MUMBAI, May 23: Two-wheeler major Hero Honda has targeted a production of 3.90 lakh motorcycles during 1997-98, an increase of 45 per cent, from 2.68 lakh last year. This is the biggest increase planned by the company given that production went up by 17 per cent between 1996 and March 31, 1997.

According to sources, the expanding market coupled with the new platform for motorcycles installed in the Gurgaon plant, the company will have more leeway, in addition to its Dharuhera works.

Hero Honda sold 2.69 lakh motorcycles during 1996-97, of which the CD100 SS, CD 100 and Splendour accounted for 2.5 lakh units.

The balance was taken up by the Honda Sleek and the newly-introduced Street. According to analysts, the same proportion will be maintained this year to realise the proposed target.

The Street has, however, been a disappointment and Hero Honda recently reduced the price of the two-wheeler by Rs 3,500 to Rs 32,000.

The feedback from test riders was that the Street should be ideally priced at Rs 4,000 more than the Bajaj M-80 at Rs 29,000. "The issue here is product concept and people should ultimately understand that it is better than the M-80," say analysts.

Hero Honda is believed to have an enormous advantage in that it has a product for each of the market segments. The CD 100 is the basic no-frills model with fuel efficiency and reliability as USP; the CD 100 SS is the upgraded durable model positioned in the rural market; Sleek the glamorous bike for the urban youth and the Splendour is the premium product with better features and targeted at the urban market.

Analysts believe that the biggest advantage Hero Honda enjoys is its brand image as a fuel-efficient bike. The company expects to leverage on the strong brand image when its earliest customers start looking for replacements.

A recent research report says that on the back of large volumes, Hero Honda has developed strong vendors like Munjal Showa, Hi-Tech Gears, International Instruments and others from whom it sources more than 80 per cent of its components. This has also helped the company to lower its import content.

Hero Honda, the report adds, makes practically nothing at its plant.The only operation done at its Dharuhera works other than the assembly of motorcycles is engine assembly.

This insulates the company in case of a slowdown in the two-wheeler market as it will not be saddled with huge fixed costs and inventories of raw materials.

There will also be tremendous flexibility in manufacture of any model.The Hero Honda scrip has seen hectic buying on the Bombay Stock Exchange during the last fortnight. on Friday, there were only buyers and the share closed at Rs 495, Rs 100 up from its close a fortnight ago.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.