Honda Motor (NYSE:HMC) is investing $328 million to construct a new automobile plant in Indonesia to boost production of its multi-purpose vehicles (MPV) such as Brio and Jazz. Honda is not the only auto company looking to expand manufacturing in Indonesia. The country’s low costs are attracting the attention of auto giants to ramp up production. Toyota Motor Corporation (NYSE:TM), for example, is investing $143 million to scale up local production by 60%. Similarly, Suzuki Motors is investing a whopping $700 million in the country to construct a new engine plant. [Honda follows rivals with Indonesian car market expansion plans, nasdaq.com, 11 June, 2012] Besides Indonesia, Honda plans to sell 500,000 in India in the next four years.
We have a price estimate of $44 for Honda Motors, which is around 30% above the current market price.
Indonesia Offers Opportunity
This is going to be Honda’s second plant in Indonesia. The new plant plant is scheduled to start production from 2014, and, once functional, it will triple Honda’s output to 180,000 vehicles from 60,000 currently. Indonesian car sales grew 17% to 894,180 vehicles in 2011. Although the growth rate is expected to slow down in 2012, the country is on course to overtake Thailand as the biggest car market in Southeast Asia.
Doubling Sales in India
Honda plans to double the sales in the country to a cumulative of 1 million in the next four years. The company has two manufacturing plants in India with a combined total of about 160,000 cars annually. Honda recently completed the sales of 500,000 cars in India, a figure which took almost 15 years to achieve so averaging 125,000 cars on average for the next four years is certainly an aggressive outlining by the company.
Honda sold 58,951 cars in the country in 2010-11 but sales fell in 2011-12 due to supply chain disruptions caused by the tragic earthquake in Japan and floods in Thailand. The automaker is banking on its models Brio, City and Civic to boost sales in the coming years .
Brio, in particular, has been well received by Indian customers since its launch in November 2011 and has sold more than 17,000 units. [Honda Siel unveils plan to sell 5 lakh cars in 4 years, financialexpress.com, May 30, 2012] As part of its promotional campaign to celebrate the sales of 500,000 cars, the company is offering complimentary insurance and extended warranty along with select models of City, Brio and Civic. [Honda kick starts ’5 Lakh Customers Celebration’ campaign, oncars.in, June 6, 2012]
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