Like other auto companies, Honda Cars India was also hit hard due to the Covid-19 pandemic.
Even though its products like Amaze and City are bestsellers in their respective segments, the overall financial position of the company needs improvement. The Economic Times has reported that in the last five years, Honda Cars India has posted losses in three years. The loss in FY17 was Rs 2,272 crore. In FY20, the loss stood at Rs 1,680 crore. The deficit has come down to Rs 1,588 crore in FY21.
Lump sum expenditure in FY21
This year’s loss is mainly due to expenditure of Rs 463 crore on Employee Voluntary Separation Scheme and accelerated depreciation of Rs 587 crore. The first was due to the closure of Honda’s manufacturing facility in Greater Noida. Another major reason for the loss in FY21 was the reduction in sales due to the pandemic and related lockdowns and restrictions.
Honda Cars India is presently in the process of improving its operations as well as financial position. The company now operates from a single manufacturing facility located at Tapukara, Rajasthan. For September 2021, Honda Cars India has reported a 33% decline in YoY and 39% decline in MoM. Honda currently has 4 cars in India – City (4th and 5th generation), Jazz, WRV and Jazz.
The company’s chief executive Gaku Nakanishi had earlier said in a statement that Honda Cars India is currently focused on building a solid, stable and flexible business structure. Increase in size is currently not a focus for the company. Gaku had said that the company expects to make profits in the financial year ending March 31, 2022.
During the second wave, it was felt that things were close to complete collapse. However, the auto industry and economy have been able to register a rapid recovery. Honda is currently seeing strong demand for its cars. This is expected to increase the capacity utilization at the Tapukara plant by around 70% in FY12.
This is much better than the 30% utilization in FY21. In terms of numbers, annual volumes are expected to be in the range of 1.20 lakh to 1.25 lakh units. This is nowhere near the peak that the company achieved 4-5 years back. However, it indicates strong signs of revival.
During the current financial year, Honda Cars India is expected to register double digit growth in sales. The company is also focusing on exports, which stood at 5,364 units in FY21. This was an increase of 48% on a year-on-year basis. Export growth is expected to quadruple in FY22.
Several improvement areas are clear, for example, total volumes have declined by more than 15% during the past five years. The market share is 3% in FY21, while it was 7% in FY16. Lower production means higher fixed cost per unit, which adversely affects operating margins. In FY21, the operating margin was 0.84%, as compared to the average of 5.83% registered during the previous three years. EBITDA on each unit sold declined to Rs 9,580 in FY21 as compared to Rs 61,665 in FY19.
To boost sales, Honda may introduce the new BR-V which was recently unveiled in Indonesia. If launched in India, the 2022 BR-V will compete with the Maruti Ertiga/XL6 and Mahindra Marazzo.