It is curtains for the country's most successful automobile joint venture Hero Honda Motors Ltd as the Hero Group announced on Thursday its decision to buy out the entire 26% stake owned by Japanese auto giant Honda Motor Corporation for an undisclosed sum.
This draws to a close a 26-year-old association that created the world's largest two-wheeler manufacturer.
The two firms signed a memorandum of understanding that stipulated that the Munjal family that controls the Hero Group would buy out the Honda stake in a phased manner among two or more qualified promoters. Upon completion, the Munjals will be the sole promoters of the company. At the current market rate, Honda’s stake is valued at R8,717 crore.
“This marks the beginning of a revitalised journey of growth for the company and its people and business associates,” said Pawan Munjal, managing director and CEO, Hero Honda Motors Ltd. “With this new agreement we are set to charter new segments and geographies and develop new products.”
Though Honda will no longer have an equity stake in the company it will not be the end of the association between the two groups, at least in the short term. The two companies will sign a definitive agreement in the next few weeks that will detail a new licensing agreement. Honda will continue to provide technology for Hero Honda motorcycles for existing as well as future products even as Hero will now be free to develop its own products and seek technology partners or export opportunities.
“Our joint venture agreement will be dissolved but our positive relationship will continue,” said Fumihiko Ike, managing director and chief operating officer regional operations (Asia and Oceania), Honda Motor.
“In order to assure service to the customers, Honda will grant the necessary licence to enable continued production and sales of current products as well as a licence for new products.”
Crucially, contrary to expectations, there will be no change in the company's royalty payments to Honda, which may in fact come down from next month. The royalty paid in 2009-10 on an average stood between 2.3% and 3% of sales.
"There will be no change in royalty rates either for existing or new technology that Honda may supply," Munjal said.