The pollution rules set to be enforced from 2015 require heavy investment in R&D, new tech
More stringent emission norms, set to kick in by 2015 for two-wheeler makers, seem to be one of the reasons why Honda opted to end its 26-year-old alliance with the Hero Group.
The new Bharat Stage IV norms, to be imposed across India for two-wheelers by then, would be very different from the Bharat-III ones enforced today.
Manufacturers are supposed to make technical changes to their vehicles accordingly. While the norm for two-wheelers was upgraded to Bharat Stage (BS)-III from BS-II, it was upgraded to BS-IV in select cities for cars and SUVs, earlier this year.
Industry sources say Honda and other global two-wheeler makers are investing heavily on upgrading technology to comply with new emission norms in different parts of the world. While the Indian two-wheeler market will move to BS-IV (corresponding to Euro-IV) in 2015 ,the European region will be upgraded to Euro-V in the same period. The step is aimed at reducing pollutants significantly, as over 15 million two-wheelers are expected to be sold yearly from 2015 onwards in India.
V G Ramakrishnan, senior director, Frost & Sullivan, said, “Honda knows better fuel injection systems are required to meet the next level of emission standards in India. The company has invested heavily in making its products more fuel-efficient. This technology could not have been shared with Hero Honda.”
Already, concern was being raised by many shareholders, including institutional investors of Hero Honda, regarding higher royalty payments to Honda Motor Company. Increased sharing of technology over newer emission norms would have meant greater royalty payouts.
“Royalty was a key issue with Hero Honda because this impacted profitability of the company. Hero Honda's strength in maintaining margins could definitely have been challenged if Honda continued with its high royalty charges,” stated an analyst from a Mumbai-based brokerage firm.
An email to Honda Motor Company, seeking clarity on the deal and the proposed effect of enforcement of new emission norms, was not answered at the time of going to press. The new norms will pose a challenge to the Hero Group, which is now looking to develop its own research and development wing.
Hero Honda is India’s largest maker of two-wheelers. It was unable to upgrade its range to BS-II from BS-II in time for meeting this year’s March 31 deadline, forcing the government to extend the time-limit for implementing cleaner emission norms for two-wheelers across the country.
The company's largest selling brand, Splendor, was running on a BS-II engine until April 1. The company upgraded it to BS-III only in June, after road transport offices refused to register the motorcycle.
“Honda’s ability to develop products suiting Indian conditions remains very high. Post the JV split, Honda can now get more aggressive in the entry and executive segments. This would result in increased competition for all players in the Indian market. The domestic two-wheeler market is expected to maintain its growth momentum over the medium term and pricing pressures may not be high, despite increased competition,” said, Manish Kedia, analyst from Icra.
Munjals may take yen loan
The Munjals, owners of the Hero Group, are considering taking a yen loan to finance their purchase of the 26% that Honda Motor Co. Ltd owns in Hero Honda, its former joint venture, according to three persons close to the deal.
Further, the promoters are looking at creating a special purpose vehicle (SPV), which will be located in Singapore, a low-tax regime, that will be wholly owned by them. This SPV will be the acquiring entity for all of Honda’s stock, these persons said.
None of the three, each of whom spoke separately to Mint, wished to be identified given the sensitivity surrounding the deal, few details of which have been shared by the Munjals.
“While the SPV will need money in order to pay for the stock, the finance will be in the form of, or largely funded by, debt, which in the case of this transaction will be short term in nature, typically referred to as a bridge facility,” one of the three said.
The bridge loan, however, will be for 70% of the total amount required for the buyout, the three people added. They explained that while the market price for the 26% stake is $2 billion (Rs.9,040 crore),the Japanese auto maker is accepting $1.1 billion for the sale because Hero has agreed to cancel a non-compete agreement.
Bridge loans are a type of interim funding until the next stage of financing is obtained for a transaction. They are normally raised as a quick and short-term means to buying stock in such transactions.
The bridge facility will require some form of collateral, where the first layer of security is the value of the underlying asset, which, in this case, will be Honda’s shares in Hero Honda. As equity within this SPV is sold, the money from the sale will go towards retiring the debt, the three persons said.
Newspaper reports in the run-up to the announcement of the transaction had speculated on the involvement of a private equity (PE) firm in it. However, the Munjals are yet to close this end of the deal, although a fourth person familiar with the deal said it was only a matter of time before this happens.
“Given the Munjals have borrowed this huge amount of money, while PE funds are also keen on getting a foothold in the two-wheeler growth story, it’s a question of who blinks first,” added this person, a consultant from an international advisory and auditing firm added.
As such, the purchase— agreed in principle as a memorandum—is being done in “stages”, company spokespersons had said previously at a press conference.
Meanwhile, a senior official from a PE fund who has been involved in talks with the Munjals over the last six months said: “They (the Munjals) cannot do this deal without the help of a PE fund. How will they do it?” The official did not want to be identified.
It has been confirmed by several people close to the deal that no investment banker has been mandated for this transaction by the Munjals.
Sunil Kant Munjal, a Hero Honda board member said on Thursday on the sidelines of the TiE Entrepreneurial Summit in New Delhi, the company will not be commenting on the details of the purchase plans for the next six months.
Further, the promoters are looking at creating a special purpose vehicle (SPV), which will be located in Singapore, a low-tax regime, that will be wholly owned by them. This SPV will be the acquiring entity for all of Honda’s stock, these persons said.
None of the three, each of whom spoke separately to Mint, wished to be identified given the sensitivity surrounding the deal, few details of which have been shared by the Munjals.
“While the SPV will need money in order to pay for the stock, the finance will be in the form of, or largely funded by, debt, which in the case of this transaction will be short term in nature, typically referred to as a bridge facility,” one of the three said.
The bridge loan, however, will be for 70% of the total amount required for the buyout, the three people added. They explained that while the market price for the 26% stake is $2 billion (Rs.9,040 crore),the Japanese auto maker is accepting $1.1 billion for the sale because Hero has agreed to cancel a non-compete agreement.
Bridge loans are a type of interim funding until the next stage of financing is obtained for a transaction. They are normally raised as a quick and short-term means to buying stock in such transactions.
The bridge facility will require some form of collateral, where the first layer of security is the value of the underlying asset, which, in this case, will be Honda’s shares in Hero Honda. As equity within this SPV is sold, the money from the sale will go towards retiring the debt, the three persons said.
Newspaper reports in the run-up to the announcement of the transaction had speculated on the involvement of a private equity (PE) firm in it. However, the Munjals are yet to close this end of the deal, although a fourth person familiar with the deal said it was only a matter of time before this happens.
“Given the Munjals have borrowed this huge amount of money, while PE funds are also keen on getting a foothold in the two-wheeler growth story, it’s a question of who blinks first,” added this person, a consultant from an international advisory and auditing firm added.
As such, the purchase— agreed in principle as a memorandum—is being done in “stages”, company spokespersons had said previously at a press conference.
Meanwhile, a senior official from a PE fund who has been involved in talks with the Munjals over the last six months said: “They (the Munjals) cannot do this deal without the help of a PE fund. How will they do it?” The official did not want to be identified.
It has been confirmed by several people close to the deal that no investment banker has been mandated for this transaction by the Munjals.
Sunil Kant Munjal, a Hero Honda board member said on Thursday on the sidelines of the TiE Entrepreneurial Summit in New Delhi, the company will not be commenting on the details of the purchase plans for the next six months.
Cos may have to spend 2% of profits on social causes
Bill Says Cos Must Script Policy For Spend
THE government has watered down its proposal on corporate social responsibility by not including a provision in the Companies Bill that would have mandated firms to spend 2% of their profits on social causes.
The final proposal only requires a company to have a policy that targets to spend 2% of its profit on CSR.The Bill,however,seeks to make it compulsory for a company to give details of the money it has spent on CSR in its annual report.
Companies will have to have a policy as to how they will spend the 2% of their profits on CSR and there must be a disclosure if the money has been spent, corporate affairs minister Salman Khurshid told ET.
You can say it is not entirely voluntary,might say it is not mandatory.It is in between somewhere.
The proposal is a dilution of the governments stance before the parliaments standing committee on finance.The government had told the committee that it was considering making the CSR spend mandatory.
The government had suggested that it could ask companies having a minimum net worth of 500 crore,or an annual turnover of 1,000 crore,or a net profit of Rs 5 crore in a year to spend at least 2% of their average net profits during the three preceding fiscals on CSR.
While the general view is that companies would welcome a dilution in the governments stance,some in the corporate world say there is actually no dilution.
THE government has watered down its proposal on corporate social responsibility by not including a provision in the Companies Bill that would have mandated firms to spend 2% of their profits on social causes.
The final proposal only requires a company to have a policy that targets to spend 2% of its profit on CSR.The Bill,however,seeks to make it compulsory for a company to give details of the money it has spent on CSR in its annual report.
Companies will have to have a policy as to how they will spend the 2% of their profits on CSR and there must be a disclosure if the money has been spent, corporate affairs minister Salman Khurshid told ET.
You can say it is not entirely voluntary,might say it is not mandatory.It is in between somewhere.
The proposal is a dilution of the governments stance before the parliaments standing committee on finance.The government had told the committee that it was considering making the CSR spend mandatory.
The government had suggested that it could ask companies having a minimum net worth of 500 crore,or an annual turnover of 1,000 crore,or a net profit of Rs 5 crore in a year to spend at least 2% of their average net profits during the three preceding fiscals on CSR.
While the general view is that companies would welcome a dilution in the governments stance,some in the corporate world say there is actually no dilution.
Honda brass in India next yr; focus on low-cost bikes
To chalk out a new strategy for the Indian market once the final separation from its 26-year-old partner Hero Group is worked out, top officials from Honda Motors Japan are slated to visit the Indian subsidiary Honda Motorcycle & Scooter India (HMSI) early next year. The global CEO of Honda Takanobu Ito is also likely to be a part of the delegation.
Industry sources told FE that the main focus of the visiting delegation would be to penetrate every segment in the country with a special emphasis on 100-125cc category and strengthen its dealership network and vendor base. Interestingly, this is the segment in which Hero Honda has traditionally enjoyed a market share of over 60%.
“Globally, Honda bikes are known for being premium and super cool. However, in India the company would also adopt the low-cost approach,” a source said. Though the company spokesperson denied any such plans, sources said HMSI’s role in the two-wheeler market would get a fillip after the split.
Sources also pointed out since Honda was already the largest scooter maker in India, it gave the company an added advantage in the motorcycle space as well. “The company has now two tasks cut out for it. One, it needs to strengthen its vendor base in India like the Hero Group and control costs. Second, it has to fast-track dealership network in all the major cities and rural markets to increase rural penetration,” an auto analyst with a global consultancy firm said.
Earlier, in a presentation this year on the group's global strategy for the next 10 years, Honda CEO Ito had highlighted the motorcycle segment in India and China as growth markets.
As per the plan, the company decided to increase the annual bike capacity to 18 million units from 16 million units by the end of next year. In fact, in line with its global strategy to concentrate on emerging markets like India and China, the company launched the much awaited small car 'Brio' last month at Bangkok.
Currently, HMSI has an annual production capacity of 1.6 million units, which would be expanded to 2.2 million units once its second plant at Rajasthan becomes operational by the second half of next year.
Industry sources told FE that the main focus of the visiting delegation would be to penetrate every segment in the country with a special emphasis on 100-125cc category and strengthen its dealership network and vendor base. Interestingly, this is the segment in which Hero Honda has traditionally enjoyed a market share of over 60%.
“Globally, Honda bikes are known for being premium and super cool. However, in India the company would also adopt the low-cost approach,” a source said. Though the company spokesperson denied any such plans, sources said HMSI’s role in the two-wheeler market would get a fillip after the split.
Sources also pointed out since Honda was already the largest scooter maker in India, it gave the company an added advantage in the motorcycle space as well. “The company has now two tasks cut out for it. One, it needs to strengthen its vendor base in India like the Hero Group and control costs. Second, it has to fast-track dealership network in all the major cities and rural markets to increase rural penetration,” an auto analyst with a global consultancy firm said.
Earlier, in a presentation this year on the group's global strategy for the next 10 years, Honda CEO Ito had highlighted the motorcycle segment in India and China as growth markets.
As per the plan, the company decided to increase the annual bike capacity to 18 million units from 16 million units by the end of next year. In fact, in line with its global strategy to concentrate on emerging markets like India and China, the company launched the much awaited small car 'Brio' last month at Bangkok.
Currently, HMSI has an annual production capacity of 1.6 million units, which would be expanded to 2.2 million units once its second plant at Rajasthan becomes operational by the second half of next year.
Can Hero do without own R&D?
Rakesh Batra
Leader,Auto Sector E&Y
No,it needs in-house research capability
THE Hero Group cannot without an in-house R&D,given the size and scale of its current operations,competitive market conditions and customer and shareholder expectations of the brand as the market leader.Its own R&D capability is important from three perspectives products,customers and brand.The twowheeler industry,like other automotive segments,is a volume business that is driven by new products with better mileage performance and greater driving comfort.This requires regular model upgrades,more fuel efficient engines and other changes to the range of products offered to its customers.Besides,as one of the largest motorcycle manufacturers in the world by volume,Hero would need to have its own R&D capability to position the brand globally.There has to be a clear value proposition associated with the brand for the customers to be able to differentiate it from the other brands.Technology plays an important role in brand positioning.Such is the nature of the auto industry and all mature global players in this industry have a strong internal R&D capability.
An in-house R&D capability would provide Hero control over its product portfolio decisions,driven by customer expectations and the markets it would operate in.In a global playing field,product needs can vary across markets.This requires the ability to leverage platforms across these various markets to be able to control product development costs and optimise product profitability.Besides,with the emerging trends towards electric vehicles,the market leaders need to ensure that they are able to develop and offer these products as part of the product range.Such development in new technologies/products is not possible unless you have an internal R&D capability that can also be a source of the first-mover advantage in future.Hero can,of course,seek another international technology partner,but that would probably come with similar conditions as its existing partner Honda.That would prevent it from achieving its aspiration to be a global player in the two-wheeler market.
R L Ravichandran
CEO Royal Enfield
It can outsource R&D in the near term
AFTER 2014,Hero Group has to compete with Honda,the worldwide market leader.Its other competitors are Suzuki and Yamaha of Japan,with Suzuki leading in scooter volumes and Yamaha in greater than 125cc bikes.Bajaj is already a leader in the premium commuting segment of bikes,partnering Kawasaki in the supersports range & KTM in Offroaders.TVS has gained a predominant position in scooters.Bajaj & TVS have strong in-house R&D teams and successfully launched products over the last three decades,be it in scooters,commuter bikes or sports premium segments.Bajaj and TVS strenghtened their product development skills,even when they were associated with their technology partners.
Today,Hero Honda enjoys supremacy of design and styling whether in vehicle engineering or power train,and meets stringent emission compliance,thanks to Honda.But to sustain the lead in future with no demonstrated in-house R&D track record will be a tall order.HMSI has made significant inroads in India,with its sales of scooters and motorcycles hovering around a million units.With its second plant on the anvil and the launch of new sports and commuting bikes slated in 2012,sales are poised to reach 2 million in 2012 and 2013.This will be 40% of Hero Hondas volumes.Bajaj is consolidating its sharply-defined product/brand strategy.It will also look at scaling from three million to four million.
These companies have planned a clear strategy by creating additional marketshare by segmentation and new products.Hero Honda has to perfect the art of winning all the test matches without losing the one-dayers.It takes 36 months to create a complete new bike from the stage of concept to commercial production.
Hero can outsource R&D if it has an existing strong team and product development experience and wants to co- develop and validate a new engine,new vehicle or new parts.Ultimately,even if Hero outsources the basic specifications and design,the house of quality of any new product has to be created by Heros own R&D.
