Sale of Honda’s stake: future at Hero Honda
January 30, 2011 No Comments
Sale of Honda’s stake: future at Hero Honda
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Home Page > Business > Business Ideas > Sale of Honda’s stake: future at Hero Honda
Sale of Honda’s stake: future at Hero Honda
Posted: Jan 05, 2011 |Comments: 0
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India is the second largest two wheeler market in the world after China. Demand for two-wheelers is up by 24.52% from 2009 to 2010 with total sales of 10.5 million units. The motor cycle segment contributes around 80% of the two wheeler market. The key factors driving the growth are huge demand for two wheelers from rural India, availability of easy financing options and lack of quality public transport infrastructure. The world’s largest two wheeler company, Hero Honda Motors Limited is the leading player in the Indian market. Hero Honda is a joint venture between India’s Hero group and Honda Motor Company of Japan. Hero Honda leads the market with the total unit sales of 4,600,130 two-wheelers in the year 2009-10. Company recorded a profit figure of Rs. 2231.83 Crores in the FY 2009-2010, with 23.6% growth in unit sales.
Recently the 26 years old partnership saw a turn, when Hero group and Honda Motors decided to part ways, with Honda motors selling its entire stake in Hero Honda Motors Limited. Shareholding pattern of Hero Honda consists of 26.2% with Hero group (Indian promoter), 26% with Honda Motors (foreign promoter), 31.75% with foreign Institutions, 7% with general public and rest 10% is with financial institutions, banks and mutual funds etc. Honda Motors stake in the company has a market value of nearly $2 billion which will now be taken by the Hero Group’s Munjal family. Till now Honda Motors has provided the technology support for the products and Hero Honda has manufactured and sold the products through its large dealership network. Honda is being paid royalty on each product sold by Hero Honda. The strong technological prowess of Honda group with strong dealership network of Hero has made the partnership as one of the most successful JV in the history. As per the sources, Honda and Hero were sparring on issues such as increasing royalty and spare part purchases through Honda Motorcycles and Scooters India, which Hero group had been resisting since long time. Also now Honda group wants to focus on its wholly owned Indian unit established in the year 1999.
Under the new terms agreed between the two parties, Hero Honda will continue producing and selling all the current models in the market. The company will be free to develop new products to sell in domestic and international markets and to acquire new technology. Honda officials said that there is also a plan to grant new licenses for the new products which will be introduced under the new brand. As per the terms and conditions of the separation, the R&D support from Honda will continue till 2014 i.e Hero has four years to catch up on their R&D processes.
There are certain key issues which are coming in light after the Hero – Honda split. One, by 2015, it will be mandatory for all the two wheelers to meet the BS IV norms. In order to meet this requirement, manufacturers would need to make large investments in technology. Honda is well versed with the fuel injection system, which is required to meet the emission norms, while the Hero group would lose this technology know-how as a result of the split. Secondly, Hero Honda is facing problem with the unmentioned royalty amount payable to Honda. Hero group also fears that company would be forced to pay huge expenses to Honda for Technology support till the next stage of emission norms.
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