Honda may exit joint venture at 30-33% discount

Honda Motor Company will sell its entire stake in Hero Honda Motors Ltd (HHML) to partner Hero Group at a 30-33% discount to the current market price, industry sources said.

The deal, if it happens, will be in the region of $1.4 billion and not the $2 billion Honda could have earned had Hero agreed to pay the market price.

Now, whether the Hero Group agrees to this remains to be seen. But the Japanese major has agreed to continue the technology transfer pact beyond 2014 and this should be good news for Hero.

Even on the royalty front, the deal appears skewed towards the Hero Group, with the royalty rate expected to remain unchanged.
Honda holds 26% equity in Hero Honda and the two partners have been in prolonged negotiations to break up the world’s most successful two-wheeler joint venture.

Sources said the transaction should be sealed either later this month or in January 2011.

“As far as I know, it has already been decided that share transfer will happen at 30-33% discount. It has also been decided that the technology transfer pact will go beyond 2014 so that product plans do not go haywire,” an industry veteran told DNA.

If true, this means the Hero Group is assured about technology sourcing and its long term product plans remain unaffected.    

In fact, with Honda out of the way, Hero can then look for lucrative export markets - something it cannot do under the JV.
This industry veteran also said that as per his information, the royalty payment rate will remain unchanged - it will not increase - though the period of royalty payment would expand.

“Reports about increased royalty payment are incorrect. My information is that royalty rate will remain unchanged though royalty will have to be paid for a longer period.”

So while Hero looks for export markets, Honda has big plans for its wholly owned arm - Honda Motorcycle & Scooter India (HMSI) - in India. According to vendors, HMSI has already indicated that it will almost double production capacity across its two manufacturing plants to about 9,000 units a day or 2.7 million units next fiscal.

Though the 110 cc CB Twister is expected to sell in modest numbers - production target averages 720 units a day in FY12 - HMSI is also planning to launch a new bike in March. Its scooter production is expected to jump significantly with new Activa, Aviation and Deo scooters together touching daily production target of about 4150 a day or over 1.24 million units. Bikes - Unicorn family, Shine, CB Twister, Stunner and the new model - will account for another million units.