Leader,Auto Sector E&Y
No,it needs in-house research capability
THE Hero Group cannot without an in-house R&D,given the size and scale of its current operations,competitive market conditions and customer and shareholder expectations of the brand as the market leader.Its own R&D capability is important from three perspectives products,customers and brand.The twowheeler industry,like other automotive segments,is a volume business that is driven by new products with better mileage performance and greater driving comfort.This requires regular model upgrades,more fuel efficient engines and other changes to the range of products offered to its customers.Besides,as one of the largest motorcycle manufacturers in the world by volume,Hero would need to have its own R&D capability to position the brand globally.There has to be a clear value proposition associated with the brand for the customers to be able to differentiate it from the other brands.Technology plays an important role in brand positioning.Such is the nature of the auto industry and all mature global players in this industry have a strong internal R&D capability.
An in-house R&D capability would provide Hero control over its product portfolio decisions,driven by customer expectations and the markets it would operate in.In a global playing field,product needs can vary across markets.This requires the ability to leverage platforms across these various markets to be able to control product development costs and optimise product profitability.Besides,with the emerging trends towards electric vehicles,the market leaders need to ensure that they are able to develop and offer these products as part of the product range.Such development in new technologies/products is not possible unless you have an internal R&D capability that can also be a source of the first-mover advantage in future.Hero can,of course,seek another international technology partner,but that would probably come with similar conditions as its existing partner Honda.That would prevent it from achieving its aspiration to be a global player in the two-wheeler market.
R L Ravichandran
CEO Royal Enfield
It can outsource R&D in the near term
AFTER 2014,Hero Group has to compete with Honda,the worldwide market leader.Its other competitors are Suzuki and Yamaha of Japan,with Suzuki leading in scooter volumes and Yamaha in greater than 125cc bikes.Bajaj is already a leader in the premium commuting segment of bikes,partnering Kawasaki in the supersports range & KTM in Offroaders.TVS has gained a predominant position in scooters.Bajaj & TVS have strong in-house R&D teams and successfully launched products over the last three decades,be it in scooters,commuter bikes or sports premium segments.Bajaj and TVS strenghtened their product development skills,even when they were associated with their technology partners.
Today,Hero Honda enjoys supremacy of design and styling whether in vehicle engineering or power train,and meets stringent emission compliance,thanks to Honda.But to sustain the lead in future with no demonstrated in-house R&D track record will be a tall order.HMSI has made significant inroads in India,with its sales of scooters and motorcycles hovering around a million units.With its second plant on the anvil and the launch of new sports and commuting bikes slated in 2012,sales are poised to reach 2 million in 2012 and 2013.This will be 40% of Hero Hondas volumes.Bajaj is consolidating its sharply-defined product/brand strategy.It will also look at scaling from three million to four million.
These companies have planned a clear strategy by creating additional marketshare by segmentation and new products.Hero Honda has to perfect the art of winning all the test matches without losing the one-dayers.It takes 36 months to create a complete new bike from the stage of concept to commercial production.
Hero can outsource R&D if it has an existing strong team and product development experience and wants to co- develop and validate a new engine,new vehicle or new parts.Ultimately,even if Hero outsources the basic specifications and design,the house of quality of any new product has to be created by Heros own R&D.
Harley Davidson hopes to sell 250 bikes in India
Harley Davidson expects to sell 200-250 bikes priced between Rs 6.95 lakh and Rs 35 lakh this year, a top official of the US bike maker said on Monday. Harley Davidson India started selling its cult bikes in the country from July and imports all its 12 models for sale in India.Currently, it has dealerships in New Delhi, Mumbai, Bangalore, Chandigarh and Hyderabad. "We plan to extend our dealerships to more cities in India, which includes Ahmedabad, Kolkata, Chennai and Kochi in 2011," the company official said.
Munjals, Patni deals cap India's best year in M&A
Munjals’ deal to buyout Honda in their joint venture and Patni families’ efforts to sell their software company will cap the best year for Indian mergers and acquisitions (M&As ) at more than $70 billion.
Deal volumes in 2010 broke the record $69.4 billion clocked in 2007 — when Tata Steel bought the Anglo-Dutch Corus Group —after the Hero Group last week said it would buy its Japanese partner in the world’s largest two-wheeler maker, Hero Honda.
Total M&A volume in 2010 from 1,262 announced deals was $67.2 billion as on December 14, data compiled by Thomson Reuters and ET research shows. This excludes recent transactions such as Lanco Infratech’s purchase of Griffin Coal for $800 million, the Hero deal valued above $1 billion and smaller ones such as French asset management giant Natixis buying a fourth of IDFC’s asset management business for $60 million.
The sale of Patni Computers, which has been dragging for years and after many false starts, is expected later this week. It could push the M&A value beyond $70 billion, the data shows. In the Asia Pacific region, excluding Japan, M&A value is at $557 billion, lower than the $610 billion in 2007.
Overseas acquisitions by Indian companies this year too has set a record. Indians, led by Sunil Mittal of Bharti Airtel, have purchased foreign assets worth $30 billion, compared with $23 billion in 2007. The appetite for foreign acquisitions among Indian companies in a relatively tight credit environment indicates confidence.
“Coming out of the crisis, there was a dearth of deals in 2009,” said Jaideep Khanna, managing director, India, at Barclays Capital. “Bharti re-established India’s outbound M&A paradigm early this year, acquiring Zain.”
Conglomerates such as Birla, Mahindra, Essar , Vedanta , Adanis and GVK, and the state-run Coal India are expected to lead takeovers in 2011.
“There will be many more deals in the energy vertical next year,” said Ganeshan Murugaiyan, head of investment banking at UBS in India.
Energy and power deals more than tripled compared with 2009. There were 77 deals worth about $23 billion, a third of the total transactions. Oil and Gas accounted for more than 80% of the activity, growing 20 times to $18.1 billion, led by Vedanta’s bid for Cairn India at $9.5 billion, the $4.8-billion purchase of Venezuela’s Carababo block by the consortium of state-run oil companies, and Reliance Industries’ shale gas acquisitions in the US.
Telecommunications, which secured deals worth $14.8 billion, was the second-busiest sector, lead by Bharti’s $10.7-billion buyout of Zain Africa . The energy and power sector, along with telecommunications, accounted for 63% of India’s outbound M&A in 2010.
There could be a couple of more deals in the telecom tower segment next year, said Rohit Chatterjee, head of investment banking at JP Morgan in India. “It is clear who the buyers are and who the sellers are,” Chatterjee said.
Nigeria was the most targeted region by Indian companies in 2010, largely because of Bharti buying Zain Africa. On sheer number of deals, US was the most targeted region, some 25% of India’s overseas acquisitions happening there. UK pipped US to top in inbound M&A , as companies there purchased Indian companies worth $7.7 billion, compared with $5.2 billion from the US.
Deal volumes in 2010 broke the record $69.4 billion clocked in 2007 — when Tata Steel bought the Anglo-Dutch Corus Group —after the Hero Group last week said it would buy its Japanese partner in the world’s largest two-wheeler maker, Hero Honda.
Total M&A volume in 2010 from 1,262 announced deals was $67.2 billion as on December 14, data compiled by Thomson Reuters and ET research shows. This excludes recent transactions such as Lanco Infratech’s purchase of Griffin Coal for $800 million, the Hero deal valued above $1 billion and smaller ones such as French asset management giant Natixis buying a fourth of IDFC’s asset management business for $60 million.
The sale of Patni Computers, which has been dragging for years and after many false starts, is expected later this week. It could push the M&A value beyond $70 billion, the data shows. In the Asia Pacific region, excluding Japan, M&A value is at $557 billion, lower than the $610 billion in 2007.
Overseas acquisitions by Indian companies this year too has set a record. Indians, led by Sunil Mittal of Bharti Airtel, have purchased foreign assets worth $30 billion, compared with $23 billion in 2007. The appetite for foreign acquisitions among Indian companies in a relatively tight credit environment indicates confidence.
“Coming out of the crisis, there was a dearth of deals in 2009,” said Jaideep Khanna, managing director, India, at Barclays Capital. “Bharti re-established India’s outbound M&A paradigm early this year, acquiring Zain.”
Conglomerates such as Birla, Mahindra, Essar , Vedanta , Adanis and GVK, and the state-run Coal India are expected to lead takeovers in 2011.
“There will be many more deals in the energy vertical next year,” said Ganeshan Murugaiyan, head of investment banking at UBS in India.
Energy and power deals more than tripled compared with 2009. There were 77 deals worth about $23 billion, a third of the total transactions. Oil and Gas accounted for more than 80% of the activity, growing 20 times to $18.1 billion, led by Vedanta’s bid for Cairn India at $9.5 billion, the $4.8-billion purchase of Venezuela’s Carababo block by the consortium of state-run oil companies, and Reliance Industries’ shale gas acquisitions in the US.
Telecommunications, which secured deals worth $14.8 billion, was the second-busiest sector, lead by Bharti’s $10.7-billion buyout of Zain Africa . The energy and power sector, along with telecommunications, accounted for 63% of India’s outbound M&A in 2010.
There could be a couple of more deals in the telecom tower segment next year, said Rohit Chatterjee, head of investment banking at JP Morgan in India. “It is clear who the buyers are and who the sellers are,” Chatterjee said.
Nigeria was the most targeted region by Indian companies in 2010, largely because of Bharti buying Zain Africa. On sheer number of deals, US was the most targeted region, some 25% of India’s overseas acquisitions happening there. UK pipped US to top in inbound M&A , as companies there purchased Indian companies worth $7.7 billion, compared with $5.2 billion from the US.
Controlling stake in Hero SPV may be with Munjals
The Munjal family, promoters of the Hero Group, is likely to have over 50 per cent stake in a special purpose vehicle to hold Honda's 26 per cent share in Hero Honda, following termination of the joint venture. This is contrary to speculation that private equity (PE) players would have a majority stake in the SPV.
Though the PE players may pump more money into the SPV, possession of a controlling stake by any party other than the Munjals will trigger an open offer under the Takeover Code, say experts. The structuring and the valuation of the SPV have not yet been finalised.
According to experts, of the Rs 4,500-6,800 crore (valuation of Honda’s 26 per cent) stake, the Hero Group is likely to pay around Rs 1,000-1,400 crore, while the rest will be funded through PE firms and banks. PE investors in the race reportedly include Apollo, Bain Capital, Carlyle, KKR, TPG and Warburg Pincus. The Hero Group has so far declined to specify the price at which Honda’s shares are changing hands.
Siddharth Shah, head of corporate & securities practice at Nishith Desai Associates, said: “Irrespective of the level of ownership by PE firms, if the SPV does not form part of the promoter group or qualifying promoter — wherein inter se transfers are exempt — it should trigger an open offer.”
For exemption, the SPV needs to be part of the Munjals’ group and so disclosed prior to the acquisition, which may not be possible. Therefore, it seems very unlikely that the SPV would get any exemption from the Takeover Code, he added.
Emails sent to Hero Group, Carlyle and Bain Capital did not elicit any response.
Though the shareholding pattern of the SPV remains a matter of discord, a buyout by a JV partner will not trigger the Takeover Code for a mandatory 20 per cent open offer.
Rohit Berry, partner& head of M&A practice at BMR Advisors, said, “In any case, under the Takeover Code, a new person should not acquire — directly or indirectly — more than 15 per cent shareholding or voting rights, or it will trigger an open offer. Irrespective of the shareholding in the SPV, the new person should not exercise control, since that may mean a change in control of the company as it presently exists.”
According to investment bankers, PE players are likely to buy the shares of Hero Honda at a premium. “All the big daddies in PE wait for such a big-ticket deal, which may happen every one or two years. PE players are hungry for such a deal, where they can be part of a globally renowned automobile company. Also, such a bulk deal will drive up the share price quickly,” said one analyst.
Though the PE players may pump more money into the SPV, possession of a controlling stake by any party other than the Munjals will trigger an open offer under the Takeover Code, say experts. The structuring and the valuation of the SPV have not yet been finalised.
According to experts, of the Rs 4,500-6,800 crore (valuation of Honda’s 26 per cent) stake, the Hero Group is likely to pay around Rs 1,000-1,400 crore, while the rest will be funded through PE firms and banks. PE investors in the race reportedly include Apollo, Bain Capital, Carlyle, KKR, TPG and Warburg Pincus. The Hero Group has so far declined to specify the price at which Honda’s shares are changing hands.
Siddharth Shah, head of corporate & securities practice at Nishith Desai Associates, said: “Irrespective of the level of ownership by PE firms, if the SPV does not form part of the promoter group or qualifying promoter — wherein inter se transfers are exempt — it should trigger an open offer.”
For exemption, the SPV needs to be part of the Munjals’ group and so disclosed prior to the acquisition, which may not be possible. Therefore, it seems very unlikely that the SPV would get any exemption from the Takeover Code, he added.
Emails sent to Hero Group, Carlyle and Bain Capital did not elicit any response.
Though the shareholding pattern of the SPV remains a matter of discord, a buyout by a JV partner will not trigger the Takeover Code for a mandatory 20 per cent open offer.
Rohit Berry, partner& head of M&A practice at BMR Advisors, said, “In any case, under the Takeover Code, a new person should not acquire — directly or indirectly — more than 15 per cent shareholding or voting rights, or it will trigger an open offer. Irrespective of the shareholding in the SPV, the new person should not exercise control, since that may mean a change in control of the company as it presently exists.”
According to investment bankers, PE players are likely to buy the shares of Hero Honda at a premium. “All the big daddies in PE wait for such a big-ticket deal, which may happen every one or two years. PE players are hungry for such a deal, where they can be part of a globally renowned automobile company. Also, such a bulk deal will drive up the share price quickly,” said one analyst.
Market warms to Hero Honda royalty deal
Shares up 18%, as outgo less than expected.
Shares of Hero Honda soared 18 per cent on an otherwise flat market on Monday after senior executives of the world’s largest two-wheeler manufacturer said royalty outgoes would be lower than analysts had anticipated. They said royalties to Honda Motor, its soon-to-be former partner, would drop after 2014, and that payments for existing products would cease by that time.
Ravi Sud, Hero Honda’s chief financial officer, said, “The royalty going forward will be in line with what we pay now and we will not be paying any royalty on existing products after 2014.”
Hero Honda shares closed at Rs 1,981.20, 17.99 per cent higher, at the Bombay Stock Exchange on Monday. The BSE Sensex closed up 0.12 per cent at 19,888.88 points.
“Royalty rates on new models to be given by Honda would be in alignment with existing ones. The new models from Honda would help maintain the current trend at Hero Honda of introducing seven to eight models every year,” Sud added.
A definitive agreement between the Hero Group and Honda is expected to be signed in two to three weeks. Hero Honda is likely to pay 2.75-2.85 per cent of net sales as royalty to Honda in the current fiscal.
The Munjals-promoted Hero Group had last week announced that it would buy Honda’s 26 per cent stake in Hero Honda for an undisclosed amount. The transaction is expected to be completed sometime next year.
Following the agreement, the Hero Group is looking to develop its own research & development capabilities. Sud declined to specify the amount the company is looking to invest, but said competitors typically spend 1.4-1.7 per cent of net revenues on R&D.
“We would focus on building our R&D, besides Honda would provide us with some new models. If the need arises, we can also scout for partners globally to source technology,” Sud said.
The Hero Group will also start work on putting in place an overseas distribution network in the coming months. Anil Dua, senior vice-president (marketing & sales) at Hero Honda, said, “We have so far been a national player with limited global presence. We will now look at rapidly tapping opportunities worldwide. In our existing export markets, we will use the joint brand during the transition period for our products. In new geographies, we will project our own brand.”
The company is exploring markets in South Africa, South Asia, Latin America and the Middle East.
Sud also said the Hero Group intends to focus on value engineering some components, which would eventually bring down material costs. “Under the existing agreement with Honda, we source components from vendors approved by them. When the new agreement comes into force, we will gain a cost advantage as we would be able to procure components from anywhere in the world,” Sud added.
Shares of Hero Honda soared 18 per cent on an otherwise flat market on Monday after senior executives of the world’s largest two-wheeler manufacturer said royalty outgoes would be lower than analysts had anticipated. They said royalties to Honda Motor, its soon-to-be former partner, would drop after 2014, and that payments for existing products would cease by that time.
