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Hero seen riding past Honda exit with own R&D

The Hero Group may need just 3 years to establish full model development capabilities of its own, feel analysts.

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Sindhu Bhattacharya

Updated: Mar 17, 2018, 05:27 AM IST

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The Hero Group may need just 3 years to establish full model development capabilities of its own, feel analysts.

So, in case Honda Motor Company (HMC) decides to walk away from the world’s most successful two-wheeler joint venture company, Hero Honda Motors, and also does not honour the technology transfer pact, the company may just as well survive.

As of now, both — equity partnership and technology transfer pact — are valid till 2014 and there have been mounting concerns over Hero Honda’s fate if the technology sharing is ended suddenly.

According to a report by Pramod Amthe of RBS, in-house technology development would cost around 1.5% of net sales for Hero Honda, making it a much cheaper option that the 2.7% of net sales royalty payment that Hero Honda now makes to HMC to get the latter’s technology. It also spends another 0.3% of net sales on its in-house R&D at present.

Claiming to have met the management of Hero Honda recently, Amthe says the Hero Group has three options in case Honda sells off its 25.5% stake in the JV:

a) Extend technical arrangement till 2017 at same royalty rate - the pact currently expires in 2014;
b) Cut all ties with Honda and stop paying royalties immediately;
c) Renew the technical agreement on new terms in 2014 for sustained, long-term technology inputs.

Hero seen riding past Honda exit with own R&D
It remains to be seen which of these options Hero will exercise.

Meanwhile, on continuing concerns about lack of capacity addition moves at Hero Honda, one of the company’s critical component suppliers told DNA that even as a decision on the fourth manufacturing facility is awaited, Hero Honda has already hiked capacity by 25% at Haridwar.

“The company has enough capacity for now… It is yet to decide on a location for the new facility but has meanwhile increased production at Haridwar to 7,500 bikes a day from 6,000 earlier.”

Another vendor said, though the company seems to have settled on Gujarat for this facility, the ongoing tussle over the joint venture with Honda has delayed this crucial decision.

Amthe of RBS says Hero Honda’s current capacity of 5.8 million vehicles per annum is enough to ensure volume growth till mid-2011.

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