Existing capacity is sufficient for FY11: Hero Honda

With it's promoters heading for a split Hero Honda's plan to set up it's manufacturing facility is getting delayed even as the company said its existing capacity would suffice for the ongoing financial year.

" We are looking at several locations for our 4th plant, and will take a final decision in due course of time. Our current installed capacity is enough to meet the market demand for this fiscal," a company spokesperson said.

Without specifying details, the spokesperson said hero Honda is adding capacies at it's existing plants. At present it has an installed capacity of 5 million units per annum at its existing plants. At present it has an installed capacity of 5 million units per annum at it's three facilities at Dharuhera and Gurgaon in Haryana and Haridwar in Uttarkhand. It sold 46,00130 two-wheelers last fiscal.

Hero Honda top management had in the begining of the year stated that by about September a final location of the 4th plant was likely to be announced.

Earlier in March, Hero Honda Managing Director and CEO Pawan Munjal had said the company was conductiong a feasibility study in 10 states to find the best suitable location for its fourth manufacturing facility and that the decision would be taken in the next 6 months.

"the feasibility study would come up with capacity, investment, models and the location. It is going to take us six months to take the final call," he had said.

Even, Hero Honda Senior Vice-President (Marketing and Sales) Anil Dua had said during the SIAM Annual Convention on August 25 that the company had completed its field work and "the finalisation (of the new plant) will hopefully be closing in a month or so".

The plans now seems to have altered with the Hero Group set to buy out the Japanese partner Honda's 26 per cent stake in their joint venture.

The Hero group and Honda hold 26 per cent each in Hero Honda, that started operations in 1984 to become the world's largest two-wheeler maker today. It is understood that the Hero Group is arranging funds on its own to finance the buy out of Honda's stake.

According to sources in the know of the development, the two partners have already agreed that current royaly rate per mondel paid to Honda will remain unchanged. The royalty paid in 2009-10 on an average was 2.3 per cent to 3 per cent of sales.

However, in the case of seperation, Honda will continue to provide technology and models to the Hero Group for a transition period, the minium for which is till 2014 as per their existing joint venture agreement.

The shares of the company were trading marginally down during later afternoon at Rs 1772 a piece on the Bombay Stock Exchange.