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Honda to invest $650 mn in India

Honda will invest about Rs 30 bn over 10 years in India and double annual car capacity by the end of 2007.

india Updated: Jul 12, 2006 12:58 IST

Japan's Honda Motor Co Ltd will invest about Rs 30 billion ($650 million) over 10 years in India and double annual car capacity by the end of 2007 to meet growing demand, its chief executive said on Monday.

Asia's third-largest economy has expanded at an average 8 per cent in the past three years as rising salaries and disposable incomes fuel demand for everything from cars to mobile phones among a growing middle class.

"In the future India is going to be a more important place than China," Honda CEO Takeo Fukui told reporters. "The growth rate is coming close to China's numbers and one factor in favour of India is that it is a democracy and it has a great future."

Honda sold 3.6 million bikes and scooters in India in 2005 -- the largest number of two-wheelers the firm sells in any single country. It has invested Rs 30 billion in India in the past two decades.

Honda, which operates four business units in India, is bullish on growth prospects for the booming automobile market and expects it to more than double to about 3 million units by 2015, with car sales accounting for 75 per cent of volume from 60 per cent now.

Honda, which sells the City, Accord and a sports utility vehicle in the country, has "begun investigations" to launch a new model for India which would be smaller than its City ZX model sedan. It will also launch the Civic sedan on Tuesday.

Competition

Honda competes mainly with market leader Maruti Udyog Ltd, Tata Motors Ltd and the Indian units of Hyundai Motors, General Motors and Ford Motor. Maruti Udyog is majority owned by Japan's Suzuki Motor Corp.

Honda's India sales were expected to rise by 48 per cent year on year to 62,000 units by the end of 2006.

Production capacity would be doubled to 100,000 units by the end of next year as a large number of buyers upgrade from small hatchbacks to sedans.

"Demand is expected to increase further to 150,000 units by 2010," Fukui told a news conference in the Indian capital.

Honda operates four businesses in India. It has a 26 per cent stake in the country's top bike maker Hero Honda Motors Ltd and controls 99.9 per cent of unlisted Honda SIEL Cars India Ltd.

A wholly-owned subsidiary makes gearless scooters and Honda also sells generators in India.

Fukui said its Indian partner in Honda SIEL would be allowed to raise its stake to up to 5 per cent from the current 0.1 per cent.

Siddharth Shriram, chairman of the SIEL group, said a 5 per cent stake would cost him Rs 730 million, valuing the car firm at Rs 14.6 billion.