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Rediff.com  » Business » Honda to continue as partner in Hero Honda

Honda to continue as partner in Hero Honda

August 31, 2010 16:35 IST

A Honda showroomHero Group on Tuesday brushed aside reports that its joint venture partner, Japanese auto giant Honda, is planning to exit India's largest two-wheeler maker Hero Honda by selling its 26 per cent stake.

According to media reports, while Honda is planning to sell 20 per cent stake to the other promoter, Munjal family of the Hero Group, it is looking at selling 6 per cent to private equity firm Kolkata Knight Riders.

"We have already conveyed earlier that the Hero Group and Honda Motor Co, Japan, have for years enjoyed a very cordial and fruitful relation, resulting in millions of satisfied Hero Honda customers across the country and there has been no change in the relationship in any manner," Hero Group said.

"The news report is incorrect and speculative," it added. When contacted, a Honda India spokesperson declined to comment saying the reports are 'speculative'.

The Hero Honda scrip plunged to an intra-day low of Rs 1,670 a piece after opening at Rs 1,775.10 on the Bombay Stock Exchange.

Later, the scrip was trading flat at Rs 1,790, compared to Monday's close.

Honda and the Hero group hold 26 per cent each in Hero Honda, the world's largest two-wheeler maker.

However, there has been market speculation that there is unease between the partners after the Japanese firm decided to enter the Indian two-wheeler market through its wholly-owned subsidiary Honda Motorcycle & Scooter India.

In 2004, the Hero group and Honda had extended their agreement for 10 years, under which the Japanese partner would continue to provide technology to the JV.

It will come up for renewal in 2014.

Last year, Asian Honda Motor president and CEO Fumihiko Ike had said that the company was committed to the JV with the Hero Group and the two have remained partners since its inception.

"We are working to sustain the design of Hero Honda. With Hero Honda and HMSI we see huge potential to grow in India, there is no change in our business plan. We are working on sustaining the success of Hero Honda," Ike had said.

Currently, Hero Honda is finalising plans to set up the fourth plant in the country. It already has three facilities at Dharuhera and Gurgaon in Haryana and at Haridwar in Uttarakhand with a total capacity of 50 lakh (5 million) units a year.

On the other hand, HMSI has announced an investment of Rs 500 crore (Rs 5 billion) to set up its second plant near Bhiwadi (Rajasthan), with an annual capacity of 600,000 units.

Once the facility becomes operational, in the second half of 2011, the company's total annual capacity will reach to 22 lakh (2.2 million) units.

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