Ravi Sud, Hero Honda’s chief financial officer, said, “The royalty going forward will be in line with what we pay now and we will not be paying any royalty on existing products after 2014.”
Hero Honda shares closed at Rs 1,981.20, 17.99 per cent higher, at the Bombay Stock Exchange on Monday. The BSE Sensex closed up 0.12 per cent at 19,888.88 points.
“Royalty rates on new models to be given by Honda would be in alignment with existing ones. The new models from Honda would help maintain the current trend at Hero Honda of introducing seven to eight models every year,” Sud added.
A definitive agreement between the Hero Group and Honda is expected to be signed in two to three weeks. Hero Honda is likely to pay 2.75-2.85 per cent of net sales as royalty to Honda in the current fiscal.
The Munjals-promoted Hero Group had last week announced that it would buy Honda’s 26 per cent stake in Hero Honda for an undisclosed amount. The transaction is expected to be completed sometime next year.
Following the agreement, the Hero Group is looking to develop its own research & development capabilities. Sud declined to specify the amount the company is looking to invest, but said competitors typically spend 1.4-1.7 per cent of net revenues on R&D.
“We would focus on building our R&D, besides Honda would provide us with some new models. If the need arises, we can also scout for partners globally to source technology,” Sud said.
The Hero Group will also start work on putting in place an overseas distribution network in the coming months. Anil Dua, senior vice-president (marketing & sales) at Hero Honda, said, “We have so far been a national player with limited global presence. We will now look at rapidly tapping opportunities worldwide. In our existing export markets, we will use the joint brand during the transition period for our products. In new geographies, we will project our own brand.”
The company is exploring markets in South Africa, South Asia, Latin America and the Middle East.
Sud also said the Hero Group intends to focus on value engineering some components, which would eventually bring down material costs. “Under the existing agreement with Honda, we source components from vendors approved by them. When the new agreement comes into force, we will gain a cost advantage as we would be able to procure components from anywhere in the world,” Sud added.
Bike leadership stakes will not be an obsession with Honda
Honda Motor Company is not likely to be in any tearing hurry to build its India market share in two-wheelers following its recent separation with the Hero Group.
Its 100 per cent local arm, HMSI (Honda Motorcycle & Scooter India), expects to end this fiscal at around 1.6 million units, which is a modest number compared to Hero Honda's annual output of five million bikes and scooters.
Yet, this would be of little consequence to the Japanese automaker whose focus has constantly been on technology. “Even during the joint venture days, the Hero Group did most of the work on building a huge distribution network across the country. Honda's top priority was the product and the combination ensured a leadership slot for the joint venture,” top sources told Business Line.
Long-term goal
This is not to suggest that Honda is not keen on the numbers game and grabbing market share. After all, it is the global leader in two-wheelers and has aggressive plans lined up in the Asean region. The key is that the company would rather take one thing at a time instead of planning an all-out product blitzkrieg.
“It is only in India where numbers become an obsession. Japanese companies like Honda are not up against any deadline to finish first. They typically draw up a long-term goalpost and take one thing at a time,” an industry veteran said.
More competition
This was not exactly the case in the gearless scooter space where Honda wasted little time in claiming market leadership position with the Activa. However, there was only one player to contend with at that time unlike today's motorcycle arena where competition is a lot stiffer.
Sources say Honda would rather give priority to good, solid products which ensure greater brand recall. This is evident with HMSI's Activa, which is perceived as the best bet in gearless scooters and whose customers are willing to wait up to eight months for delivery.
In contrast, the company's motorcycles have not quite created the same magic though it is quite willing to wait while sticking to its gameplan of premium, sporty bikes. It has already signalled its intent with the 250cc CBR, which will be launched in the coming months at less than Rs 1.5 lakh.
Further, from Honda's perspective, India is part of an overall growth vision for Asia in the two-wheeler space. Thailand, where it has had its longest innings, is a key production hub. Indonesia, likewise, is an important market where it plans to achieve capacity of five million units by mid-2011. Vietnam is yet another key part of its growth plans in the Asean region.
Asian focus
Some months ago, Honda had said that it was targeting two-wheeler capacities of 18 million units in Asia by end-2011. Without the Hero group, this number will reduce to 13 million units. Yet, it is substantial enough to leverage economies of scale in the Asean region and focus on aspects like sourcing and building a cost-competitive base.
In Honda's view, this is the most important task on hand for emerging economies like India and China where it is up against tough local competition. Recognising that costs could be getting out of control in Japan, it could also source parts from India.
“It eventually boils down to a bigger vision for Asia and not merely proving a point in India,” an automotive executive said.
Similarly, Africa will be part of the growth strategy for the future. Honda plans to launch a 125cc motorcycle in Nigeria in the middle of next year which will have China-made parts to keep costs in check. Incidentally, Bajaj Auto is also using China as its base for exports of the Boxer to Africa.
According to observers, nothing much will change in the India leadership stakes till the time the Hero Group and Honda have their licensing pact in place till 2014. By that time, HMSI will hope to have in place a stronger customer base for motorcycles. Bajaj Auto and TVS Motor will, likewise, be on overdrive with their two-wheeler range.
Its 100 per cent local arm, HMSI (Honda Motorcycle & Scooter India), expects to end this fiscal at around 1.6 million units, which is a modest number compared to Hero Honda's annual output of five million bikes and scooters.
Yet, this would be of little consequence to the Japanese automaker whose focus has constantly been on technology. “Even during the joint venture days, the Hero Group did most of the work on building a huge distribution network across the country. Honda's top priority was the product and the combination ensured a leadership slot for the joint venture,” top sources told Business Line.
Long-term goal
This is not to suggest that Honda is not keen on the numbers game and grabbing market share. After all, it is the global leader in two-wheelers and has aggressive plans lined up in the Asean region. The key is that the company would rather take one thing at a time instead of planning an all-out product blitzkrieg.
“It is only in India where numbers become an obsession. Japanese companies like Honda are not up against any deadline to finish first. They typically draw up a long-term goalpost and take one thing at a time,” an industry veteran said.
More competition
This was not exactly the case in the gearless scooter space where Honda wasted little time in claiming market leadership position with the Activa. However, there was only one player to contend with at that time unlike today's motorcycle arena where competition is a lot stiffer.
Sources say Honda would rather give priority to good, solid products which ensure greater brand recall. This is evident with HMSI's Activa, which is perceived as the best bet in gearless scooters and whose customers are willing to wait up to eight months for delivery.
In contrast, the company's motorcycles have not quite created the same magic though it is quite willing to wait while sticking to its gameplan of premium, sporty bikes. It has already signalled its intent with the 250cc CBR, which will be launched in the coming months at less than Rs 1.5 lakh.
Further, from Honda's perspective, India is part of an overall growth vision for Asia in the two-wheeler space. Thailand, where it has had its longest innings, is a key production hub. Indonesia, likewise, is an important market where it plans to achieve capacity of five million units by mid-2011. Vietnam is yet another key part of its growth plans in the Asean region.
Asian focus
Some months ago, Honda had said that it was targeting two-wheeler capacities of 18 million units in Asia by end-2011. Without the Hero group, this number will reduce to 13 million units. Yet, it is substantial enough to leverage economies of scale in the Asean region and focus on aspects like sourcing and building a cost-competitive base.
In Honda's view, this is the most important task on hand for emerging economies like India and China where it is up against tough local competition. Recognising that costs could be getting out of control in Japan, it could also source parts from India.
“It eventually boils down to a bigger vision for Asia and not merely proving a point in India,” an automotive executive said.
Similarly, Africa will be part of the growth strategy for the future. Honda plans to launch a 125cc motorcycle in Nigeria in the middle of next year which will have China-made parts to keep costs in check. Incidentally, Bajaj Auto is also using China as its base for exports of the Boxer to Africa.
According to observers, nothing much will change in the India leadership stakes till the time the Hero Group and Honda have their licensing pact in place till 2014. By that time, HMSI will hope to have in place a stronger customer base for motorcycles. Bajaj Auto and TVS Motor will, likewise, be on overdrive with their two-wheeler range.
Hero Honda zooms 18% on end of JV
With speculation laid to rest, the Hero Honda stock saw a surge on Monday, closing the day at Rs 1,981 per share or 18% up, after hitting an intra-day high of Rs 1,997.9 per share. Abandoning the scepticism in the days prior to Honda’s exit from the joint venture, most brokerage houses
have revised their rating for the company, upgrading it to ‘hold’ or ‘buy’.
Last week Hero Honda said the promoters would buy out the Japanese firm’s 26% stake in the company, adding that there would be no increase in royalty payments to Honda.
“There were a lot of questions on whether royalty payments would go up,” said Alex Mathew, head research centre, Geojit Financial Services.
“The market has reacted positively to the fact that royalty payments would not increase and margins would not be that much under pressure. There are very high chances of the stock breaching the R2,000-per-share mark."
Market analysts felt that the exit of Honda would not materially impact the prospects of the firm and the company is expected to maintain its leadership position.
“The company has a capable and experienced management team with a proven track record in its core business and in managing its daily operations,” said Pawan Agrawal, director Crisil ratings. “It is expected to maintain a robust financial risk profile over the medium term supported by strong operating cash flows, low debt and average capital expenditure plans.”
have revised their rating for the company, upgrading it to ‘hold’ or ‘buy’.
Last week Hero Honda said the promoters would buy out the Japanese firm’s 26% stake in the company, adding that there would be no increase in royalty payments to Honda.
“There were a lot of questions on whether royalty payments would go up,” said Alex Mathew, head research centre, Geojit Financial Services.
“The market has reacted positively to the fact that royalty payments would not increase and margins would not be that much under pressure. There are very high chances of the stock breaching the R2,000-per-share mark."
Market analysts felt that the exit of Honda would not materially impact the prospects of the firm and the company is expected to maintain its leadership position.
“The company has a capable and experienced management team with a proven track record in its core business and in managing its daily operations,” said Pawan Agrawal, director Crisil ratings. “It is expected to maintain a robust financial risk profile over the medium term supported by strong operating cash flows, low debt and average capital expenditure plans.”
Hero Honda lessons
The epochal joint venture (JV) of India, Hero Honda, has unravelled many a lesson even in its sunset days, by parting ways in the most non-acrimonious manner. The 26-year-old partnership between Japan’s Honda Motor Corporation and India’s Hero Group was the perfect marriage. With Hero smoothly managing the distribution end and Honda similarly servicing the technology back end to make Hero Honda desh ki dhadkan. Earlier sunsets of JVs showed signs of struggle, with no clear separation strategy in place. But not in this case.
Hero Honda stands testimony to a milieu when JVs was one of the few means through which a foreign company could enter the Indian market, and the 80s and 90s witnessed a slew of them. The government, at its end, provided ample cushion to the Indian JV partners, who subtly lobbied for protectionism against the backdrop of India’s technological limitations. Press Note 18/1998 spelled that the automatic route for foreign investment was not available to existing foreign investors.
Any foreign investor required the permission of the government to invest in India if it had been part of an existing Indian JV, and produce a certificate from the existing Indian JV partner that it had no objection to the foreign partner’s new investment proposal in the same or allied field. The main policy concern was to protect the interests of domestic JV partners. It was felt that an element of government oversight was necessary, so that future collaborations were subjected to the test of ‘jeopardy’ and existing domestic JV partners were not placed in a position wherein their survival was ‘threatened’.
With liberalization and subsequent dilution of FDI rules, the revised Press Note 1 of 2005 too retained some protectionist measures (even as on the whole the policy framework was relaxed) as it acknowledged that the JV partners contractually safeguard their interests. Subsequent Press Notes attempted to set out a methodology for computing the quantum of ownership and management of JV companies. As per the policy stipulated under Press Notes 2 and 3 of 2009, it was spelled that an Indian company is a company incorporated in India where majority stake is held by Indians and they have the powers to elect majority directors on board. Accordingly, foreign investments of all types—FDI, portfolio or foreign institutional investments, NRI investments, GDRs and ADRs, foreign currency convertible bonds and preference shares—are taken into account while determining ownership of an Indian company. Indian JVs normally have a 51:49 equity breakup between Indian and foreign partners, but there seems to be ambiguity with respect to a situation of equal—50:50—JV.
Today, even after considerable simplification of FDI rules, and even after the Department of Industrial Policy & Promotion (DIPP) issuing a Consolidated FDI Policy on March 31, 2010, that subsumes all prior existing Press Notes, the clause of seeking a NOC from the JV partner remains intact for JVs entered before 2005. Accordingly, a foreign investor who entered into a JVs in India before January 12, 2005, has to seek an NOC from the ‘existing’ local partner to start a new business in the same field, even if the investment is routed via Indian-owned and Indian-controlled company.
The Foreign Investment Promotion Board has been alerted many times by Indian JV partners in this regard. Fresh in memory are instances when Telcon (itself a JV between Tata Motors and Hitachi Construction) highlighted the issue of its JV partner John Deere wanting to enter into an alliance with Ashok Leyland, L&T raising concerns about its German JV partner Ralf Schneider wanting to set up a wholly-owned subsidiary in India, and Modi Entertainment Network refusing to give the NOC to its JV partner Disney that wanted to launch the Disney channel in India through a wholly-owned subsidiary. More recently, Ramphal Trust opposed the plan of Mercer Inc for entering into the insurance broking sector by citing the conflict of interest clause of Press Note 1, on the grounds that Ramphal Trust is also an insurance broking firm.
DIPP has recently issued a discussion paper stating that, “Industry has to increasingly become more competitive. This is particularly relevant in an era of globalisation, where a number of FTAs and CEPAs are in place. In such a scenario, if an industry is discouraged from being set up in India, it could be set up in a neighbouring country, with whom a trade agreement exists or is being negotiated.” Despite the existing policy framework, JVs in India would remain a preferred route for international companies to find their way into the Indian market and whoever thought that JVs were a thing of the past may well have to take a reality check! Take the instance of defence, which has a 26% FDI cap. The sector is inviting considerable interest and investment. Recent developments include Mahindra Defence Systems and BAE Systems collaborating to manufacture land combat vehicles, and the tie-up of Tata Advanced System with the makers of the F-16 fighter jet, Lockheed Martin Corporation. Also notable is the fact that these JVs enable considerable technological learning, given that defence production requires advanced state-of-the-art technology.
Even for the sectors that allow FDI up to 100%, foreign companies may prefer a JV for testing the waters for their product and market even if they seek a more equal partnership in JV. An established Indian JV partner will enable quick access to the Indian market, an immediate platform to launch a product backed by a distribution network. Managing the Indian reality may be tough for the global guy, so it will always make sense for a global player to go with an Indian partner. For instance, tie-ups between Honda Motor Company and the Shriram Group and between Toyota Motor Corp and the Kirloskar Group have had a smooth run.
Other sectors that will continue to get JV traction in India will be industrial products, power, oil & gas, heavy equipment, automotive equipment, pharmaceuticals, infrastructure and high-end technology. For JVs in these sectors, technological expertise, best practices, risk-sharing and capital will play a key role and, in turn, provide opportunity for both partners to leverage their core strengths and increase their profits and offer something unique to the partner. This fact is well comprehended globally, where risk-sharing and technological partnerships are assuming new highs with Suzuki’s tie-up with Volkswagen and the GM deal with SAIC surely standing to be counted. The GM-SAIC partnership remains one of the most successful tie-ups between a foreign and a Chinese automaker, enabling the foreigner to make its presence felt in a fiercely competitive landscape. Taking their successful partnership to the next level, GM and SAIC are teaming up to make commercial vehicles in India.
The pharmaceuticals space is also abuzz with companies tying up for joint R&D as the risks in technology are very high and the amounts invested equally steep. In sync with this realisation, members from the China Chamber of Commerce for Import and Export of Medicines and Health Products that recently accompanied the Chinese Premier Wen Jiabao too stressed how JVs could prove to be a win-win situation for Indian and Chinese pharma companies, as few Chinese companies were qualified to bid for global tenders by the WHO compared to 1,000 Indian companies.
