HERO HONDA RENEWS DEAL WITH HONDA

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Motorcycle market leader Hero Honda is planning a Rs 200 crore investment this fiscal focussing on two new bike models, a scooter project and a proposed third plant.

The company renewed its technical agreement with JV partner Honda Motor Company for another 10 years. "We will also be coming out with a next generation series of engines in which we will try to pack in better performance at a lower cost," Mr Pawan Kant Munjal, managing director, Hero Honda said.

Work on the new engine series has already started and will compliment the company's product plans for the next four years. "We have frozen the model line up till 2008. We will widen and expand our current range with this comprehensive engine series," Mr Munjal said.

Also on the anvil in 2004 is a decision on the company's third plant. After short-listing four states -- Karnataka, Tamil Nadu, Maharashtra and Rajasthan, the company went slow due to pre-poll political uncertainty. "Now that the dust has settled, we will complete the study" he said. Hero Honda officials expect a decision on this count in two months given the company's current production constraints.

While a greenfield plant is the first option, Hero Honda is also not opposed to acquisitions. "We are not going out and looking at existing plants but if something good comes, we will surely consider it," he added.

The current fiscal is crucial for Hero Honda because JV partner HMC's 100 per cent subsidiary Honda Motorcycle and Scooter India (HMSI) will crank out its first bike this year. "According to our plan which is also an understanding with Hero Honda, HMSI will launch its first motorcycle model in 2004, most likely in October," said Mr S Toshida, managing director and COO, regional operations (Asia and Oceania), HMC.

While declining to divulge more details, Mr Munjal added that both companies (Hero Honda and HMSI) will be making bikes in similar capacities because the Indian market is more in the 100 cc-125 cc-150 cc range. They might go up to 200 cc segment.

As for Hero Honda's foray into the scooter market, so far dominated by HMSI, Mr Munjal said that HMC is already supplying technology for a scooter which is on the drawing board. "We would want to get into a niche market with scooters and we will launch soon," he remarked. With HMSI getting into bike territory, the model coordination committee, comprising representatives from Hero Honda, HMSI and HMC, has also come into being. This structure will provide prior intimation of each other's launches.

Hero Honda is also negotiating with HMC for better export exposure. "We are in discussion with Honda on that once we have a better agreement, we will have an edge in exports because we will be able to utilise existing Honda infrastructure," Mr Munjal remarked.

As for cannibalisation by HMSI products, Munjal said that there is a huge market waiting and to some extent there will be cannibalization. But even now it happens within the Hero Honda product range itself.

HMC intends to continue with the "necessary support" on new products to Hero Honda and will "strengthen R&D in India," Mr Toshida said. "We want to make both companies successful and if they compete they will expand the market," he added.
While Hero Honda officials explain that some degree of common vendor sourcing has already started to maximise cost benefits. But these issues have not been included in the agreement between Hero Honda and HMC.

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