The Hindu Business Line : Hero Honda in-house team to study capacity cuts

At the new plant: (From left) Mr Brijmohan Lall Munjal, Chairman, Hero Honda Motors; Mr Fumihiko Ike, Chief Operating Officer, Asia Oceania Region, of Hero Honda Motors, Japan; and Mr Pawan Munjal, Managing Director and CEO, Hero Honda Motors, at the newly inaugurated plant at Haridwar on Tuesday. —

Priyanka Vyas

Haridwar, April 8 Top two-wheeler maker Hero Honda Motor Ltd said that it has set up an in-house team that would look into whether the company needs to cut capacity at any of its existing plants vis-a-vis its future requirements. This, even as the company announced investments of an additional Rs 150 crore in the current fiscal to scale up capacity at its facility here, which was inaugurated on Tuesday. A sum of Rs 450 crore had been invested earlier in the plant.

“We have undertaken project Samadhan within the company that will come out with a solution for utilisation of full capacity. Right now we want to maximise production at the Haridwar plant to gain from the excise duty benefits,” said Mr Pawan Munjal, Managing Director and CEO, Hero Honda. The move would help the company counter the enormous pressure being created by increasing input prices.

However, he declined to comment on whether that would mean having to cut production at its other two facilities in Dharuhera and Manesar. Mr Munjal was talking in context of the company’s ability to utilise the capacity of its three plants at a time when the two-wheeler industry has been seeing a declining trend.

Declining bike sales

Commenting on the sales outlook with increased capacity, Mr Munjal said, “Considering that the two-wheeler industry has been on the decline, we hope that we can maintain the same growth that we achieved in March.” The company produced 3.3 million bikes last fiscal. In the current fiscal, the company plans to produce 7 lakh bikes.

The Uttarakhand plant, with a capacity to produce 1.5 million bikes a year, is the third for the company.

The company said that it will invest the additional Rs 150 crore by end-2008. The total investment it would make, along with its ancillaries, would be to the tune of Rs 1,900 crore by 2010.

Hero Honda had completed the construction of the plant last year but delayed the operations to avail the full 10-year tax holiday from the State Government. Initially, 40 of the component companies would be located in the industrial park, and over the next two years 100 vendors would be located in the premises. Mr Munjal said that the company would produce Splendor and Passion at the new plant. “We will produce high volume, high margin bikes here,” he said.

Mr Munjal was optimistic about the future of the motorcycle industry in the country and said that he was of the view that it would grow and there would be no problem of excess capacity in the market going forward.

Realty check

Hero Honda, which has been talking about new business opportunities in the past, may now be considering venturing into the real estate business. The group has floated a separate company, Arrow Infrastructure which would be setting up the infrastructure close to the Haridwar plant.

“We have realised that modern day facilities like schools, hospitals, modern housing, multiplexes are not present in Haridwar. We have engaged Arrow, a separate company within the group, that would build these near the plant,” said Mr Pawan Munjal.

When asked about Arrow expanding to other geographies, Mr Munjal said, “This is a starting point for Arrow. It will look into new businesses as and when the need arises.”

He, however, declined to comment on whether the group would go it alone in the new business or engage with a specialist partner, stating that it was too early to talk about it.