Even as JVs will hold traction in emerging markets, going ahead, it remains to be seen if the emerging market JVs can transcend to the next stage and move beyond just providing a market access to the global player. As of now, JVs in India leverage domestic players’ knowledge of the lay of the land, whereas developed markets JVs are more strategic and competent, almost akin to mergers. How emerging markets, and especially India, traverse this path to become an ‘equal’ partner rather than a mere market enabler holds the key to JVs’ future here.
Hero Honda stands testimony to a milieu when JVs was one of the few means through which a foreign company could enter the Indian market, and the 80s and 90s witnessed a slew of them. The government, at its end, provided ample cushion to the Indian JV partners, who subtly lobbied for protectionism against the backdrop of India’s technological limitations. Press Note 18/1998 spelled that the automatic route for foreign investment was not available to existing foreign investors.
Any foreign investor required the permission of the government to invest in India if it had been part of an existing Indian JV, and produce a certificate from the existing Indian JV partner that it had no objection to the foreign partner’s new investment proposal in the same or allied field. The main policy concern was to protect the interests of domestic JV partners. It was felt that an element of government oversight was necessary, so that future collaborations were subjected to the test of ‘jeopardy’ and existing domestic JV partners were not placed in a position wherein their survival was ‘threatened’.
With liberalization and subsequent dilution of FDI rules, the revised Press Note 1 of 2005 too retained some protectionist measures (even as on the whole the policy framework was relaxed) as it acknowledged that the JV partners contractually safeguard their interests. Subsequent Press Notes attempted to set out a methodology for computing the quantum of ownership and management of JV companies. As per the policy stipulated under Press Notes 2 and 3 of 2009, it was spelled that an Indian company is a company incorporated in India where majority stake is held by Indians and they have the powers to elect majority directors on board. Accordingly, foreign investments of all types—FDI, portfolio or foreign institutional investments, NRI investments, GDRs and ADRs, foreign currency convertible bonds and preference shares—are taken into account while determining ownership of an Indian company. Indian JVs normally have a 51:49 equity breakup between Indian and foreign partners, but there seems to be ambiguity with respect to a situation of equal—50:50—JV.
Today, even after considerable simplification of FDI rules, and even after the Department of Industrial Policy & Promotion (DIPP) issuing a Consolidated FDI Policy on March 31, 2010, that subsumes all prior existing Press Notes, the clause of seeking a NOC from the JV partner remains intact for JVs entered before 2005. Accordingly, a foreign investor who entered into a JVs in India before January 12, 2005, has to seek an NOC from the ‘existing’ local partner to start a new business in the same field, even if the investment is routed via Indian-owned and Indian-controlled company.
The Foreign Investment Promotion Board has been alerted many times by Indian JV partners in this regard. Fresh in memory are instances when Telcon (itself a JV between Tata Motors and Hitachi Construction) highlighted the issue of its JV partner John Deere wanting to enter into an alliance with Ashok Leyland, L&T raising concerns about its German JV partner Ralf Schneider wanting to set up a wholly-owned subsidiary in India, and Modi Entertainment Network refusing to give the NOC to its JV partner Disney that wanted to launch the Disney channel in India through a wholly-owned subsidiary. More recently, Ramphal Trust opposed the plan of Mercer Inc for entering into the insurance broking sector by citing the conflict of interest clause of Press Note 1, on the grounds that Ramphal Trust is also an insurance broking firm.
DIPP has recently issued a discussion paper stating that, “Industry has to increasingly become more competitive. This is particularly relevant in an era of globalisation, where a number of FTAs and CEPAs are in place. In such a scenario, if an industry is discouraged from being set up in India, it could be set up in a neighbouring country, with whom a trade agreement exists or is being negotiated.” Despite the existing policy framework, JVs in India would remain a preferred route for international companies to find their way into the Indian market and whoever thought that JVs were a thing of the past may well have to take a reality check! Take the instance of defence, which has a 26% FDI cap. The sector is inviting considerable interest and investment. Recent developments include Mahindra Defence Systems and BAE Systems collaborating to manufacture land combat vehicles, and the tie-up of Tata Advanced System with the makers of the F-16 fighter jet, Lockheed Martin Corporation. Also notable is the fact that these JVs enable considerable technological learning, given that defence production requires advanced state-of-the-art technology.
Even for the sectors that allow FDI up to 100%, foreign companies may prefer a JV for testing the waters for their product and market even if they seek a more equal partnership in JV. An established Indian JV partner will enable quick access to the Indian market, an immediate platform to launch a product backed by a distribution network. Managing the Indian reality may be tough for the global guy, so it will always make sense for a global player to go with an Indian partner. For instance, tie-ups between Honda Motor Company and the Shriram Group and between Toyota Motor Corp and the Kirloskar Group have had a smooth run.
Other sectors that will continue to get JV traction in India will be industrial products, power, oil & gas, heavy equipment, automotive equipment, pharmaceuticals, infrastructure and high-end technology. For JVs in these sectors, technological expertise, best practices, risk-sharing and capital will play a key role and, in turn, provide opportunity for both partners to leverage their core strengths and increase their profits and offer something unique to the partner. This fact is well comprehended globally, where risk-sharing and technological partnerships are assuming new highs with Suzuki’s tie-up with Volkswagen and the GM deal with SAIC surely standing to be counted. The GM-SAIC partnership remains one of the most successful tie-ups between a foreign and a Chinese automaker, enabling the foreigner to make its presence felt in a fiercely competitive landscape. Taking their successful partnership to the next level, GM and SAIC are teaming up to make commercial vehicles in India.
The pharmaceuticals space is also abuzz with companies tying up for joint R&D as the risks in technology are very high and the amounts invested equally steep. In sync with this realisation, members from the China Chamber of Commerce for Import and Export of Medicines and Health Products that recently accompanied the Chinese Premier Wen Jiabao too stressed how JVs could prove to be a win-win situation for Indian and Chinese pharma companies, as few Chinese companies were qualified to bid for global tenders by the WHO compared to 1,000 Indian companies.
Even as JVs will hold traction in emerging markets, going ahead, it remains to be seen if the emerging market JVs can transcend to the next stage and move beyond just providing a market access to the global player. As of now, JVs in India leverage domestic players’ knowledge of the lay of the land, whereas developed markets JVs are more strategic and competent, almost akin to mergers. How emerging markets, and especially India, traverse this path to become an ‘equal’ partner rather than a mere market enabler holds the key to JVs’ future here.
Post split, Hero eyes new markets
Free to diversify into new export markets following the rupture of its 26-year-old joint venture (JV) with Japan’s Honda Motors, the Munjals-promoted Hero Group has identified parts of Latin America, West Asia and South East Asia to spruce up its numbers. The company would use its own brand name for these markets, top officials of the company said.
In a conference call with investors and brokerage houses on Monday, senior vice-president, Hero Honda, Anil Dua said the company would start exporting its two-wheelers to newer geographical destinations which has been so far an untapped opportunity. However, he refused to divulge details on the matter saying that the company is yet to decide on the exact time-frame.
The company’s chief financial officer Ravi Sud said that post 2014, when the technology pact between the two JV partners is set to expire, the company would not be paying any royalty on the existing products. The company is likely to pay higher royalty for newer products that it introduces. “The royalty, going forward, will be in line with what we pay now and we will be paying no royalty on existing products after 2014,” Sud said. The two sides are also expected to sign a definitive agreement for the stake sale in the next three-four weeks.
A broker who attended the call told FE that though the Hero Group had thrown light on broad contours of the separation from Honda Motors, their silence on the deal valuation could create some anxiety among the minority shareholders. “Overall, the company has broken its silence on the deal. But we hope that it would soon come out with more details in the coming weeks,” an analyst said. Religare Capital Markets also said that it was “disappointed” since the board refused to divulge specific details on the deal. “A key concern among investors in the wake of media reports has been that the stake transfer by promoters was made at a discount to market price and was being partially compensated for by higher royalty. This concern remains to be addressed,” said Kaushal Maroo, auto analyst with Religare Capital.
Sud said that timing of Hero Group's acquisition of Honda’s stake was “excellent” since the two-wheeler market in the country was buoyant. Sud also ruled out paying any lump sum or liscence fee to Honda Motors after 2014. Identifying two key challenges for the company, Sud said that setting up its own research & development centre and penetrating export markets. He said that the company is open to tying up with a foreign partner for technology if requ4red.
Shares of Hero Honda jumped nearly 18% to Rs 1,981 on Monday at the close of the Bombay Stock Exchange.
In a conference call with investors and brokerage houses on Monday, senior vice-president, Hero Honda, Anil Dua said the company would start exporting its two-wheelers to newer geographical destinations which has been so far an untapped opportunity. However, he refused to divulge details on the matter saying that the company is yet to decide on the exact time-frame.
The company’s chief financial officer Ravi Sud said that post 2014, when the technology pact between the two JV partners is set to expire, the company would not be paying any royalty on the existing products. The company is likely to pay higher royalty for newer products that it introduces. “The royalty, going forward, will be in line with what we pay now and we will be paying no royalty on existing products after 2014,” Sud said. The two sides are also expected to sign a definitive agreement for the stake sale in the next three-four weeks.
A broker who attended the call told FE that though the Hero Group had thrown light on broad contours of the separation from Honda Motors, their silence on the deal valuation could create some anxiety among the minority shareholders. “Overall, the company has broken its silence on the deal. But we hope that it would soon come out with more details in the coming weeks,” an analyst said. Religare Capital Markets also said that it was “disappointed” since the board refused to divulge specific details on the deal. “A key concern among investors in the wake of media reports has been that the stake transfer by promoters was made at a discount to market price and was being partially compensated for by higher royalty. This concern remains to be addressed,” said Kaushal Maroo, auto analyst with Religare Capital.
Sud said that timing of Hero Group's acquisition of Honda’s stake was “excellent” since the two-wheeler market in the country was buoyant. Sud also ruled out paying any lump sum or liscence fee to Honda Motors after 2014. Identifying two key challenges for the company, Sud said that setting up its own research & development centre and penetrating export markets. He said that the company is open to tying up with a foreign partner for technology if requ4red.
Shares of Hero Honda jumped nearly 18% to Rs 1,981 on Monday at the close of the Bombay Stock Exchange.
Yamaha launches bike
Yamaha never wants to keep its commuter level bike lovers unhappy, as it launched their commuter bike along with the SZ-R.
The SZ-R is the sportier version of the SZ-X. The bike is powered with the same engine as SZ-X. The bike gets front disc brake, a tacho and a tank protector. The main things that make is sportier are the shrouds and the tank protector. The new shrouds now have the same color as the side panels that give the bike a 2-tone pain scheme.
The bike, SZ-R, is priced at Rs 55000, ex-showroom Delhi. The bike is available in three colors Quality Black, Quality Red, and Quality Blue.
The SZ-R is the sportier version of the SZ-X. The bike is powered with the same engine as SZ-X. The bike gets front disc brake, a tacho and a tank protector. The main things that make is sportier are the shrouds and the tank protector. The new shrouds now have the same color as the side panels that give the bike a 2-tone pain scheme.
The bike, SZ-R, is priced at Rs 55000, ex-showroom Delhi. The bike is available in three colors Quality Black, Quality Red, and Quality Blue.
Supercross champ eyes bigger thrills
Biker CS Santosh was ecstatic,no doubt! But there was an overwhelming sense of relief too behind the smiles and fist pumps from the Bangalore rider after he lifted the MRF National Supercross Championship title in Pune on Sunday.Santosh,who rides for Team TVS Racing,went into the sixth and final round of the national championship with one hand literally on the silverware.He just needed 10 points from the last round to seal the title after dominating the entire season - winning four of the five rounds before the final in Pune.
But the 27-year-old was not interested in playing it safe.
I wanted to prove to everyone that I am up there as one of the best in the country at this point, said the biker.Santosh had a point to prove too.He was unlucky in the last three years as fractures to the collar bone and wrists just before the opening race of the season ruined his chances.
Previous seasons it was difficult and I was unlucky.But I knew that if I stay on the bike,dont get injured and ride to my potential I can win and that is what happened, said Santosh,who had also improved on his skills after training stints in the US and Australia.And Sundays race victory was the icing on the cake for the Bangalore lad.
Santosh,who rides a 250FX TVS race-special bike,didnt have an easy run into the checquered flag though as the Pune track and the competition were equally tough.His teammate Aravind KP took the initial lead in the first race (moto) of the final round.But Santosh capitalized on a mistake by Aravind in the third lap and after that there was no catching the 27-year-old.The second moto was a masterclass by Santosh as he did some serious aerials on his way to the top of the podium and the best rider award.
Santosh finished the championship with a total of 219 points with his TVS teammate Aravind 45 points behind in second place.CD Jinan finished in third place with 168 points
.
For Team TVS Racing,which is celebrating its 25th year in competitions,the onetwo finish in the championship was proof that their outfit is ready for bigger challenges.And the team fielding Santosh has already forayed into the international circuit.
This year we took part in the Asian Supercross Championship where I had finished in the top-5 in one of the races.The Asian circuit is very competitive as the top two riders from every country takes part in it.Besides I had won a lot of races in Sri Lanka too, said Santosh.
The 27-year-old had started competing in the national roadracing championship as a 19-year-old in 2002 before shifting to motocross and falling in love with the sport.And it is that love which makes Santosh look beyond even the competitive Asian circuit.If I get support and if I improve further I can compete in the World Supercross Championship too, said Santosh.
But the 27-year-old was not interested in playing it safe.
I wanted to prove to everyone that I am up there as one of the best in the country at this point, said the biker.Santosh had a point to prove too.He was unlucky in the last three years as fractures to the collar bone and wrists just before the opening race of the season ruined his chances.
Previous seasons it was difficult and I was unlucky.But I knew that if I stay on the bike,dont get injured and ride to my potential I can win and that is what happened, said Santosh,who had also improved on his skills after training stints in the US and Australia.And Sundays race victory was the icing on the cake for the Bangalore lad.
Santosh,who rides a 250FX TVS race-special bike,didnt have an easy run into the checquered flag though as the Pune track and the competition were equally tough.His teammate Aravind KP took the initial lead in the first race (moto) of the final round.But Santosh capitalized on a mistake by Aravind in the third lap and after that there was no catching the 27-year-old.The second moto was a masterclass by Santosh as he did some serious aerials on his way to the top of the podium and the best rider award.
Santosh finished the championship with a total of 219 points with his TVS teammate Aravind 45 points behind in second place.CD Jinan finished in third place with 168 points
.
For Team TVS Racing,which is celebrating its 25th year in competitions,the onetwo finish in the championship was proof that their outfit is ready for bigger challenges.And the team fielding Santosh has already forayed into the international circuit.
This year we took part in the Asian Supercross Championship where I had finished in the top-5 in one of the races.The Asian circuit is very competitive as the top two riders from every country takes part in it.Besides I had won a lot of races in Sri Lanka too, said Santosh.
The 27-year-old had started competing in the national roadracing championship as a 19-year-old in 2002 before shifting to motocross and falling in love with the sport.And it is that love which makes Santosh look beyond even the competitive Asian circuit.If I get support and if I improve further I can compete in the World Supercross Championship too, said Santosh.
‘Bajaj & TVS to feel Honda heat more than Hero’
Raamdeo Agrawal, director and co-founder of Motilal Oswal Financial Services, has held on to Hero Honda Motors for over 14 years. As per the 15th annual wealth creation study (2005-2010) done by Motilal Oswal Financial Services, Hero Honda has been the most consistent wealth creator over the last decade, having appeared on all 10 occasions. During this 10-year period, the company has delivered net profits at a compounded annual growth rate (CAGR) of 22.5% and the stock has rewarded its firm believers by giving CAGR returns of 33.9%. In an interview to DNA, Agrawal shares his views on the company, its management and the business. Excerpts:
What made you invest in Hero Honda when the brand was not as popular as it is now?
