Honda hikes spend on Indian capacity growth, promotion

Setting its sights on the longer term, Japanese Honda Motor's two Indian subsidiaries for cars and two-wheelers are reportedly sacrificing profits in the short term as the company builds scale through new products, manufacturing capacity ramp-ups and promotional spending.

Honda Motorcycle & Scooter India (HMSI), the Honda subsidiary that makes two-wheelers, posted its first decline in profit in the last five years, and its car subsidiary Honda Cars India saw losses swell to Rs1,000 crore in 2012-13.

HMSI's net profit for FY13 declined over 5.54 per cent to Rs389.31 crore against Rs412.18 crore in FY12, whereas for Honda Cars India losses jumped over 85 per cent to Rs1,109 crore, the company announced today.

While Honda Cars has accumulated losses of Rs1,300 crore, Honda's two-wheeler arm is sitting on a surplus of Rs1,100 crore. Honda Cars India volumes grew by over 35 per cent in FY13 to 73,483 units with a market share of 2.74 per cent, whereas HMSI posted a healthy volumes growth of 31 per cent to 2.75 million vehicles.

Barring the Amaze, which was launched in the current financial year, all its other car models declined in line with the market trend in FY13.

At the two-wheeler subsidiary, the increasing share of lower-margin mass market motorcycles, a rising ad spend (the company having hired film star Akshay Kumar as its brand ambassador), and an increase in manpower and raw material costs took a toll on the company's profits and margins.

In FY14, HMSI also tied up with HDFC Bank to sell the Dream Yuga with an attractive finance offer and in some markets, the company had schemes with no processing fee.

An HMSI spokesperson said the company has been on an aggressive expansion drive since FY10.

"To realise this huge sales growth, appropriate investments and expense on capitalisation of the second plant at Tapukara, Rajasthan, due to which depreciation costs have significantly risen and PAT (profit after tax) been impacted,'' an HMSI spokesperson said.

A spokesperson for Honda Cars India said, "At any time, there are internal and external factors at work which impact a company's performance and recent currency weakening is one of the reasons at play. With a clear product strategy and expansion plans we are confident of a new phase of growth for Honda in India."

HMSI said attributing falling margins and profits to the increasing share of motorcycle sales would be inappropriate. "Primarily, heavy investments for additional production capacity resulted in moderation of margins," the company explained.