It is better to consolidate and aim for the low-hanging fruit, stresses Yadvinder Singh Guleria.

He is responding to a query on Honda’s leadership ambitions in India’s competitive two-wheeler arena where its former partner, Hero MotoCorp, is still leading the race. As Senior Vice-President (Sales and Marketing) of Honda Motorcycle and Scooter India, Guleria believes it makes sense to improve on the leadership positions in existing regions rather than “open many doors”.

“How many states should we add to bridge the gap with the market leader?” he wonders aloud, clearly implying that this is not the ideal way forward. Being a global company, continues Guleria, Honda knows that being a Number One player in some regions only means that it can build on this base even more strongly.

For instance, it has an 80 per cent market share in Brazil and over 65 per cent in many parts of ASEAN where it leads the leadership stakes. India is not only the world’s largest two-wheeler market but a hugely diversified landscape. To that extent, it is akin to being a host of countries within a large subcontinent which, in turn, translates into huge opportunities.

It is from this perspective that Honda intends to grow its presence here in the coming years. “This means that the south and west can further grow for us. There are markets where we have 60 per cent share within India. Why not expand especially when the brand is doing well?” asks Guleria.

From his point of view, it is important for Honda to constantly build on volumes every year so that all its stakeholders, be it dealers, suppliers or financiers, benefit in the process. He is also quick to admit that it is impossible for the entire retail network to grow at the same pace simply because local conditions are different.

“Growth must come for every region, network and zone, which is the rule we follow. We also know that our Number One position across many states is also at different levels and there is a natural demand for the brand,” continues Guleria.

He then quickly rattles off hardcore facts, which more than establish Honda’s top status in many parts of India. It is right on top across the west and south while the east is also a “very good” hunting ground for the company.

Strengths

Likewise, pockets of north and central India also have leadership slots for brand Honda. Despite these impressive figures, Hero is still ahead. The difference lies in huge states like Uttar Pradesh, Rajasthan and Bihar (among others) where the Indian company has had a vice-like grip for decades and is clearly in no mood to give up its leadership position.

An urban brand in contrast, Honda is now building its network aggressively in rural India but there is still a lot of ground to cover. Guleria reiterates that there is tremendous work in progress where there are clear indications that smaller towns are taking to scooters in a big way.

After all, this product is the mainstay of Honda’s business in the country accounting for two-thirds of its sales. The Activa is its largest selling brand and has been growing from strength to strength over the years. In motorcycles, it is the Shine that is the top performer but, all in all, scooters are leading the way for Honda.

Growth is necessary

“We still have to grow and access those regions where we are still not fully represented,” says Guleria. In the process, Honda is hopeful that ‘scooterisation’ will taken even greater strides given that the rules of the game are changing in India. This is from the viewpoint of more women empowerment instead of the traditional patriarchal structure in smaller towns as well as better roads now in place.

Whether all these efforts, coupled with the focus on consolidating leadership positions, will help overtake the market leader still remains to be seen. There is no question, however, that Honda has increased its presence strongly over the last eight years since since the time it parted ways with Hero.

Its plant capacity has grown nearly four-fold to over six million units and by early 2020, this will be seven million once the expansion plan in Gujarat is complete. When that happens, this facility will be rolling out 1.8 million units annually making it the second largest Honda two-wheeler plant in India after Karnataka which is at 2.4 million units annually.

Rajasthan and Haryana jointly account for another 2.8 million units and it is very likely that the company will keep its options open for yet another facility in India in the near future. This will, however, only be considered after the implementation of Bharat Stage VI norms in April 2020.

According to Guleria, this new era will see manufacturers fine-tuning their strategies. “All of us will have to relook at present systems of inventory management though the good news is that sufficient time is available,” he says, an obvious reference to the BS KIV transition in 2017 when stocks have to be liquidated in a matter of a few days.

The only way out, in the event some manufacturers are not ready, is to reduce production of BS IV models because it will lead to inventory pile-up whose value will be zero on April 1 2020. “We are on schedule with the first to last model and they will all be upgraded well before the deadline,” says Guleria.

During the ramp-up in the transition, it is not easy to maintain the same efficiencies in a line. As he adds, there are different quality checks and manpower will need time to get used to the same levels of efficiencies. It is during this transition time, which could see some impact on volumes.

“Moving forward, there are questions/unknowns on price points and market acceptance. There will be a time lag before reality sinks in on the new price position,” says Guleria. Prior to BS VI, there will also be added costs on ABS, which comes into effect on April 1, 2019.

Headwinds

Of late, the two-wheeler industry has been facing headwinds in terms of higher insurance levies and costlier fuel, which has affected sentiment across the board. Guleria admits that the insurance premium hike “really hit everyone” even though it was marginally reduced thereafter.

Funding also became a challenge especially in rural areas and along with the insurance headwinds became an opportunity lost for two-wheeler-makers who were looking forward to a far brisker festive season.

Clearly, this problem is not going to disappear in a hurry and the challenge for companies is to come up with better finance schemes for customers.

The silver lining in the cloud is that the shock of the insurance hike has been absorbed and customers now know that they just need to pay more for their products.

“We need to factor in these abnormalities and disruptions as part of the business. Two-wheelers are a need and not a luxury but customers will buy so long as finance is available,” reasons Guleria.

With national elections due in mid-2019, there could be some good news coming from the Centre in terms of fiscal sops that could boost buying. Yet, for now, it is almost certain that growth may remain in the single digit territory for the two-wheeler industry this fiscal.

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