During those days, the two-wheeler market was undergoing value migration with motorcycles just taking over from scooters. The motorcycles were in short supply and there was not much competition. Honda was a world leader and with them, Hero Honda’s leadership in motorcycle was destined, and they were getting incremental market share. Apart from that, they had a very good management and the stock was available at attractive valuations. With P/E of less than 10, and excellent return ratios like ROE and ROCE, it was a perfect backdrop for investing in Hero Honda.
You mentioned about the management being good. How do you see them now?
The Munjals have been great entrepreneurs, as they started off with bicycles and soon created an empire out of it. They have always been very calibrated and conservative, without creating any speculation. They have consistently rewarded their investors with liberal dividends and the stock has given fantastic returns. But somehow, despite all this, the stock has not enjoyed market confidence as it should have. The stock has therefore newer flown in terms of P/E being always in the range of 15-20 all these years.
How would this JV termination affect the group’s performance?
The exit is not happening overnight. The brand ‘Hero Honda’ would be there for the next four years and Munjals would be free to export while Honda can come out with its own models in India. Also, on the development side, Honda would provide technical support for a few more models. The entire facts of the deal are not out yet, so cannot figure the full impact of this at the moment.
What challenges do you see for Hero Group in the coming days, with Bajaj Auto and others including Honda hot on their heels?
Honda is present in India for sometime now and it is not a new player in the market. They already have some of the models in India. In fact, Honda would turn out to be a challenge for the other two players (Bajaj Auto and TVS) in the market rather than Hero as the brand Hero Honda still commands a recall. Also, it would take time for Honda to ramp up the capacities in India to challenge these players. But, history has shown that whenever competition increases, profitability does decrease a bit.
Would this deal hit the minority investors like you?
The management of the company has always taken care of the minority shareholders in the past and I am sure they would not do anything which goes against the minority shareholders’ interest.
After all, they own only a part of the company and if they shortchange the investors, they would loose the trust over the long term. So, I am sure it would not be against the interest of common investors.
What about the stock?
Whatever negatives had to come have already come now, with all the media reactions. I do not see further negatives for the company.
What made you invest in Hero Honda when the brand was not as popular as it is now?
During those days, the two-wheeler market was undergoing value migration with motorcycles just taking over from scooters. The motorcycles were in short supply and there was not much competition. Honda was a world leader and with them, Hero Honda’s leadership in motorcycle was destined, and they were getting incremental market share. Apart from that, they had a very good management and the stock was available at attractive valuations. With P/E of less than 10, and excellent return ratios like ROE and ROCE, it was a perfect backdrop for investing in Hero Honda.
You mentioned about the management being good. How do you see them now?
The Munjals have been great entrepreneurs, as they started off with bicycles and soon created an empire out of it. They have always been very calibrated and conservative, without creating any speculation. They have consistently rewarded their investors with liberal dividends and the stock has given fantastic returns. But somehow, despite all this, the stock has not enjoyed market confidence as it should have. The stock has therefore newer flown in terms of P/E being always in the range of 15-20 all these years.
How would this JV termination affect the group’s performance?
The exit is not happening overnight. The brand ‘Hero Honda’ would be there for the next four years and Munjals would be free to export while Honda can come out with its own models in India. Also, on the development side, Honda would provide technical support for a few more models. The entire facts of the deal are not out yet, so cannot figure the full impact of this at the moment.
What challenges do you see for Hero Group in the coming days, with Bajaj Auto and others including Honda hot on their heels?
Honda is present in India for sometime now and it is not a new player in the market. They already have some of the models in India. In fact, Honda would turn out to be a challenge for the other two players (Bajaj Auto and TVS) in the market rather than Hero as the brand Hero Honda still commands a recall. Also, it would take time for Honda to ramp up the capacities in India to challenge these players. But, history has shown that whenever competition increases, profitability does decrease a bit.
Would this deal hit the minority investors like you?
The management of the company has always taken care of the minority shareholders in the past and I am sure they would not do anything which goes against the minority shareholders’ interest.
After all, they own only a part of the company and if they shortchange the investors, they would loose the trust over the long term. So, I am sure it would not be against the interest of common investors.
What about the stock?
Whatever negatives had to come have already come now, with all the media reactions. I do not see further negatives for the company.
Existing capacity is sufficient for FY11: Hero Honda
With it's promoters heading for a split Hero Honda's plan to set up it's manufacturing facility is getting delayed even as the company said its existing capacity would suffice for the ongoing financial year.
" We are looking at several locations for our 4th plant, and will take a final decision in due course of time. Our current installed capacity is enough to meet the market demand for this fiscal," a company spokesperson said.
Without specifying details, the spokesperson said hero Honda is adding capacies at it's existing plants. At present it has an installed capacity of 5 million units per annum at its existing plants. At present it has an installed capacity of 5 million units per annum at it's three facilities at Dharuhera and Gurgaon in Haryana and Haridwar in Uttarkhand. It sold 46,00130 two-wheelers last fiscal.
Hero Honda top management had in the begining of the year stated that by about September a final location of the 4th plant was likely to be announced.
Earlier in March, Hero Honda Managing Director and CEO Pawan Munjal had said the company was conductiong a feasibility study in 10 states to find the best suitable location for its fourth manufacturing facility and that the decision would be taken in the next 6 months.
"the feasibility study would come up with capacity, investment, models and the location. It is going to take us six months to take the final call," he had said.
Even, Hero Honda Senior Vice-President (Marketing and Sales) Anil Dua had said during the SIAM Annual Convention on August 25 that the company had completed its field work and "the finalisation (of the new plant) will hopefully be closing in a month or so".
The plans now seems to have altered with the Hero Group set to buy out the Japanese partner Honda's 26 per cent stake in their joint venture.
The Hero group and Honda hold 26 per cent each in Hero Honda, that started operations in 1984 to become the world's largest two-wheeler maker today. It is understood that the Hero Group is arranging funds on its own to finance the buy out of Honda's stake.
According to sources in the know of the development, the two partners have already agreed that current royaly rate per mondel paid to Honda will remain unchanged. The royalty paid in 2009-10 on an average was 2.3 per cent to 3 per cent of sales.
However, in the case of seperation, Honda will continue to provide technology and models to the Hero Group for a transition period, the minium for which is till 2014 as per their existing joint venture agreement.
The shares of the company were trading marginally down during later afternoon at Rs 1772 a piece on the Bombay Stock Exchange.
" We are looking at several locations for our 4th plant, and will take a final decision in due course of time. Our current installed capacity is enough to meet the market demand for this fiscal," a company spokesperson said.
Without specifying details, the spokesperson said hero Honda is adding capacies at it's existing plants. At present it has an installed capacity of 5 million units per annum at its existing plants. At present it has an installed capacity of 5 million units per annum at it's three facilities at Dharuhera and Gurgaon in Haryana and Haridwar in Uttarkhand. It sold 46,00130 two-wheelers last fiscal.
Hero Honda top management had in the begining of the year stated that by about September a final location of the 4th plant was likely to be announced.
Earlier in March, Hero Honda Managing Director and CEO Pawan Munjal had said the company was conductiong a feasibility study in 10 states to find the best suitable location for its fourth manufacturing facility and that the decision would be taken in the next 6 months.
"the feasibility study would come up with capacity, investment, models and the location. It is going to take us six months to take the final call," he had said.
Even, Hero Honda Senior Vice-President (Marketing and Sales) Anil Dua had said during the SIAM Annual Convention on August 25 that the company had completed its field work and "the finalisation (of the new plant) will hopefully be closing in a month or so".
The plans now seems to have altered with the Hero Group set to buy out the Japanese partner Honda's 26 per cent stake in their joint venture.
The Hero group and Honda hold 26 per cent each in Hero Honda, that started operations in 1984 to become the world's largest two-wheeler maker today. It is understood that the Hero Group is arranging funds on its own to finance the buy out of Honda's stake.
According to sources in the know of the development, the two partners have already agreed that current royaly rate per mondel paid to Honda will remain unchanged. The royalty paid in 2009-10 on an average was 2.3 per cent to 3 per cent of sales.
However, in the case of seperation, Honda will continue to provide technology and models to the Hero Group for a transition period, the minium for which is till 2014 as per their existing joint venture agreement.
The shares of the company were trading marginally down during later afternoon at Rs 1772 a piece on the Bombay Stock Exchange.
Riding high: Girl power on mobikes is growing
EVERY weekday,at 10 am,19-year-old Dixita Shah tucks her long,black hair into a helmet,zips up a black jacket and kick-starts her trusty Bajaj Pulsar.The growl from the 150cc engine is music to her ears.Her destination Animaster,an animation institute in Jayanagar (Bangalore),25 km from her house.
Till six months ago, Ms Shah had to commute to college by bus.The long hours wait for buses daily made her switch to a bike.(With a gear contrary to the conventional shift that first time female bike users make,to a gearless bike).Dixita enjoys riding the gear bike as it offers more control and basic features such as a kick-start and meter analog makes it more alluring.
Like Dixita,more women are buying bikes.Indian women are taking an unprecedented fancy for automobiles,till recently a male bastion.Marketers and industry experts say the Indian retail landscape is being radically transformed as more women take up jobs and seed a surge in the average household income.
Although there is no official data to substantiate the growing number of women taking to the road on motorcycles,industry experts estimate that the number of bikes bought by women has increased by 40% in 2010 in India.Bike-makers Honda Motorcycle & Scooter India,Royal Enfield and India Yamaha Motor are witnessing an uptick in sales from women,with the under 30 age group driving the trend.
India Yamaha has seen a 30% growth in sale,while Honda and Royal Enfield do not have absolute number,they say that the sale has grown as compared to 2009.
Till six months ago, Ms Shah had to commute to college by bus.The long hours wait for buses daily made her switch to a bike.(With a gear contrary to the conventional shift that first time female bike users make,to a gearless bike).Dixita enjoys riding the gear bike as it offers more control and basic features such as a kick-start and meter analog makes it more alluring.
Like Dixita,more women are buying bikes.Indian women are taking an unprecedented fancy for automobiles,till recently a male bastion.Marketers and industry experts say the Indian retail landscape is being radically transformed as more women take up jobs and seed a surge in the average household income.
Although there is no official data to substantiate the growing number of women taking to the road on motorcycles,industry experts estimate that the number of bikes bought by women has increased by 40% in 2010 in India.Bike-makers Honda Motorcycle & Scooter India,Royal Enfield and India Yamaha Motor are witnessing an uptick in sales from women,with the under 30 age group driving the trend.
India Yamaha has seen a 30% growth in sale,while Honda and Royal Enfield do not have absolute number,they say that the sale has grown as compared to 2009.
Honda’s plant to resume production today
Honda Motorcycle & Scooter India (HMSI) today said normal production at its Manesar plant will resume on Sunday after it had been suspended since yesterday due to strike by casual workers. “There was a minor incident yesterday due to which evening shift production was affected. It has been resolved and we will be resuming production from Sunday," a senior HMSI official said.
Hero Group now goes for image makeover
The Hero Group is planning a complete image makeover for Hero Honda Motors Ltd (HHML), the world's largest two-wheeler company by sales, after it buys out the Japanese partner Honda Motor Co's stake in the joint venture.
The Munjal family promoted Hero Group has contracted ad agency JWT to devise a solo brand strategy to help the market leader retain its position in the domestic market even after the Honda name is dropped. Though Hero can use the Hero Honda joint corporate brand till 2014, it would go for a gradual shift to the new brand through a fresh campaign and corporate look.
Senior officials in JWT said the details of the campaign are confidential. However, an official confirmed that something major is brewing.
“We've been asked to regroup and work on a completely new strategy. It is early and a lot is needed to be done,” he said.
A person privy to the development told Business Line, “The Hero Honda brand is well established as a leader in two-wheelers and a new brand strategy is to be addressed next. There will be a fresh corporate identity, with a new logo and colours. The shift would be a gradual process heading towards 2014.” Company officials were not available for comment.
After almost a year of speculation, the Hero Group announced on Thursday that it would buy Honda's 26 per cent stake in Hero Honda for an undisclosed amount. The value of the deal is estimated to be around $2 billion. The company also signed a fresh agreement with Honda for new technology, and permitted the group to seek tie-ups elsewhere.
Bike brands
Industry sources said the company is considering a brand strategy focusing on popular bike brands, rather than the corporate brand. Such a campaign would play on the higher acceptance and brand recall of the products.
Its highest selling models – Splendor and Passion – give Hero Honda close to a 70 per cent share in the 75-125cc mass bike segment, but its total two-wheeler market share has dropped to 44 per cent in April-November, 2011, from 48 per cent in 2009-10. Incidentally, Hero's move mirrors that of rival Bajaj Auto which is following a conscious strategy to promote its Pulsar and Discover brands.
Brand expert Mr Giraj Sharma from BehindTheMoon Consultants said that the company needs to use the three-year period to build a new umbrella brand on the same value systems that Hero Honda has been known for.
“They need a two-faceted strategy – pushing the product brands for the time being, but building the corporate brand in the background for later products. These old brands may not last them very long. It will be a challenge as a lot of years had been invested behind the Hero Honda brand, especially now when Honda will compete in the same categories.”
The Munjal family promoted Hero Group has contracted ad agency JWT to devise a solo brand strategy to help the market leader retain its position in the domestic market even after the Honda name is dropped. Though Hero can use the Hero Honda joint corporate brand till 2014, it would go for a gradual shift to the new brand through a fresh campaign and corporate look.
Senior officials in JWT said the details of the campaign are confidential. However, an official confirmed that something major is brewing.
“We've been asked to regroup and work on a completely new strategy. It is early and a lot is needed to be done,” he said.
A person privy to the development told Business Line, “The Hero Honda brand is well established as a leader in two-wheelers and a new brand strategy is to be addressed next. There will be a fresh corporate identity, with a new logo and colours. The shift would be a gradual process heading towards 2014.” Company officials were not available for comment.
After almost a year of speculation, the Hero Group announced on Thursday that it would buy Honda's 26 per cent stake in Hero Honda for an undisclosed amount. The value of the deal is estimated to be around $2 billion. The company also signed a fresh agreement with Honda for new technology, and permitted the group to seek tie-ups elsewhere.
Bike brands
Industry sources said the company is considering a brand strategy focusing on popular bike brands, rather than the corporate brand. Such a campaign would play on the higher acceptance and brand recall of the products.
Its highest selling models – Splendor and Passion – give Hero Honda close to a 70 per cent share in the 75-125cc mass bike segment, but its total two-wheeler market share has dropped to 44 per cent in April-November, 2011, from 48 per cent in 2009-10. Incidentally, Hero's move mirrors that of rival Bajaj Auto which is following a conscious strategy to promote its Pulsar and Discover brands.
Brand expert Mr Giraj Sharma from BehindTheMoon Consultants said that the company needs to use the three-year period to build a new umbrella brand on the same value systems that Hero Honda has been known for.
“They need a two-faceted strategy – pushing the product brands for the time being, but building the corporate brand in the background for later products. These old brands may not last them very long. It will be a challenge as a lot of years had been invested behind the Hero Honda brand, especially now when Honda will compete in the same categories.”
No govt scrutiny of Hero Honda deal required, says Khurshid
Even as a section of market participants harped on the lack of transparency in the terms of the Hero Honda split, the corporate affairs ministry made it clear today it had no plans to scrutinise the deal. Experts say the company is under no obligation to disclose price details as it involves inter se transfer of shares between two promoter entities.
“We are only looking at scrutiny of mergers. We are not looking at scrutiny of demergers because demergers allow greater competition, while mergers may lead to less competition,” said Corporate Affairs Minister Salman Khurshid on the sidelines of the Corporate Governance Summit 2010 organised by the Confederation of Indian Industry (CII).
On Thursday, the Munjals-promoted Hero Group bought Honda Motor Corporation’s entire 26 per cent stake in Hero Honda for an undisclosed sum. While refusing to specify the price at which shares are changing hands, the Indian promoters said the company would raise debt to buy out the foreign partner. The deal will increase the Munjal family’s stake in the company to 52 per cent.
