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Honda to invest $64 million in Hero Honda

Japan's Honda Motor Co Ltd said on Thursday it plans to invest Rs 3 billion in an Indian motorbike affiliate as part of its move to make India one of its key global manufacturing bases.

Honda said it aims to raise annual output capacity at New Delhi-based Hero Honda Motor Co, of which is owns 26 per cent, to 1.5 million units by March 2004 from one million now.

Capacity at its wholly owned Indian motorcyle unit, which began production of 100cc Activa motorcycles on Thursday, will also be raised -- to 250,000 by the 2003/04 business year, from the current 100,000, Honda said. No extra investment will be needed for the increase, it added.

As a result, Honda aims to produce 1.75 million motorcycles in India in 2003/04, representing 25 per cent of the Japanese automaker's global output target of seven million.

Motorcycle sales in India have surged in recent years, and now exceed sales of cheaper motor scooters and mopeds in the world's second most populous nation.

Due to their greater fuel-efficiency, sturdiness and higher resale value, motorcycles' share of the two-wheeler market in India has doubled over the past six years to 60 per cent.

That shift has been a boon to Hero Honda, the largest motorcycle maker in India, and a blow to Bajaj Auto, the nation's leading scooter maker. Rahul Bajaj, the chairman of Bajaj Auto, recent said the company will post its poorest results ever for the past year to March.

INDIAN MOTORCYCLE SALES DATA

Two-wheeler sales data for February, compiled by the Society of Indian Automobile Manufacturers, reflect the long-term trend in sales.

Scooter sales plunged 35.4 per cent and moped sales by 23.9 per cent from year-earlier levels, while motorcycle sales rose by 3.8 per cent.

The SIAM numbers showed that total two-wheeler sales in the first 11 months through February were flat, growing a mere 0.44 per cent over the same year-ago period to 3.4 million. But a recent cut in the excise duty to 16 per cent from 24 per cent on two-wheelers with engines over 75cc, and reduced interest rates, are expected to rev up sales in the months ahead.

"We expect 6-7 per cent growth in total two-wheeler sales in 2001/02, with motorcycles growing at least 15-20 per cent," said Abhay Kantak, an analyst with Indian brokerage Inquire Motilal Oswal.

Hero Honda's sales jumped 28.8 per cent to 87,656 in February. It sold 932,821 motorcycles between April 2000 and February 2001, up 37.7 per cent from the same period a year earlier.

Honda is expected to boost exports of Indian-made motorcycles as a result of its expansion, industry sources said.

Hero Honda exported 10,600 motorcycles to Sri Lanka, Bangladesh, Latin America and Africa in calendar 2000.

Shares in Honda closed at 4,900 yen on Thursday, down 1.61 partly due to Honda's announcement on Wednesday that it was recalling 88,644 cars in Japan. The technology-sensitive Nikkei average finished 1.35 percent higher at 13,352.44.

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