Honda Gains Ground In The Indian Two-Wheeler Market

by Trefis Team
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Global automobile manufacturer Honda (NYSE:HMC) has for the first time in its history in India since it separated from its JV with Hero Group in December 2010, recorded the second highest monthly sales among all the players in the Indian two-wheeler market. In March, Honda sold 210,383 vehicles, up 50% compared to same month in 2011. However, sales lagged far behind its erstwhile partner Hero, but was 2,249 units more than Bajaj Auto – another dominant player in the Indian two-wheeler market. [1] Honda (NYSE:HMC) competes in the Indian automobile market with other global car manufacturers such as Toyota (NYSE:TM), GM (NYSE:GM), Ford (NYSE:F) and Hyundai (PINK:HYMLF) and Indian players such as TVS Motors, Hero Motocorp and Bajaj Auto.

Our price estimate of $44 for Honda’s stock is around 15% above the current market price.

See our complete analysis for Honda stock here

The Indian two-wheeler industry landscape has changed dramatically for Honda since it ended its 26-year-old JV partnership with Hero Group, the current market leader, in December 2010.

Hero Honda, as the joint venture was called, was the most prolific two-wheeler seller in the Indian market. It enjoyed a market share of over 50% and sold more vehicles than second, third and fourth players combined together. However, in 2010, the board of the joint venture decided to terminate the JV in a phased manner. Hero decided to buy out Honda’s 26% stake in the JV and get the rights to export its products in international markets, a condition which was prohibited under the terms and conditions of the venture.

This left Honda on its own in the market. Honda now operates in the two-wheeler segment through its Indian subsidiary, Honda Motorcycle & Scooters India (HMSI), while Hero group operates through Hero Motocorp.

Over the years, Honda has developed a good brand connect in India and, with its superior technology, it should be able to perform well in this market. The large size of the Indian two-wheeler market coupled with solid margins makes it extremely attractive for the global auto giant. Honda’s current sales in India are mainly driven by Activa-branded scooters while its CB Unicorn bikes continue to lag far behind that of Bajaj Auto. Honda is now looking to strengthen its position in this segment by introducing a new high volume 110 cc bike Yuga next month.

Honda has stated that it aims to become the market leader by 2020 by cornering a third of the Indian two-wheeler market. The company expects to increase India’s share of its global sales to about 30%, up from 13% currently. According to Trefis estimate, the motorcycle segment is the most important for the company, accounting for nearly 20% of the stock’s value. If Honda is indeed able to achieve this goal, it would result in a significant upside to the company’s stock price.

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Notes:
  1. Honda Motorcycle & Scooter India sales up 50% in March; jump 27% in 2011-12, Economic Times, April 2, 2012 []
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