Honda (NYSE:HMC) recently announced its plan to dramatically increase motorcycle production in India to meet increasing demand. [1] Event though this will significantly accelerate the growth of Honda’s motorcycles sales volume, we expect its effect on Honda’s stock value to be mild. Honda’s motorcycles compete with Yamaha (TYO:7272), TVS Motor (BOM:532343), BMW (GR:BMW), Harley-Davidson (NYSE:HOG), Kawasaki (TYO:7012), Suzuki (TYO:7269), amongst others.
Our price estimate for Honda stock stands at $34.04, which is below market price. We estimate that motorcycles, ATVs and water motors contribute around 6.6% to Honda’s stock value.
Honda’s Plan to Ramp up Motorcycle Production in India
To cater to the increasing demand in the rapidly growing Indian motorcycle market, Honda plans to double annual production capacity at its Tapukara plant to 1.2 million units in March 2012. This plant is expected to become operational in July 2011. Moreover, Honda plans to build its third motorcycle plant in southern India by the first half of 2012, with annual production capacity of 1.2 million units.
Low Impact of Motorcycle Revenues on Honda’s Stock Price
As per our estimates, motorcycles, ATVs and water motors contribute around 6.6% to Honda’s stock price. In our base case scenario we expect global sales of Honda’s motorcycle to increase from 11 million units in 2010 to 25 million units by the end of our forecast horizon. In the same period, Honda’s global market share could increase from 19% in 2010 to 26% in 2017.
In the best case scenario, if Honda is able to translate its increased production capacity in India into sales then its annual motorcycle sales could potentially increase by 1.8 million from 2012 onwards. [2] In this scenario, Honda motorcycles global market share will increase to around 28% by the end of our forecast horizon, but this increase will translate into only a mild upside to Honda’s stock value.
You can drag the trend lines in the modifiable charts above to see the impact of these trends on Honda’s stock value.
See our complete analysis for Honda
Notes:- The Wall Street Journal: Honda: To Boost Motorcycle Output In India, May 26 2011 [↩]
- 0.6 million additional units due to doubling of capacity at Tapukara plant and 1.2 million units from Honda’s planned third motorcycle plant in southern India [↩]
