"We are looking at consistent double digit growth over the next 3-4 years, which calls for a new plant. Coupled with the money for new models, the investments can be Rs 500 crore (Rs 5 billion) to Rs 600 crore in the next two years," Pawan Kant Munjal, managing director, Hero Honda said.
As per the expansion plans, the blue chip two-wheeler giant would set up its third plant possibly in one of the northern states and enter the scooter segment by next year.
The joint venture company, in which Munjals and Japan's Honda Motor Company have 26 per cent equity each, would generate resources internally for the investment plans.
The cash rich company posted a profit of about Rs 810 crore (Rs 8.1 billion) during 2004-05, reflecting an 11 per cent growth over the profits in the previous year, despite showing a marginal dip in the last quarter (January-March 2005). Munjal said the company has scouted locations in tax-relief states like Uttaranchal and Himachal Pradesh and was working on finer details before taking a final call.
Asked if the company could also look at inorganic growth options to retain more than 50 per cent market share in the face of competition from national and international players, Munjal replied in affirmative.
"We are open to the option (of acquisition). But at this moment we have nothing in mind," he said. Munjal said that an announcement about the location of the new plant could be made "soon" but declined to give a time-frame.
"We are working on this and all I can say is that we are keen to make a quick decision on the new plant," he said.
The company, which saw sales increase 27 per cent in 2004-05, currently has a capacity of about three million units between its two plants in Haryana. The total sales for the company stood at 26.7 lakh units and the bike maker managed to raise its market share by two per cent to 50 per cent.
On the exact level of investments for the third plant, he said it would depend on the type of facility it opted for.
"It has to be seen whether we decide on a full manufacturing unit or an assembly type," he said, adding that in the present circumstances, the assembly option looked more likely as it involved more of outsourcing.
Even as it maintains its market leadership, the company has some areas of concern. Primary among them is the increased competition from close rival Bajaj Auto, apart from threats by the direct entry of joint venture partner Honda in the market and impending entry of players like Suzuki.
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