 27%. Our in­vest­ment in ca­pac­ity cre­ation has in­creased from 1.6 mil­lion units at a sin­gle plant to 5.8 mil­lion units across four plants. Our net­work reach has ex­panded 300% to cross 5,000 touch­points. R&D ex­pan­sion in In­dia re­sulted in in­tro­duc­tion of new mod­els with as many as 15 new mod­els in­tro­duced in one year (2015). The chal­lenge now is to cross the five mil­lion sales mile­stone this fis­cal. This would be the first for Honda from a sin­gle coun­try glob­ally.

De­mand in the two-wheeler seg­ment in In­dia has been sharply af­fected post de­mon­e­ti­za­tion. How are you ad­dress­ing this change in mar­ket dy­nam­ics? It (de­mon­eti­sa­tion) was a big sur­prise af­ter Di­wali. We im­me­di­ately ad­justed our pro­duc­tion. For­tu­nately, in Jan­uary, we saw cus­tomer sen­ti­ments im­prov­ing with the on­set of the fes­tive and the marriage sea­sons. We grew by 79% over De­cem­ber in do­mes­tic sales. Clearly, mar­ket re­cov­ery post de­mon­eti­sa­tion is hap­pen­ing but is still driven by south and west. While Fe­bru­ary is show­ing near nor­malcy in ur­ban ar­eas, ru­ral re­cov­ery may hap­pen by the end of next har­vest sea­son to­wards March end.

The Bud­get this year did out­line a slew of mea­sures to re­vive de­mand in ru­ral ar­eas. Do you think th­ese would help in re­dress­ing the sit­u­a­tion? The Bud­get an­nounce­ments are good for the mar­ket. In­come tax has been slashed by 5% for small com­pa­nies with an­nual turnover of up to .₹ 50 lakh, this is good for our busi­ness indi­rectly as deal­ers and sup­pli­ers will ben­e­fit. In­di­vid­ual in­come tax too has been re­duced – for peo­ple earn­ing up to .₹ 50 lakh, mainly the mid­dle class, the sav­ing is al­most .₹ 12,000. This trans­lates to an av­er­age of .₹ 1,000 per month, which can largely take care of EMIs for two-wheel­ers. This should give some im­pe­tus. For peo­ple earn­ing up to .₹ 5 lakh, in­come tax has been halved to 5%. In ru­ral and al­lied sec­tors, al­lo­ca­tion has in­creased by a good 24%, cou­pled with in­fra­struc­ture spends and higher sup­port price, the fu­ture de­mand, es­pe­cially in ru­ral ar­eas, looks bright.

Given that th­ese mea­sures have now been an­nounced, what is your out­look for the in­dus­try? Of course, the eco­nomic sit­u­a­tion is not good. But in our busi­ness we have al­ways set high tar­gets. This we have done for the last five years, we have al­ways grown against the wind. Next year, we will raise the bar again. We are def­i­nitely look­ing at grow­ing in dou­ble-dig­its this year as well as in the next fi­nan­cial year. Be­sides, ex­port de­mand for Honda prod­ucts is also grow­ing. This is hedg­ing our busi­ness. In 2016, our ex­ports in­creased by 40% even while in­dus­try ex­ports de-grew by 10%. Our ex­ports’ fo­cus will grow in fu­ture and this is one of the rea­sons we are in­vest­ing in new ca­pac­ity. Honda will add an­other 600,000 units to its third plant to take to­tal ca­pac­ity to 6.4 mil­lion units in sec­ond half of 2017-18.

Can In­dia emerge as an ex­ports hub for Honda? To­day, we are ex­port­ing to over 27 coun­tries in Latin Amer­ica, Saarc. Cur­rently, be­cause of reg­u­la­tion, we can­not sell our prod­ucts in some coun­tries, we have to ad­just to an­other re­gion’s emis­sion norms. But in the next three years, with new norms com­ing in as per global stan­dards, in terms of cost and qual­ity, our prod­ucts will be­come com­pet­i­tive. Prod­ucts made here will be at par with global norms. In the last five years, we have been able to make sig­nif­i­cant im­prove­ment in our over­all prod­uct ap­peal, in the qual­ity of the prod­uct it­self and now more coun­tries are keen to look at In­dia and im­port prod­ucts Made in In­dia. Come 2020, this will go up.

While Honda con­tin­ues to dom­i­nate scooter sales in the do­mes­tic mar­ket, your pres­ence in the mo­tor­cy­cle seg­ment re­mains lim­ited… Since we were strug­gling with our ca­pac­ity, the first thing we de­cided is that we have to meet the de­mand which is there in the mar­ket. There was more de­mand for scoot­ers, so we have favoured more man­u­fac­tur­ing ad­just­ments for scoot­ers in the fac­tory. Yes, this is a chal­lenge. But we have not lost out be­cause we have main­tained our mar­ket share in mo­tor­cy­cles. Now, with the cur­rent line-up, we are get­ting good re­sponse in the mar­ket, es­pe­cially for youth mod­els like CB Shine SP and CB Hor­net 160R. Livo is also do­ing well. We hope that th­ese prod­ucts will give us the num­bers. Next fis­cal, we will have room for push­ing sales of mo­tor­cy­cles. Mov­ing ahead, this will also be taken care of.

The gap in vol­umes between you and your clos­est com­peti­tor has nar­rowed in the last five years. Do you have a roadmap or time­line for at­tain­ing mar­ket lead­er­ship? (I am) very sat­is­fied (with HMSI’s per­for­mance). Last year, we over­took In­done­sia to be­come the num­ber one coun­try for Honda glob­ally. To­day, 30% of Honda two-wheel­ers sold in the world come from In­dia We must con­tinue to drive for cus­tomer sat­is­fac­tion. As long as we are uti­liz­ing max­i­mum ca­pac­ity and grow­ing, we will ex­pand fur­ther look­ing at mar­ket po­ten­tial. In In­dia, our pen­e­tra­tion is around 30%. In In­done­sia, this is al­most 75%. There is a lot of po­ten­tial to grow.


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