Hero Honda surges in India as Honda cuts motorcycle tech costs
NEW DELHI: Hero Honda Motors Ltd., maker of half the motorcycles sold in India, jumped the most in more than a year after saying that Honda Motor Co.'s sale of a $1.9 billion stake will lead to lower technology-royalty payments, Bloomberg reported.
The motorcycle maker rose as much as 11 percent to 1,871.80 rupees at 10:28 a.m. in Mumbai trading, the biggest intraday jump since May, 2009. The company fell 8.3 percent in a month through Dec. 16 on concern it would need to pay more to use Honda's technology following the Tokyo-based company's exit from the venture.
Hero Honda's royalty payments will decline from as early as January as the company will develop more models itself, Hero Group said last week after agreeing to buy Honda's stake in the motorcycle-maker. The company will also be freed from restraints that were part of the venture agreement, allowing it to begin sales in new markets such as Africa and Indonesia, said Ashish Nigam, an Antique Stock Broking Ltd. analyst.
"The management has addressed a very serious concern by categorically stating that the underlying royalty rates will not increase," Mumbai-based Nigam said in a note to clients today. The company has previously "missed out" on export opportunities that have helped boost sales for Bajaj Auto Ltd. because of the ties with Honda, he said.
Nigam raised his recommendation on New Delhibased Hero Honda to "buy" from "hold." He also raised his forecast for Hero Honda's unit exports next fiscal year by 1 percent.
The motorcycle-maker rose 10 percent to 1,853.55 rupees as of 10:29 a.m. in Mumbai trading. It was the only stock among the 30 companies in the Sensex index to rise more than 1 percent. The index fell 0.4 percent.
Hero Group, controlled by the Munjal family, will buy Honda's 26 percent stake in a "phased manner," the companies said in a statement on Dec. 16, without saying how much it will pay. The company already owns 26 percent of the motorcycle-maker, which has a market value of $7.4 billion based on the Dec. 16 closing price, according to data compiled by Bloomberg. India markets were closed on Dec. 17 for a holiday.
Honda, the world's largest motorcycle maker, plans to exit the venture to focus on its fully owned unit in India. The company, which formed Hero Honda with Hero Group in 1984, rose 1.6 percent to 3,285 yen in Tokyo.
Hero Honda will create a new brand and search for "new markets" overseas as Honda quits the venture, Chief Executive Officer Pawan Kant Munjal said on Dec. 16. The motorcycle-maker paid 2.6 percent of sales to Honda as royalties in the fiscal year ended in March, according to its annual report. -
In a separate news item, Hindustantimes reported another day that barely a day after it worked out a separation from the Hero Group to chart its own course in motorbikes, Japan's Honda Motor suffered a jolt at the weekend when it faced a flash strike. Production at Honda Motorcycle and Scooters India's (HMSI) Manesar factory resumed on Sunday after a brief unrest, when workers struck work against the alleged assault on a casual worker by one of the factory's security staff. Honda kept the plant shut on Saturday, advancing its holiday to avoid trouble.
The strike, which the company says was a minor incident, happened a day after Honda announced it will sell off its 26% stake in world's largest two-wheeler company, Hero Honda Motors Ltd. It symbolised the Japanese firm's problems in managing industrial relations in India.
Last year, HMSI, now the country's largest scooter maker, suffered a loss of over R300 crore after workers went on a go-slow strike that had resulted in production dipping by over 50% for nearly three months. In 2005, it witnessed its biggest crisis when a violent strike by workers rocked the Gurgaon-Manesar belt.
"The issue has been resolved amicably and production is back to normal levels," Harbhajan Singh, assistant general manager, industrial relations, HMSI told Hindustan Times. "We have ordered an investigation into what happened on Friday when a contractual worker entered the premises without his identity and punching card and a security guard dealt with him in a high handed manner," he added.
He said the guard was suspended from work pending investigations and labour leaders had addressed workers on Saturday to bring the situation under control.
There are around 1,400 contractual and as many permanent workers who work in the plant in every shift. Production suffered for 5 hours on Friday. With two groups of trade unions operating, there was a chance for "trivial issues" being blown out of proportion, Singh said. The Manesar factory produces 1.6 million two-wheelers per annum with a daily production of 5,500 units. -Bloomberg