Like other auto companies, Honda Cars India was significantly impacted due to Covid-19 pandemic
Even though its products like Amaze and City are among bestsellers in their respective segments, overall financials of the company need improvement. Economic Times has reported that in the last five years, Honda Cars India has posted losses in three years. In FY17, the losses were at Rs 2,272 crore. In FY20, the losses amounted to Rs 1,680 crore. In FY21, losses have reduced to Rs 1,588 crore.
One-time expenses in FY21
This year’s losses are primarily due to Rs 463 crore worth of expenses on employee voluntary separation scheme and accelerated depreciation worth Rs 587 crore. The former was due to shutdown of Honda’s manufacturing facility at Greater Noida. Another key reason for losses in FY21 was reduced sales due to the pandemic and related lockdowns and restrictions.
Honda Cars India is currently in the process of improving its operations as well as financials. The company now operates from a single manufacturing facility located in Tapukara, Rajasthan. For Sep 2021, Honda Cars India have posted a 33% decline YoY and 39% decline MoM. Honda has 4 cars on offer in India currently – City (4th and 5th gen), Jazz, WRV and Jazz.
In an earlier statement, the company’s chief executive Gaku Nakanishi had said that Honda Cars India is currently focused on building a solid, stable and flexible business structure. Growing in size is currently not the focus for the company. Gaku had said that the company expects to post profits in financial year ending March 31, 2022.
Strong demand
During the second wave, it was felt that things are nearing a total collapse. However, auto industry and the economy have been able to register a fast recovery. Honda is currently witnessing a strong demand for its cars. This is expected to boost capacity utilization to around 70% in FY22 at its Tapukara plant.
This is much better than 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 close to the peak that the company had achieved 4-5 years back. However, it does indicate strong signs of revival.
During the on-going fiscal, Honda Cars India expects sales to register double-digit growth. The company is also focusing on exports that numbered 5,364 units in FY21. This was YoY growth of 48%. Export growth is expected to quadruple in FY22.
A number of improvement areas are evident, for example, overall volumes have shrunk more than 15% during the last five years. Market share is 3% in FY21, as compared to 7% in FY16. Reduced production means higher fixed cost per unit, which adversely impacts operating margin. In FY21, operating margin was 0.84%, as compared to an average of 5.83% registered during previous three years. EBITDA on every unit sold reduced to Rs 9,580 in FY21, as compared to a high of Rs 61,665 in FY19.
To boost sales, Honda could introduce the new BR-V that was unveiled recently in Indonesia. If launched in India, 2022 BR-V will compete with the likes of Maruti Ertiga / XL6 and Mahindra Marazzo.
