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
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.