After consolidating its manufacturing footprint and rationalising workforce through a voluntary retirement scheme amid the Covid-19 crisis, Honda Cars India’s balance sheet has returned to black for the first time in three years.

With the aim of making its India operations break even with a minimum volume of one lakh units a year, the company took a series of management restructuring exercises to downsize itself into a leaner organisation in FY2021-22. 

In its annual filing to the Ministry of Corporate Affairs sourced from Veratech Intelligence, the maker of popular City and Amaze sedans reported that it posted a net profit of Rs 230 crore in the previous fiscal — after two consecutive years of losses. The company had last posted a profit of Rs 1,141 crore in FY2018-19

Led by over a 200 percent increase in exports of vehicles and 60 percent rise in parts exports, Honda Cars India posted more than a 20 percent rise in total revenues in FY2021-22 to Rs 12442 crore, despite domestic volumes just growing by over four percent.        

Reviewing its operation, the directors report stated, “the fiscal year 2021-22 was a mixed bag for the industry. Every quarter was punctuated with multiple challenges — from the pandemic to paucity of chip shortage and hike in raw material pricing. The industry, however, showed resilience and succeeded in restoring positivity in the market.”

The turnaround of the Honda Car India was driven by lowering its cost base. The company reduced employee costs by offering a voluntary retirement scheme (VRS) of more than Rs 500 crore in the past two fiscal years. The company had to take a tough call of shutting down its Greater Noida facility in December of 2020. This helped restore its operating profit margin almost back to pre-covid level despite the volume still nearly half of FY2018-19 period.    

The annual filing said that the company will keep focusing on strengthening its business by controlling fixed expenses so that there is improvement in the company’s profitability. “Optimising manpower was surely a hard measure but was unavoidable in our pursuit for a leaner organisation in line with the business volume.”

Honda Cars India sold about 85,000 units in FY2021-22 and posted a growth of just four percent with supply chain shortages proving a big hurdle amid rising demand.

“Due to chip shortages, we had to keep adjusting and realigning our production volumes as per the available supplies,” noted the directors report.

On the volume side, Honda city continued to drive its volume by 48 percent in FY22 and retained its Number One position in the segment with an overwhelming market share of 44 percent.

Honda Cars India posted record high exports in FY2021-22 at 19,401 units led by the addition of new export markets for the City in Mexico, Middle East and other countries. The export of parts and components stood at Rs 1,185.77 crore during the year, versus Rs 738.23 crore in the year FY2020-21. During the year, the company invested Rs 106 crore in CAPEX.

From India, Honda exports the 1.6-litre diesel engine to its Thailand subsidiary for application in the CR-V SUV. The company produces the engine block, head and crankshafts for this engine in-house at its Tapukara plant in Rajasthan. 

With a fully equipped forging and die-casting shop, the carmaker also exports finished crankshafts and connecting rods to its subsidiaries in Indonesia, the UK, Brazil and Mexico. Fully assembled five-speed manual transmissions too get shipped to these countries.

During the year, the company took the first step towards a role-based organisation and it aligned all its policies to make the business profitable at one lakh annual volumes.

To that effect, the external hiring was minimised and internal job rotation was the main source for fulfilling critical positions. A total of 270 transfers across and within operations groups took place in this financial year.

This helped the company to achieve a 40 percent reduction in permanent manpower by the end of the FY2021-22.

“The management of your Company built the consensus to merge the smaller departments and divisions and further optimisation was done through Voluntary Retirement Scheme. In view of the lean Organisation Structure, the layers in operations, division, and department of your company were reduced by 6, 25 and 40 numbers respectively,” the report stated.  

The company reduced the number of designations at the role management level from eight to three.

From the current financial year, all operating heads, division heads and department heads have been designated as Vice Presidents, General Managers, and Assistant General Managers respectively.

Also, the specialist and non-role manager category is created to manage role-based organisations. Non-Management designations have also seen renaming at all levels to align it with the industry.

"This is the first major step in realising a role-based organisation and aligning all policies accordingly,” added the organisation.

With the City sedan continuing to hold its leadership in the mid-size sedan segment, despite fresh competition and plans to enter the mainstream segment in FY-2023-24 under a leaner operational structure, Honda Cars India is hoping to generate even more profits and consolidate its strong and healthy India business.   

However, with a rationalised portfolio that will see discontinuation of the Jazz and WRV and with no plans to bring back the Civic and CRV that were axed in 2020 after the Greater Noida plant closure, the company will need to bring in new models to rebuild its sales and market share. Honda has currently slipped to seventh position in the fast-growing passenger vehicle market.