Honda’s Hampered in India Given Competition, Thai Floods

December 16th, 2011 by Trefis Team
-3.57%
Downside
33.65
Market
32.45
Trefis
HMC: Honda Motor logo
HMC
Honda Motor

Honda‘s (NYSE:HMC) market share in India has been under intense pressure due to increased competition from other global car manufacturers such as Toyota (NYSE:TM), GM (NYSE:GM), Ford (NYSE:F) and Hyundai (PINK:HYMLF). Also recent deregulation of petrol prices in India have led to sharp increase in prices, in line with the global trend. [1] This has prompted increased demand for diesel cars, which has not been one of Honda’s strengths. [2] To remain competitive Honda has had to cut prices of several models and also has had to focus on development of diesel engine for their cars. [3] [4] But to add to Honda’s woes in the country, the carmaker recently had to suspend production of its Brio hatchback due to parts shortage after the Thailand floods. [5] The lost sales opportunity and lower production will adversely affect not only Honda’s market share but also Honda’s margins in the country.

Our price estimate of $37 for Honda’s stock is around 20% above the current market price.

See our complete analysis for Honda stock here

Recovery expected in medium-long term

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Honda will need to rethink its strategy and focus on technology development to better align its products to the broader market trends in India. In India, Honda has long focused upon sedans but its renewed focus upon small cars should help the carmaker drive its unit sales in the country. In the small car segment Honda products will have to compete against the likes of Toyota Liva, Chevrolet Beat, Nissan Micra, Maruti Suzuki Swift, Hyundai Santro, Tata Nano etc. Moreover recent rationalization of prices should better position the car-maker to win price-conscious Indian customers.

Honda has recently revealed its global strategy, called “Earth Dreams Technology”, to develop improved fuel-efficiency technologies and catch up with its rivals. By 2020 it aims to cut CO2 emissions across all its products by 30 percent, relative to emission figures for 2000. [6] The development of improved diesel engines is included within the six different technology areas that Honda will target. This will help the company address the increased demand for diesel cars in India and recoup market share in the medium-long term.

Also, we expect that Honda’s suspension of Brio production will be short-term in nature as the company strives to recover from the plant disruption in Thailand. In its latest update, the company’s Thailand facilities have begun their recovery efforts such as the cleaning of the facilities from the end of last month. [7]

You can drag the trend lines in the modifiable charts above to see the impact of these trends on Honda’s stock value.

Understand How a Company’s Products Impact its Stock Price at Trefis.

Notes:
  1. No diesel deregulation but get used to petrol swing [↩]
  2. Petrol prices set to boost diesel car sales [↩]
  3. Honda lowers City tag by Rs 66000 as rivals close in [↩]
  4. Honda to focus on diesel engines, small car for India [↩]
  5. Honda Siel Cars India Halts Production of Brio Hatchback [↩]
  6. Honda Announces Revolutionary Next-generation “Earth Dreams Technology” [↩]
  7. About the Impact of Flooding in Thailand on Honda Operations [↩]