“When the transactions actually take place, the details will be out... Minority shareholders have to be protected, but they can’t overturn the decision of a majority,” commented Bajaj Group Chairman Rahul Bajaj on the Hero Honda deal.
Legal experts, meanwhile, say inter se transfer of shares among the promoters would not trigger an open offer and, hence, regulations do not call for price disclosure. “None of the listing regulations will be violated if the price is not disclosed,” said Sandeep Parekh, founder, Finsec Law Advisors. Parekh was earlier executive director (legal) with markets regulator Securities & Exchange Board of India.
Experts, however, add that the price would have to be disclosed to shareholders only if the deal impacts the company’s operations.
“The promoter has made it clear there will be no increase in royalty payments. However, if the equity share purchase agreement contains clauses that impact the operations of the company, then shareholder approval will be required,” said a person familiar with the matter, on condition of anonymity.
"Starting January 2011, our royalty payments will actually decline, because we will be paying only for three new models," said Pawan Munjal, MD & CEO, Hero Honda, while addressing the media on Thursday.
Brokerages also seem to have taken the deal’s contours positively, with some even upgrading their recommendation. They expressed confidence the deal would not impact Hero Honda’s products or branding. "While the management did not share the exact details of the agreement, prima facie, serious concerns seem to have been allayed," stated Edelweiss Securities in a note to its clients.
"The broad contours of the deal seem to indicate that with continuity in products, branding and royalty, the company’s operations are unlikely to be impacted in the medium term (until 2014)," it stated further, while maintaining a buy rating on the auto major. Emkay has upgraded Hero Honda to 'hold' from 'reduce'.
“We are only looking at scrutiny of mergers. We are not looking at scrutiny of demergers because demergers allow greater competition, while mergers may lead to less competition,” said Corporate Affairs Minister Salman Khurshid on the sidelines of the Corporate Governance Summit 2010 organised by the Confederation of Indian Industry (CII).
On Thursday, the Munjals-promoted Hero Group bought Honda Motor Corporation’s entire 26 per cent stake in Hero Honda for an undisclosed sum. While refusing to specify the price at which shares are changing hands, the Indian promoters said the company would raise debt to buy out the foreign partner. The deal will increase the Munjal family’s stake in the company to 52 per cent.
“When the transactions actually take place, the details will be out... Minority shareholders have to be protected, but they can’t overturn the decision of a majority,” commented Bajaj Group Chairman Rahul Bajaj on the Hero Honda deal.
Legal experts, meanwhile, say inter se transfer of shares among the promoters would not trigger an open offer and, hence, regulations do not call for price disclosure. “None of the listing regulations will be violated if the price is not disclosed,” said Sandeep Parekh, founder, Finsec Law Advisors. Parekh was earlier executive director (legal) with markets regulator Securities & Exchange Board of India.
Experts, however, add that the price would have to be disclosed to shareholders only if the deal impacts the company’s operations.
“The promoter has made it clear there will be no increase in royalty payments. However, if the equity share purchase agreement contains clauses that impact the operations of the company, then shareholder approval will be required,” said a person familiar with the matter, on condition of anonymity.
"Starting January 2011, our royalty payments will actually decline, because we will be paying only for three new models," said Pawan Munjal, MD & CEO, Hero Honda, while addressing the media on Thursday.
Brokerages also seem to have taken the deal’s contours positively, with some even upgrading their recommendation. They expressed confidence the deal would not impact Hero Honda’s products or branding. "While the management did not share the exact details of the agreement, prima facie, serious concerns seem to have been allayed," stated Edelweiss Securities in a note to its clients.
"The broad contours of the deal seem to indicate that with continuity in products, branding and royalty, the company’s operations are unlikely to be impacted in the medium term (until 2014)," it stated further, while maintaining a buy rating on the auto major. Emkay has upgraded Hero Honda to 'hold' from 'reduce'.
Market wary as Honda gets ready to go solo in India
Can Honda use its technological edge to break into a market dominated by the big three automakers — Hero Honda (which will now be renamed), Bajaj Auto and TVS — which together control over 80 per cent of the market? Especially as it is knocking at the doorsteps as the fourth largest two-wheeler company with an over 12.5 per cent market share, just a few points behind TVS.
Indian two-wheeler companies concede that competition will increase and there might be a price war in some segments, but say Honda has not made any substantial dent despite its operations through its 100 per cent subsidiary (Honda Motorcycles and Scooters India) for the last six years.
And while its JV with the Munjals limited its ability to get into the mass market 100cc segment in a big way, its attempts to tap both the 100cc market and make a dent in the 125cc and above the segment have not paid rich dividends.
Rajiv Bajaj, managing director of Bajaj Auto and one of Hero Honda’s arch rivals, says, “They have five brands in the Indian market, including the 100cc Twister, that’s being aggressively promoted as a 70 kmpl bike. However, their success has been rather limited.”
He says that competition from Honda should not be exaggerated. “After 25 years of benefiting from the best of Honda and Hero it has not made a major impression even in the 125cc plus space and of bigger and sportier bikes, that is still dominated by Bajaj’s Pulsar and Discover. So, while we are not overconfident, we have no reason for undue concern.”
Bajaj Auto executives also concede that prices might go down in the mass segment as a result of the war. Says the managing director of a leading two-wheeler company, who prefers to speak off the record, “We will now have four player as Honda would surely like to increase its market share substantially, which it could not as its hands were tied by the Munjals.”
He adds that delay in the negotiations on the break-up between the partners, which took over two years, has been an advantage. “It has given us time to prepare our plans, but the war will begin and we are careful.”
Sources who deal with TVS, the third largest two-wheeler company in the country, for instance, say the company has been preparing its R&D and product development based on the fact that Honda might come on its own.
It has also carefully hedged its bets on just mobikes by having a substantial volume of its sales coming from scooters. For instance, it sells two million two-wheelers annually, of which, about one fourth comes from scooters and mopeds. Next year, it is looking at selling three million two-wheelers, of which about 0.75 million will be non mobikes.
Analysts point out that Honda has already started making aggressive moves to enter the low-cost bike market. It has been quietly building its R&D capability in Shanghai to make low-cost bikes for the Asian market and India is surely one of the key markets. It has already announced its plans to launch a $600, 100cc bike, which surely will be the cheapest in India.
Honda can leverage on the fact that most of the products would be made both for China and India, which will give it large volumes, which no Indian manufacturer can match. It would, of course, mean cheaper component costs and lower cost of production.
It is also ready to meet enhanced need for more capacity in its plants in India. It is investing Rs 500 crore to put up a second plant in Rajasthan with a capacity to make 600,000 bikes annually, which can be doubled. The new capacity will be up and running by the second half of 2011 when the company will have a total capacity to make 2.2 million two-wheelers. This will reduce the capacity gap, that it currently has with Hero Honda (5.2 million) or Bajaj Auto (4.98 million by March 2011).
Indian two-wheeler companies concede that competition will increase and there might be a price war in some segments, but say Honda has not made any substantial dent despite its operations through its 100 per cent subsidiary (Honda Motorcycles and Scooters India) for the last six years.
And while its JV with the Munjals limited its ability to get into the mass market 100cc segment in a big way, its attempts to tap both the 100cc market and make a dent in the 125cc and above the segment have not paid rich dividends.
Rajiv Bajaj, managing director of Bajaj Auto and one of Hero Honda’s arch rivals, says, “They have five brands in the Indian market, including the 100cc Twister, that’s being aggressively promoted as a 70 kmpl bike. However, their success has been rather limited.”
He says that competition from Honda should not be exaggerated. “After 25 years of benefiting from the best of Honda and Hero it has not made a major impression even in the 125cc plus space and of bigger and sportier bikes, that is still dominated by Bajaj’s Pulsar and Discover. So, while we are not overconfident, we have no reason for undue concern.”
Bajaj Auto executives also concede that prices might go down in the mass segment as a result of the war. Says the managing director of a leading two-wheeler company, who prefers to speak off the record, “We will now have four player as Honda would surely like to increase its market share substantially, which it could not as its hands were tied by the Munjals.”
He adds that delay in the negotiations on the break-up between the partners, which took over two years, has been an advantage. “It has given us time to prepare our plans, but the war will begin and we are careful.”
Sources who deal with TVS, the third largest two-wheeler company in the country, for instance, say the company has been preparing its R&D and product development based on the fact that Honda might come on its own.
It has also carefully hedged its bets on just mobikes by having a substantial volume of its sales coming from scooters. For instance, it sells two million two-wheelers annually, of which, about one fourth comes from scooters and mopeds. Next year, it is looking at selling three million two-wheelers, of which about 0.75 million will be non mobikes.
Analysts point out that Honda has already started making aggressive moves to enter the low-cost bike market. It has been quietly building its R&D capability in Shanghai to make low-cost bikes for the Asian market and India is surely one of the key markets. It has already announced its plans to launch a $600, 100cc bike, which surely will be the cheapest in India.
Honda can leverage on the fact that most of the products would be made both for China and India, which will give it large volumes, which no Indian manufacturer can match. It would, of course, mean cheaper component costs and lower cost of production.
It is also ready to meet enhanced need for more capacity in its plants in India. It is investing Rs 500 crore to put up a second plant in Rajasthan with a capacity to make 600,000 bikes annually, which can be doubled. The new capacity will be up and running by the second half of 2011 when the company will have a total capacity to make 2.2 million two-wheelers. This will reduce the capacity gap, that it currently has with Hero Honda (5.2 million) or Bajaj Auto (4.98 million by March 2011).
Hero Honda split comes with a sense of loss
Fill it, shut it, forget it. There was something businesslike about that legendary Hero Honda advertising line. But the news of Honda divesting from Hero Honda stops being merely a piece of business news; it comes with a sense of loss and is almost comparable to the sense of void created when Bajaj announced the retirement of its legendary scooter.
At one level we understand the inevitability of such events in neo-liberal India — Bajaj parted ways with Kawasaki, TVS separated from Suzuki. But none of them came with the same sense of loss.
Hero Honda somewhere stopped being a collaboration of an Indian and Japanese corporation. It was a single Indian entity that in many ways defined who we are.
Hero Honda was one of the first expressions of freedom from the extremities of Indian mobility. On one hand, we had the stodgy middle class mobility of a scooter and on the other hand, there was the heavy overdose of machismo of a bullet. Hero Honda was the first time a young Indian male could have an individual expression on the road — it was free from the utilitarian world of the unwieldy scooter or the handle bar moustache world of the rugged 350 CC.
Hero Honda’s biggest contribution to our sense of mobility was the introduction of economy without sacrificing grace, power and respectability. Before the legendary 80 kilometres-perlitre story, our sense of road economy was defined by the moped.
The moped was economical — but in many ways it mocked the concept of a two-wheeler. It was often viewed (both by the maker and the user) as a bicycle with an engine. Hero Honda gave us a sort of respite with the 4-stroke efficiency . Economy suddenly stopped looking ugly and created a sense of desire.
In many ways, Hero Honda pioneered the concept of personal mobility of the executive who couldn’t afford a car. A scooter was a part of family possession and looked perfectly comfortable with Pappa, Mammi, Munnu and Chunnu. Hero Honda created the picture of young Indian office-goers on the road on their two-wheelers . In a way, it contributed greatly to the traffic chaos in the office hours by allowing the young executive to believe that he had the power to beat the traffic.
The Twitter space is filled today with predictions that this may spell the doomsday for the company. I don’t agree with that, neither does the stock market. The break up of a 26-year-old relationship is also not the most significant point. I think what makes us react to the news is that we are afraid that this may mark the loss of another reference point in our collective consciousness.
Nostalgia is a cultural commodity and any loss there conjures up images of loss of comfort and stability. This phenomenon, by its very nature, is not amenable to logic and reasoning. When Bombay is changed to Mumbai or Calcutta to Kolkata, we never feel happy about it though ideally speaking we should appreciate the logic of someone correcting an age-old British mispronunciation. We actually end up lamenting the rechristening, fearing a loss of comfort.
Similarly, the split of Honda and Hero group may be inevitable ; it may make tremendous sense for both the companies ; in liberalised economy, it may mark the beginning of collaborators turning competitors — but it will always be difficult for us to evaluate this event with this sort of cold sensibility.
For us, Hero Honda is not a joint venture, it’s not merely a brand of motorcycle, it marks a significant point in our culture of mobility. We are scared to lose the comfort of its presence.
At one level we understand the inevitability of such events in neo-liberal India — Bajaj parted ways with Kawasaki, TVS separated from Suzuki. But none of them came with the same sense of loss.
Hero Honda somewhere stopped being a collaboration of an Indian and Japanese corporation. It was a single Indian entity that in many ways defined who we are.
Hero Honda was one of the first expressions of freedom from the extremities of Indian mobility. On one hand, we had the stodgy middle class mobility of a scooter and on the other hand, there was the heavy overdose of machismo of a bullet. Hero Honda was the first time a young Indian male could have an individual expression on the road — it was free from the utilitarian world of the unwieldy scooter or the handle bar moustache world of the rugged 350 CC.
Hero Honda’s biggest contribution to our sense of mobility was the introduction of economy without sacrificing grace, power and respectability. Before the legendary 80 kilometres-perlitre story, our sense of road economy was defined by the moped.
The moped was economical — but in many ways it mocked the concept of a two-wheeler. It was often viewed (both by the maker and the user) as a bicycle with an engine. Hero Honda gave us a sort of respite with the 4-stroke efficiency . Economy suddenly stopped looking ugly and created a sense of desire.
In many ways, Hero Honda pioneered the concept of personal mobility of the executive who couldn’t afford a car. A scooter was a part of family possession and looked perfectly comfortable with Pappa, Mammi, Munnu and Chunnu. Hero Honda created the picture of young Indian office-goers on the road on their two-wheelers . In a way, it contributed greatly to the traffic chaos in the office hours by allowing the young executive to believe that he had the power to beat the traffic.
The Twitter space is filled today with predictions that this may spell the doomsday for the company. I don’t agree with that, neither does the stock market. The break up of a 26-year-old relationship is also not the most significant point. I think what makes us react to the news is that we are afraid that this may mark the loss of another reference point in our collective consciousness.
Nostalgia is a cultural commodity and any loss there conjures up images of loss of comfort and stability. This phenomenon, by its very nature, is not amenable to logic and reasoning. When Bombay is changed to Mumbai or Calcutta to Kolkata, we never feel happy about it though ideally speaking we should appreciate the logic of someone correcting an age-old British mispronunciation. We actually end up lamenting the rechristening, fearing a loss of comfort.
Similarly, the split of Honda and Hero group may be inevitable ; it may make tremendous sense for both the companies ; in liberalised economy, it may mark the beginning of collaborators turning competitors — but it will always be difficult for us to evaluate this event with this sort of cold sensibility.
For us, Hero Honda is not a joint venture, it’s not merely a brand of motorcycle, it marks a significant point in our culture of mobility. We are scared to lose the comfort of its presence.
Dealers say Hero-Honda split to drive sales of Munjal-owned Hero group
NEW DELHI: The Hero Honda brand will drive sales of Munjal-owned Hero group’s two-wheelers for the time being, said five large company dealers from across the country, adding that Honda is not in a position to start poaching on Hero Honda dealers.
"Honda doesn't produce many two-wheelers to do mass-scale poaching,” said Mumbai-based dealer Sandeep Baffna. “Moreover, Honda wouldn't like to spoil a long-term relationship,” adds Baffna, who is also the chairman of Auto Dealers' Association of Maharashtra.
In fact, the dealers said there are more reasons to be positive about the split. Hero will benefit from exporting more motorcycles and scooters.
Delhi-based Himgiri Motors owner Anil Goyal said: "The Munjals will be able to develop products for new markets quickly.” They will be able to generate better volumes as exports will get a big boost and profits won't have to be shared, added Goyal, who is the largest Hero Honda dealer in Delhi.
As far as the technology is concerned, the dealers feel that the Hero group has three years to develop its technology. "The split will give the Hero group the space to come up with its own products with indigenous technology,” said Baffna.
