Indian news agency PTI (
Press Trust of India) reports
Honda will divest its interest in Hero Honda. The report claims an agreement will see the Japanese giant sell its 26% stake in the joint venture for $1.2 billion. Founded 26 years ago, Hero Honda is the largest motorcycle manufacturer in India, with the Asian country the second-highest volume market in the world. Hero Group denied rumors of an impending split earlier this year, but the latest news has seen value of Hero Honda stock shares drop this week.
It appears Honda will focus its aim on the vast Indian market through only its HMSI subsidiary, which produces the Honda Twister. Big Red will reportedly divest its 26% share in the Hero Honda joint venture.
Speculation over reasons for the split include conflict over royalty and export agreements, but the relationship between Honda and Hero Honda has become more and more strategically complex during the past decade. Honda Hero competes in its domestic market against none other than Honda’s very own subsidiary: Honda Motorcycle & Scooter India (HMSI), which was created in 1999.
In the 1980s government regulations in India allowed for foreign investment and the creation of joint-venture companies. With a limit of 26% foreign ownership, numerous JV entities sprang up. Hero Honda was created in 1984 as a joint venture between Honda Motor Co. and the Indian-based Hero Group, which is owned by the Munjal family. The proposed sale of Honda’s Hero holdings will be purchased by the Munjals and other private equity firms.
While Hero Honda became the largest of these JV motorcycle companies, another notable Japanese/Indian partnership was TVS Suzuki. The Suzuki and TVS JV collaboration ended in 2001. India’s second-largest motorcycle manufacturer, Bajaj, has collaborated with Kawasaki over the years and currently sells the Ninja 250R in India. Bajaj, however, has turned the flow of investment backward, itself now a major share-holder of a foreign brand as owner of almost 40% of KTM.
The rumored Honda/Hero split will create challenges for each party. The Hero group must fill the R&D void created by Honda pulling out its technical assistance. It will either have to do this in house, or find a new international partner.
HMSI must claw away market share from the two top-volume juggernauts in the Indian market, Hero and Bajaj, which currently enjoy a production capacity advantage and higher-volume of sales. HMSI is the fourth-largest manufacturer in India with well over a million motorcycle sales for 2010, ranking behind only Hero Honda, Baja Auto and TVS Motors. HMSI delivers large bikes like the VFR1200 and CBR1000R, but caters predominantly to the high-volume, small-displacement rides that dominate the Asian market, with Honda’s Indian subsidiary notably producing the 110cc
Honda Twister, as well as introducing the CBR250R.
