Tuesday, March 8, 2011

No More Hero Honda–Hero Buys 26% Stake In Hero Honda!


Finally the bullet has been bitten and Hero Honda is now officially Hero, with Honda exiting the joint venture. It took the Hero group, through Hero Investments, INR 3,831 crores or USD 851 Million to buy out it’s erstwhile Japanese partner Honda’s 26 percent stake. The ultra successful joint venture, which has lasted for 26 years propelled Hero Honda from an abysmal last in the Indian motorcycle market in the eighties to the numero uno position in the last two decades as thirsty two strokes were replaced by frugal four strokes.

Hero Honda, minus the Honda, still continues to be the market leader in the Indian motorcycle market but Honda’s exit could make Hero’s life a tad uneasy until it manages to find another partner to lend it technology to motor ahead with new products. That said, Honda isn’t completely averse to lend the Hero Group it’s technology after 2013 as long as Hero doesn’t compete with it directly and pays it a steady royalty.

This, as there has been talk of the 2011 Honda CBR250R’s engine finding it’s way into a Hero Cruiser motorcycle. In the news recently was also a story about Hero looking to gobble up South Korean motorcycle major, Hyosung, in a bid to stay competitive with newer technological innovations in the motorcycle sphere. Also, Hero will rebrand it’s range of motorcycles very soon by omitting the Honda moniker and even as this happens, we anticipate Hero’s commuter range of motorcycles to sell just as strongly.

We think that Hero will manage to sell it’s economuters even without Honda as the motorcycles have, for long, enjoyed complete dominance of the Indian commuter market and more importantly the Indian motorcycle buyer’s psyche. Also, Hero Honda’s very formidable sales and service network continues to have the biggest reach in India and it’s rivals still have some way to go before bringing their own networks any where near that of Hero Honda’s.

Any which ways, Hero is now on it’s own and it would be very interesting to see how it manages to cope with the huge influx of motorcycles with the latest technology as emission norms continue to rapidly tighten in India and in other global markets. Honda, for it’s part is all set to make major inroads into the economuter motorcycle segment with it’s own 100cc offering and once that happens, Honda might not be willing to continue to license Hero’s manufacturing of 100cc motorcycles with Honda engines.

As the superbly frugal and ultra reliable, 97.2 cc horizontally inclined four stroke engine, originally designed by the legendary Soichiro Honda has been the biggest USP of a Hero Honda motorcycle, taking this out of Hero’s grasp might very well leave it floundering. Will this then, finally end Hero Honda’s dominance of the Indian motorcycle market? Or will Hero bounce back and rise higher than ever before like a Phoenix from the joint venture’s ashes?  This, only time will tell. For now, the Sensex has reacted sharply to this story with Hero Honda’s stock taking a 3% beating.


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