Goyal feels that there’s a reason to be positive. Eicher has done better after Mitsubishi’s exit, he said. Similarly, M&M has developed its own technology and is doing well. “Hero is a much bigger company and there is no reason why it shouldn’t do better without Honda,” says Goyal.
However, there are skeptics who doubt the success of the solo Hero brand. A Delhi-based dealer of Bajaj two-wheelers, Rakesh Jain, said: "As long as the brand name continues, sales won’t be impacted. But the Hero group is yet to prove itself in R&D and technology."
Brand experts believe Hero Honda has emerged as a generic reference brand in the bike segment. Harish Bijoor Consultants chief executive Harish Bijoor said: "The brand will have to go through a transition period. But there are brand solutions that can help sort out consumer dissonance."
"Honda doesn't produce many two-wheelers to do mass-scale poaching,” said Mumbai-based dealer Sandeep Baffna. “Moreover, Honda wouldn't like to spoil a long-term relationship,” adds Baffna, who is also the chairman of Auto Dealers' Association of Maharashtra.
In fact, the dealers said there are more reasons to be positive about the split. Hero will benefit from exporting more motorcycles and scooters.
Delhi-based Himgiri Motors owner Anil Goyal said: "The Munjals will be able to develop products for new markets quickly.” They will be able to generate better volumes as exports will get a big boost and profits won't have to be shared, added Goyal, who is the largest Hero Honda dealer in Delhi.
As far as the technology is concerned, the dealers feel that the Hero group has three years to develop its technology. "The split will give the Hero group the space to come up with its own products with indigenous technology,” said Baffna.
Goyal feels that there’s a reason to be positive. Eicher has done better after Mitsubishi’s exit, he said. Similarly, M&M has developed its own technology and is doing well. “Hero is a much bigger company and there is no reason why it shouldn’t do better without Honda,” says Goyal.
However, there are skeptics who doubt the success of the solo Hero brand. A Delhi-based dealer of Bajaj two-wheelers, Rakesh Jain, said: "As long as the brand name continues, sales won’t be impacted. But the Hero group is yet to prove itself in R&D and technology."
Brand experts believe Hero Honda has emerged as a generic reference brand in the bike segment. Harish Bijoor Consultants chief executive Harish Bijoor said: "The brand will have to go through a transition period. But there are brand solutions that can help sort out consumer dissonance."
Hero Honda scrip tanks further 5%
Shares of Hero Honda continued to tumble on Wednesday amid reports that the group is set to buy 26 per cent stake of its Japanese partner Honda Motors in a $1 billion deal. The scrip tanked 5.40 per cent to Rs 1,621.30 on BSE, taking its month-to-date decline to nearly 18 per cent.
On NSE, the scrip dropped 5.18 to Rs 1,621.55 after generating unusually high volumes. About 30.78 lakh share exchanged hands on both the exchanges.
“There were no official announcements or clarity by Hero Honda regarding this split. Investors were worried over the price, which Hero group will pay to Honda. Also, investors were clueless what will happen when the technology support from Honda expire,” said Pankaj Pandey, head of research at ICICI Securities.
“Royalty issue may lead to further decline in the Hero Honda stock. Hero group will have to pay more royalty between 2-6 per cent to Honda group to continue Japanese company’s technology,” said Ajay Parmar, head of institutional equities at Emkay Global Financial Services
On NSE, the scrip dropped 5.18 to Rs 1,621.55 after generating unusually high volumes. About 30.78 lakh share exchanged hands on both the exchanges.
“There were no official announcements or clarity by Hero Honda regarding this split. Investors were worried over the price, which Hero group will pay to Honda. Also, investors were clueless what will happen when the technology support from Honda expire,” said Pankaj Pandey, head of research at ICICI Securities.
“Royalty issue may lead to further decline in the Hero Honda stock. Hero group will have to pay more royalty between 2-6 per cent to Honda group to continue Japanese company’s technology,” said Ajay Parmar, head of institutional equities at Emkay Global Financial Services
Higher royalty for Honda in split from Hero
Negotiations to break up the country's most successful automobile joint venture, Hero Honda Motors Ltd, has entered the last lap, with a board meeting expected later this week to announce the details of a corporate divorce in which sweetened royalty payments form a key part of the deal. The Hero group Ads by Google
will buy out the 26% stake held by Honda Motor Corp in the world’s largest two-wheeler maker but will continue to get technology from the Japanese firm – at a price tag that spells the terms of separation under which Honda will eventually be free to concentrate more on its own bikes for India.
Industry sources told Hindustan Times that the estimated value of the stake sale is likely to be around $1.2 billion (Rs 5,400 crore), though the current market value of the stake is around $1.9 billion (Rs 8,400 crore).
Hero Honda shares fell 5.4% to Rs 1,621.30 on Wednesday in a negative reaction to the break-up, after falling as much as 9% to a two-month low of Rs 1,559.
Details are awaited but the Munjal family that controls the Hero group is said to be in talks with various banks to raise a bridge loan to buy out Honda before divesting the bought-out stake to a clutch of private equity firms that include Bain Capital, TPG, Carlyle, Warbug Pincus and Kohberg Kravis Roberts.
At the centre of the buy-out is a steep rise in royalty payments to Honda, which is expected to go up to as much as 8% of the firm’s sales from the current 2.6%. The removal of a government ceiling of 5% of domestic sales saw the rate increasing in many companies such as Maruti Suzuki earlier this year.
Hero Honda, however, has been an exception so far.
Honda will continue to provide technology to Hero Honda motorbikes until 2014 for existing as well as future models.
The dip in the company’s stock at more than 9% this year, lags the automotive sector index. Most brokerage houses have maintained a negative outlook for the company’s stock in the short term
will buy out the 26% stake held by Honda Motor Corp in the world’s largest two-wheeler maker but will continue to get technology from the Japanese firm – at a price tag that spells the terms of separation under which Honda will eventually be free to concentrate more on its own bikes for India.
Industry sources told Hindustan Times that the estimated value of the stake sale is likely to be around $1.2 billion (Rs 5,400 crore), though the current market value of the stake is around $1.9 billion (Rs 8,400 crore).
Hero Honda shares fell 5.4% to Rs 1,621.30 on Wednesday in a negative reaction to the break-up, after falling as much as 9% to a two-month low of Rs 1,559.
Details are awaited but the Munjal family that controls the Hero group is said to be in talks with various banks to raise a bridge loan to buy out Honda before divesting the bought-out stake to a clutch of private equity firms that include Bain Capital, TPG, Carlyle, Warbug Pincus and Kohberg Kravis Roberts.
At the centre of the buy-out is a steep rise in royalty payments to Honda, which is expected to go up to as much as 8% of the firm’s sales from the current 2.6%. The removal of a government ceiling of 5% of domestic sales saw the rate increasing in many companies such as Maruti Suzuki earlier this year.
Hero Honda, however, has been an exception so far.
Honda will continue to provide technology to Hero Honda motorbikes until 2014 for existing as well as future models.
The dip in the company’s stock at more than 9% this year, lags the automotive sector index. Most brokerage houses have maintained a negative outlook for the company’s stock in the short term
Harley-Davidson India launches two new models
American cult bike brand Harley-Davidson on Tuesday introduced two new models — SuperLow and Iron 883 — priced at Rs. 5,50,000 and Rs. 6,50,000 (ex-showroom), respectively to expand its portfolio in India.
The SuperLow and Iron 883 will be the first two models to be rolled out of the CKD assembly facility in Bawal and will be introduced at Rs. 5,50,000 and Rs. 6,50,000 (ex-showroom), respectively, Harley-Davidson said in a statement.
These models will be available for booking from January 1, 2011, across the five Harley-Davidson dealerships, in addition to the existing model line-up in 2011, it added.
Harley-Davidson India commenced operations in August 2009 and opened its first dealership in July 2010.
The company currently offers 12 models in its 2010 line-up in India available through authorised dealerships in New Delhi, Mumbai, Bangalore, Chandigarh and Hyderabad
The SuperLow and Iron 883 will be the first two models to be rolled out of the CKD assembly facility in Bawal and will be introduced at Rs. 5,50,000 and Rs. 6,50,000 (ex-showroom), respectively, Harley-Davidson said in a statement.
These models will be available for booking from January 1, 2011, across the five Harley-Davidson dealerships, in addition to the existing model line-up in 2011, it added.
Harley-Davidson India commenced operations in August 2009 and opened its first dealership in July 2010.
The company currently offers 12 models in its 2010 line-up in India available through authorised dealerships in New Delhi, Mumbai, Bangalore, Chandigarh and Hyderabad
PEs to raise $600m for Honda stake
Private equity investors courting the Munjal family to part buy Honda Motor Corporation's 26% stake in Hero Honda are talking to Standard Chartered Bank, Royal Bank of Scotland and HSBC to raise up to $600 million to finance their share purchase in the India's largest motorcycle firm, said sources directly familiar with the matter. PE giants, including Bain Capital, Warburg Pincus and TPG Capital, are in the race to buy a little below 15% indirect stake in Hero Honda.
"PEs are looking to limit their equity exposure and seeking funds to buy into the business," said a banker who did not wish to be named as talks were private. Interestingly , private equity investors bidding to buyout Patni Computer Systems are also in the market for leverage financing as they increasingly seek acquisition opportunities in the country.
The Munjals, the Hero Group promoters, are expected to acquire long-time ally Honda's stake in a deal topping $1 billion. This transaction, executed through an overseas-incorporated special purpose vehicle , will be backed by bridge loans. At least two PE investors will then acquire up to 60% stake in the SPV, valuing this entity at around $1.5 billion . However, the structuring and valuation of the private equity investment in the SPV has not been finalized. Emails sent to the Munjals and Hero Honda didn't elicit any reply.
The extent of debt financing for the PE investors will depend on the valuation of the SPV warehousing the 26% stake held by Honda. "PEs will be taking between 50-60 % stake in this entity, giving them just under 15% stake in the main company Hero Honda, which will soon be sporting a new name. Hero Honda stock closed 3.30% lower at Rs 1,713 on the BSE, pegging the company's market cap at Rs 34,223 crore.
Recent media reports have named at least six private equity investors—KKR , Carlyle, Bain, Warburg, TPG and Apollo—who have expressed interest in partnering the Munjals post Honda exit. Sources said the Munjals have entered into definitive discussions with at least three, and may end up roping in at least two of them, to part buy Honda's stake. The Munjals' bridge loan facility to acquire Honda's stake is based on the comfort of termsheets extended by these PE investors, as their follow up investment would help them to pay back the short term loans.
Sources said an initial agreement between the Munjals and Honda could be signed shortly, but the entire deal making, including the buy-in of private equity investors would take at least a couple of months.
"PEs are looking to limit their equity exposure and seeking funds to buy into the business," said a banker who did not wish to be named as talks were private. Interestingly , private equity investors bidding to buyout Patni Computer Systems are also in the market for leverage financing as they increasingly seek acquisition opportunities in the country.
The Munjals, the Hero Group promoters, are expected to acquire long-time ally Honda's stake in a deal topping $1 billion. This transaction, executed through an overseas-incorporated special purpose vehicle , will be backed by bridge loans. At least two PE investors will then acquire up to 60% stake in the SPV, valuing this entity at around $1.5 billion . However, the structuring and valuation of the private equity investment in the SPV has not been finalized. Emails sent to the Munjals and Hero Honda didn't elicit any reply.
The extent of debt financing for the PE investors will depend on the valuation of the SPV warehousing the 26% stake held by Honda. "PEs will be taking between 50-60 % stake in this entity, giving them just under 15% stake in the main company Hero Honda, which will soon be sporting a new name. Hero Honda stock closed 3.30% lower at Rs 1,713 on the BSE, pegging the company's market cap at Rs 34,223 crore.
Recent media reports have named at least six private equity investors—KKR , Carlyle, Bain, Warburg, TPG and Apollo—who have expressed interest in partnering the Munjals post Honda exit. Sources said the Munjals have entered into definitive discussions with at least three, and may end up roping in at least two of them, to part buy Honda's stake. The Munjals' bridge loan facility to acquire Honda's stake is based on the comfort of termsheets extended by these PE investors, as their follow up investment would help them to pay back the short term loans.
Sources said an initial agreement between the Munjals and Honda could be signed shortly, but the entire deal making, including the buy-in of private equity investors would take at least a couple of months.
Bajaj hikes bike prices by 1,000
Bajaj Auto on Tuesday announced that it will raise prices by . 1,000 for its motorcycles close on the heels of Hero Honda making a similar move.
“The continued rising cost of raw material inputs is the main cause for this increase. Despite the hike, we do not expect this to affect sales,”said Bajaj Auto president (twowheelers ) S Sridhar.
TVS will follow suit as the twowheeler major has been facing pressure on its margins. Bike prices rose by a maximum of Rs 1500 due to 15% appreciation in rawmaterial prices.
“Bike makers are passing the increasing margin pressure to the consumer. Price increases will vary from player to player and will depend on the demand situation,”said Angel Broking analyst Vaishali Jajoo.
Analysts said price increase will not have any impact on sales which has been growing at 25%. For the period April to November , motorcycles sales stood at 50 lakh units compared to 47.47 lakh units in the previous month.
Bike-makers have been holding on to prices by enhancing operational efficiencies.
“Considering the profile of the buyers, bike makers take a conscious call when increasing prices,” said an analyst. While car prices have been increased 4-5 times in the past 11 months, bike makers did not go for hikes.
“The continued rising cost of raw material inputs is the main cause for this increase. Despite the hike, we do not expect this to affect sales,”said Bajaj Auto president (twowheelers ) S Sridhar.
TVS will follow suit as the twowheeler major has been facing pressure on its margins. Bike prices rose by a maximum of Rs 1500 due to 15% appreciation in rawmaterial prices.
“Bike makers are passing the increasing margin pressure to the consumer. Price increases will vary from player to player and will depend on the demand situation,”said Angel Broking analyst Vaishali Jajoo.
Analysts said price increase will not have any impact on sales which has been growing at 25%. For the period April to November , motorcycles sales stood at 50 lakh units compared to 47.47 lakh units in the previous month.
Bike-makers have been holding on to prices by enhancing operational efficiencies.
“Considering the profile of the buyers, bike makers take a conscious call when increasing prices,” said an analyst. While car prices have been increased 4-5 times in the past 11 months, bike makers did not go for hikes.
TVS to ramp up Hosur plant production for 'Wego'
The company had showcased the scooterette in November 2009.
Now backed by huge demand, the Hosur-headquartered company plans to increase its capacity at its plant for production of Wego, TVS Motor Company President (Marketing and Sales) H S Goindi said.
"Tamil Nadu is the largest market for us. We plan to launch Wego in Tamil Nadu market by January or February 2011," he told PTI. Currently, Wego is not available in Tamil Nadu and some eastern regions in the country.
While stressing that TVS has been meeting the demand by constantly upgrading the facility, Goindi said last week that the company plans to ramp up the facility at Hosur to address the demand in Tamil Nadu and also in the country's Eastern regions.
He said the company would increase the capacity from 12,000 units to 20,000 units at the facility.
"The capacity will be increased at the Hosur plant particularly for Wego..", he said, declining to elaborate on the proposed investments for increasing the capacity.
According to company officials, TVS Motor sells around 12,000-15,000 units every month (excluding Tamil Nadu region).
In November, TVS posted 27 per cent growth in two-wheelers' sale.
The company sold 1,53,882 units as against 1,20,844 units in November 2009. Scooter sales also witnessed a jump of 44 per cent at 36,233 units sold as against 25,115 units in November 2009.
With the launch of TVS WEGO, TVS Motor becomes the only company with a wide range of scooters in the market, starting from the entry-level Scooty Teenz, Scooty Teenz Electric to the iconic Scooty Pep+ and the snazzy Scooty Streak.
Now backed by huge demand, the Hosur-headquartered company plans to increase its capacity at its plant for production of Wego, TVS Motor Company President (Marketing and Sales) H S Goindi said.
"Tamil Nadu is the largest market for us. We plan to launch Wego in Tamil Nadu market by January or February 2011," he told PTI. Currently, Wego is not available in Tamil Nadu and some eastern regions in the country.
