Hero group to Buy Honda Stake in Joint Venture

Honda could see $2 billion from sale of shares

India's largest motorcycle manufacturer Hero Honda Motors announced on Dec. 16 that it was dissolving its joint venture with Japan's Honda Motor Co by buying out Honda's entire 26% stake.

"Today is a new beginning to broaden our horizons," said Brijmohan Lall Munjal, Hero Honda's chairman.

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 two billion dollars from the sale of its shares in Hero Honda, founded in 1984 with India's Hero Group, according to current market values.

The New Delhi-based, Munjal family-owned Hero Group and Honda each currently hold 26% 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 neighboring countries due to Honda's global presence.

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

Hero Honda contributes roughly one-third of Honda's worldwide sales, but Honda reckoned that it needed to have full control over operations to respond quickly to market changes, the Nikkei business daily said earlier this month.

Copyright Agence France-Presse, 2010

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