Hero & Honda technology pact to be on till 2014

Mail Today Bureau   New Delhi     Last Updated: December 6, 2010  | 10:51 IST

Even as the Hero Group and Honda Motors are set to go their separate ways by the end of this month, their technological collaboration will continue till 2014, for which the Hero group will pay annual royalty of Rs  1,400 crore, a senior Honda Motors official said.

Months after denying reports of splitting, Hero Group and Honda Motors will announce their parting of ways by the end of this month, the official said.

"It is a known fact now. Both the firms will officially announce the split once the terms and agreements are all worked out. I think it will be out by end of this month," the senior executive of Honda Motors told Mail Today . " However, the Hero Group will continue to get the technological support from Honda Motors till 2014 by paying Rs  1,400 crore as annual royalty to Honda Motors," he added.

According to the executive, this is part of the terms and conditions that both companies are working out for their smooth separation.

The firms are trying to thrash out the amount that the Hero Group needs to be paid to Honda Motors to bring the curtains down on the joint venture.

At present, Honda Motors and Hero group, promoted by the Munjal family, both hold 26 per cent stake each in the joint venture that started 26 years ago.

As a part of the exit agreement Honda Motors will sell its 26 per cent stake to Hero Group.

"The negotiations are already on and Honda Motors is quoting $ 1.2 billion ( Rs  5,400 crore) to sell their stake. They want to use ( part of) this money to set up a new plant for their wholly owned subsidiary Honda Motorcycle and Scooter India Ltd ( HMSI).

HMSI needs Rs  500 crore to set up its second plant in Bhiwadi, Rajasthan," the official said.

Honda Motors has already shifted its focus to its wholly owned subsidiary HMSI. The second facility is expected to be operational by the second half of 2011.

It is already planning to set up its third plant in Andhra Pradesh at an investment of Rs  1,000 crore.

HMSI has established itself as a market leader in the scooters segment.

The company sold 520,466 units in the first seven months of this fiscal, a jump of 35.41 per cent over the 384,369 units it sold in the same period last year.

After the success of Honda Activa in the Indian market, the company is focusing on lowcost bikes keeping in mind the growing competition from local players. Recently, the company said it will manufacture a $ 600- bike ( about Rs  26,000) in China and is considering launching it in the Indian market as well.

Even Hero Honda, the current market leader in the twowheeler segment is planning to go ahead with its expansion plan.

At present, Hero Honda has a 48 per cent market share of the Indian two- wheeler market.

Last year, it sold 4.5 million twowheelers.

However, experts say that the huge royalty money may disturb its balance sheet.

Hero Honda has three facilities - one each at Dharuhera, Gurgaon and Haridwar, with a total capacity of 50 lakh units a year.

The group is already in the process of setting up its fourth facility.

Courtesy: Mail Today 

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