Thursday December 16, 2010

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By Sam Devraj  ( Assistant Editor )

Bike revolution: Hero Honda to go it alone

INDIA’S largest motorcycle manufacturer Hero Honda Motors announced today it was dissolving its joint venture with Japan’s Honda Motor Co by buying out Honda’s entire 26 per cent stake.

“Today is a new beginning to broaden our horizons,” Brijmohan Lall Munjal, Hero Honda’s chairman, told reporters in New Delhi. No value for the transaction was given.

After exiting from Hero Honda Motors, Honda Motor Co is expected to focus on developing its own wholly owned subsidiary in India.

The Japanese automaker could earn as much as $2bn (£) from the sale of its shares in Hero Honda, founded in 1984 with India’s Hero Group, according to current market values.

Honda and the Hero Group reached a draft accord earlier this month to break up their partnership, media reports said, before gaining final approval from their respective boards of directors.

The New Delhi-based, Munjal family-owned Hero Group and Honda each currently hold 26 per cent of Hero Honda. The remaining stake is held by financial institutions and retail shareholders.

The relationship between the partners became strained after the Japanese firm decided to enter the Indian two-wheeler market through its wholly owned subsidiary Honda Motorcycle and Scooter India (HMSI).

Under its previous arrangement, the Hero Group was responsible for marketing and distributing Hero Honda’s motorbikes while Honda mainly provided technology.

The stake sale should help Honda concentrate on its two-wheeler venture in India, HMSI, where sales have been increasing in line with rising incomes of the country’s middle class, who number up to 350 million.

Hero would gain from exporting more motorcycles and scooters. It is currently limited to exporting motorcycles only to India’s neighbouring countries due to Honda’s global presence.

Hero Honda sold 4.5 million Honda-brand motorcycles in the previous fiscal year, grabbing 48 per cent of the growing Indian motorcycle market, the world’s second-largest behind China.

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