While stressing that TVS has been meeting the demand by constantly upgrading the facility, Goindi said last week that the company plans to ramp up the facility at Hosur to address the demand in Tamil Nadu and also in the country's Eastern regions.
He said the company would increase the capacity from 12,000 units to 20,000 units at the facility.
"The capacity will be increased at the Hosur plant particularly for Wego..", he said, declining to elaborate on the proposed investments for increasing the capacity.
According to company officials, TVS Motor sells around 12,000-15,000 units every month (excluding Tamil Nadu region).
In November, TVS posted 27 per cent growth in two-wheelers' sale.
The company sold 1,53,882 units as against 1,20,844 units in November 2009. Scooter sales also witnessed a jump of 44 per cent at 36,233 units sold as against 25,115 units in November 2009.
With the launch of TVS WEGO, TVS Motor becomes the only company with a wide range of scooters in the market, starting from the entry-level Scooty Teenz, Scooty Teenz Electric to the iconic Scooty Pep+ and the snazzy Scooty Streak.
Much buzz, little comment on telecom spat
India Inc locks on to the hot exchange, but cautiously.
Ratan Tata In conversations, everyone has a view on the “open letters” exchanged between businessman-turned-MP Rajeev Chandrasekhar and leading industrialist Ratan Tata. Over lunch at the Bengal Club in Kolkata or at the Chambers at the Taj, while dining at 360’s at the Capital or over single malt at India International Centre in Lutyens’ Delhi. Yet, mum’s the word from India Inc when one approaches for a quote.
Business Standard got in touch with CEOs and corporate promoters around the countr. Is India Inc shocked? Surprised at the tone and tenor of the letters? Most shied away from a comment, some were diplomatic and only a few were ready for plainspeak.
“The nation is mud-wrestling with pigs and loving it.” That’s Subroto Bagchi, Gardener & Vice Chairman, MindTree Ltd, for you. Suresh Neotia, group patriarch of Ambuja Realty, phrases the mood perfectly: “It’s too hot a subject to comment, but it shouldn’t have broken out like this. The system in India is difficult, but corporates should not indulge in public spats like this. It’s not enhancing corporate ethics in any way.”
“The political and business relationship is not new. It has only come into the open now. Tatas have been away from it, but now they have also got involved in a controversy,” says R C Bhargava, chairman of Maruti Suzuki.
“I can only say that I have a lot of sympathy for Ratan,” says Venu Srinivasan, chairman and managing director, TVS Motor.
Vocal culture
Tata vs Chandrasekhar. GSM vs CDMA. Ambani vs Ambani. Public spats are hardly uncommon for Indian companies. Telecom has always been polarised. From FDI ceilings to iron ore exports to aviation laws and land acquisition, contrarian views and off-the-record quips are part of doing business.
The usually reticent Ratan Tata can also be belligerent. “Have you forgotten the four satraps of the group — Russi Modi, Darbari Seth, Ajit Kerkar and later Dilip Pendse — and the way RNT took them on? Those battles were very equally public,” says a recently retired Tata lifer. From Singur and Mamata, to Pramod Mahajan and VSNL, Tata’s outbursts have grabbed headlines over the years.
So, many are not surprised when Tata dragged the BJP and their telecom policy into his public response to Chandrasekhar. “He endorsed Narendra Modi as a potential PM, wrote an open letter to the citizens of West Bengal after he decided to pull out the Nano project from the state,” recalls a Mumbai-based CEO.
Swati Piramal, Vice Chairperson of Piramal Life Sciences, doesn’t want to read too much. “In a democracy, we all have our views… (But) We have to have a balance. In the end, we all want the industry to grow. We should put aside our personal agenda and think for the nation.”
K P Singh, chairman, DLF Group, is more diplomatic. “Perhaps these debates will clean up the system, if there is any problem.”
“Nobody is sacred. But it’s time to call a spade a spade. To that extent, what Rajeev (Chandrasekhar) is doing is commendable. I agree when he says nobody is or should be a holy cow,” said a former head of a leading Indian mobile company, who did not want to be named.
Not black-white
The issues under scrutiny are many. From ethics to privacy. From lack of level playing fields to allegations of creating a smokescreen and hiding the real issues. The reactions are equally mixed. Most defend Ratan Tata and the group’s values and some say truth comes out only the hard way.
S K Birla goes a step further: “Such public spats are unfortunate. But I fully support Tata in his case against the leaking of tapes. One cannot go public with private conversations. If there was something criminal in the content, then it should be fought in court.”
Is India, as Ratan Tata said recently, becoming a banana republic? Rahul Bajaj, chairman of the Bajaj Group, disagrees. “If growth is obstructed for various reasons, corruption continues unabated, citizens’ privacy is invaded without adequate reason, then a country with these attributes can be described as a banana republic. However, we have an elected democratic government, free judiciary and free press. For a country of over a billion people, at least 30 per cent of whom live on less than $1 per day, this is no mean achievement.”
Ratan Tata In conversations, everyone has a view on the “open letters” exchanged between businessman-turned-MP Rajeev Chandrasekhar and leading industrialist Ratan Tata. Over lunch at the Bengal Club in Kolkata or at the Chambers at the Taj, while dining at 360’s at the Capital or over single malt at India International Centre in Lutyens’ Delhi. Yet, mum’s the word from India Inc when one approaches for a quote.
Business Standard got in touch with CEOs and corporate promoters around the countr. Is India Inc shocked? Surprised at the tone and tenor of the letters? Most shied away from a comment, some were diplomatic and only a few were ready for plainspeak.
“The nation is mud-wrestling with pigs and loving it.” That’s Subroto Bagchi, Gardener & Vice Chairman, MindTree Ltd, for you. Suresh Neotia, group patriarch of Ambuja Realty, phrases the mood perfectly: “It’s too hot a subject to comment, but it shouldn’t have broken out like this. The system in India is difficult, but corporates should not indulge in public spats like this. It’s not enhancing corporate ethics in any way.”
“The political and business relationship is not new. It has only come into the open now. Tatas have been away from it, but now they have also got involved in a controversy,” says R C Bhargava, chairman of Maruti Suzuki.
“I can only say that I have a lot of sympathy for Ratan,” says Venu Srinivasan, chairman and managing director, TVS Motor.
Vocal culture
Tata vs Chandrasekhar. GSM vs CDMA. Ambani vs Ambani. Public spats are hardly uncommon for Indian companies. Telecom has always been polarised. From FDI ceilings to iron ore exports to aviation laws and land acquisition, contrarian views and off-the-record quips are part of doing business.
The usually reticent Ratan Tata can also be belligerent. “Have you forgotten the four satraps of the group — Russi Modi, Darbari Seth, Ajit Kerkar and later Dilip Pendse — and the way RNT took them on? Those battles were very equally public,” says a recently retired Tata lifer. From Singur and Mamata, to Pramod Mahajan and VSNL, Tata’s outbursts have grabbed headlines over the years.
So, many are not surprised when Tata dragged the BJP and their telecom policy into his public response to Chandrasekhar. “He endorsed Narendra Modi as a potential PM, wrote an open letter to the citizens of West Bengal after he decided to pull out the Nano project from the state,” recalls a Mumbai-based CEO.
Swati Piramal, Vice Chairperson of Piramal Life Sciences, doesn’t want to read too much. “In a democracy, we all have our views… (But) We have to have a balance. In the end, we all want the industry to grow. We should put aside our personal agenda and think for the nation.”
K P Singh, chairman, DLF Group, is more diplomatic. “Perhaps these debates will clean up the system, if there is any problem.”
“Nobody is sacred. But it’s time to call a spade a spade. To that extent, what Rajeev (Chandrasekhar) is doing is commendable. I agree when he says nobody is or should be a holy cow,” said a former head of a leading Indian mobile company, who did not want to be named.
Not black-white
The issues under scrutiny are many. From ethics to privacy. From lack of level playing fields to allegations of creating a smokescreen and hiding the real issues. The reactions are equally mixed. Most defend Ratan Tata and the group’s values and some say truth comes out only the hard way.
S K Birla goes a step further: “Such public spats are unfortunate. But I fully support Tata in his case against the leaking of tapes. One cannot go public with private conversations. If there was something criminal in the content, then it should be fought in court.”
Is India, as Ratan Tata said recently, becoming a banana republic? Rahul Bajaj, chairman of the Bajaj Group, disagrees. “If growth is obstructed for various reasons, corruption continues unabated, citizens’ privacy is invaded without adequate reason, then a country with these attributes can be described as a banana republic. However, we have an elected democratic government, free judiciary and free press. For a country of over a billion people, at least 30 per cent of whom live on less than $1 per day, this is no mean achievement.”
Nano inspires Srinivasan's low-cost mantra at TVS Motor
Venu Srinivasan, the chairman & managing director of India’s third-largest two-wheeler manufacturer TVS Motor Company, is taking a leaf out of Ratan Tata’s book. In a quest to garner a larger share of the burgeoning two-wheeler market, Srinivasan is hoping to emulate Tata’s low-cost manufacturing processes for the Rs 1-lakh Nano small car at TVS Motor to build cheaper bikes aimed at small towns and rural markets.
Venu SrinivasanThe introduction of the Tata Nano, the cheapest car in the world, made us take notice (of how to build low-cost products)... it is possible to manufacture low-cost products in the country,” Srinivasan had said recently. His low-cost plans dovetail perfectly with the company’s decision to make producing affordable new models and expanding capacity its priorities for this financial year.
So far, the cheapest bike from the company, the 100cc TVS Star Sport, carries a price tag of Rs 32,000 (ex-showroom, New Delhi).
This is not the first time the company has looked to provide low-priced models for commuters, especially those in rural areas. In 1980, the company launched TVS-50, India’s first two-seater 50 cc moped. From then on, the company’s portfolio of products has grown manifold.
In 1984, TVS Motor was the first company to introduce 100 cc Indo-Japanese motorcycles. In 1994, it unveiled TVS Scooty, the first indigenous scooterette (a sub-100 cc variomatic). In 1996, it launched India’s first catalytic converter-enabled motorcycle, the 110 cc Shogun. In 1997, it introduced India’s first five-speed motorcycle, the Shaolin. In 2000, it brought India’s first 150cc, 4-stroke motorcycle, The Fiero. And in 2001, it released India’s first fully indigenous motorcycle.
“We will develop products that are specific to rural areas and are affordable,” Srinivasan told his shareholders at the company’s recent annual general meeting. He also highlighted the significant growth shown by small towns in the last financial year.
According to the company, towns with a population of under 1 million, which accounted for 75 per cent of the industry’s sales, grew 29 per cent, despite the restricted availability of retail finance. The company’s mopeds, which are largely meant for rural areas, grew 30.3 per cent during the year.
One of the recent measures announced by the company, aimed especially for rural areas, is the infusion of Rs 100 crore in its financial arm. The company is also working on alternate fuels and said it would look at electric vehicles. With the low-cost models, the company wants to provide users with international designs. Around 600 engineers are working on the development of these new products and in other advanced areas of technology.
Sundaram Clayton, the holding company of TVS Motors, recently appointed 27-year-old Lakshmi Venu as director-strategy at the rank of managing director. Lakshmi Venu is the daughter of Venu Srinivasan and soon-to-be daughter-in-law of Infosys Chairman Narayana Murthy.
The team is currently working on low-cost models across product segments. This would result in the creation of a new segment within an existing segment. TVS Motor is looking at international designs and new technologies for its product portfolio. This would help the company achieve its target of 17 per cent marketshare in the two-wheeler segment, from 15 per cent last year. The company has set a sales target of Rs 10,000 crore by 2012 and Rs 6,000 crore for the current financial year.
Venu SrinivasanThe introduction of the Tata Nano, the cheapest car in the world, made us take notice (of how to build low-cost products)... it is possible to manufacture low-cost products in the country,” Srinivasan had said recently. His low-cost plans dovetail perfectly with the company’s decision to make producing affordable new models and expanding capacity its priorities for this financial year.
So far, the cheapest bike from the company, the 100cc TVS Star Sport, carries a price tag of Rs 32,000 (ex-showroom, New Delhi).
This is not the first time the company has looked to provide low-priced models for commuters, especially those in rural areas. In 1980, the company launched TVS-50, India’s first two-seater 50 cc moped. From then on, the company’s portfolio of products has grown manifold.
In 1984, TVS Motor was the first company to introduce 100 cc Indo-Japanese motorcycles. In 1994, it unveiled TVS Scooty, the first indigenous scooterette (a sub-100 cc variomatic). In 1996, it launched India’s first catalytic converter-enabled motorcycle, the 110 cc Shogun. In 1997, it introduced India’s first five-speed motorcycle, the Shaolin. In 2000, it brought India’s first 150cc, 4-stroke motorcycle, The Fiero. And in 2001, it released India’s first fully indigenous motorcycle.
“We will develop products that are specific to rural areas and are affordable,” Srinivasan told his shareholders at the company’s recent annual general meeting. He also highlighted the significant growth shown by small towns in the last financial year.
According to the company, towns with a population of under 1 million, which accounted for 75 per cent of the industry’s sales, grew 29 per cent, despite the restricted availability of retail finance. The company’s mopeds, which are largely meant for rural areas, grew 30.3 per cent during the year.
One of the recent measures announced by the company, aimed especially for rural areas, is the infusion of Rs 100 crore in its financial arm. The company is also working on alternate fuels and said it would look at electric vehicles. With the low-cost models, the company wants to provide users with international designs. Around 600 engineers are working on the development of these new products and in other advanced areas of technology.
Sundaram Clayton, the holding company of TVS Motors, recently appointed 27-year-old Lakshmi Venu as director-strategy at the rank of managing director. Lakshmi Venu is the daughter of Venu Srinivasan and soon-to-be daughter-in-law of Infosys Chairman Narayana Murthy.
The team is currently working on low-cost models across product segments. This would result in the creation of a new segment within an existing segment. TVS Motor is looking at international designs and new technologies for its product portfolio. This would help the company achieve its target of 17 per cent marketshare in the two-wheeler segment, from 15 per cent last year. The company has set a sales target of Rs 10,000 crore by 2012 and Rs 6,000 crore for the current financial year.
Yamaha launches premium sports bike
Motorbike-maker Yamaha announced on Friday the launch of two new bikes — the premium-end 998 cc FZ1 and the 153 cc SZ-R priced at Rs 8.7 lakh and Rs 55,000 respectively.
Mr Hiroyuki Suzuki, CEO and Managing Director, India Yamaha Motor said, “India is one of the key markets for Yamaha and we have been constantly shifting gears to transform the market from utility to pleasure and lifestyle. While FZ1 is a naked sports bike with fuel-injected power and ‘Pure Torque' for the ultimate riding experience, SZ-R gives the 150-cc commuters segment a sporty edge. Customers have been demanding inclusion of the disc brake version, which is now available in SZ-R.”
Available in two colours, the FZ1 has a compact design and 998 cc DOHC 20-valve engine tuned for mid-range punch and top-end power. The 153 cc SZ-R is a modern and sporty version of SZ-X and comes with front disc brake, tachometer and tank protector added to the fuel tank. — Our Bureau
Mr Hiroyuki Suzuki, CEO and Managing Director, India Yamaha Motor said, “India is one of the key markets for Yamaha and we have been constantly shifting gears to transform the market from utility to pleasure and lifestyle. While FZ1 is a naked sports bike with fuel-injected power and ‘Pure Torque' for the ultimate riding experience, SZ-R gives the 150-cc commuters segment a sporty edge. Customers have been demanding inclusion of the disc brake version, which is now available in SZ-R.”
Available in two colours, the FZ1 has a compact design and 998 cc DOHC 20-valve engine tuned for mid-range punch and top-end power. The 153 cc SZ-R is a modern and sporty version of SZ-X and comes with front disc brake, tachometer and tank protector added to the fuel tank. — Our Bureau
From pillion to the rider's seat
The Indian two-wheeler industry, which is dominated by Hero Honda and Bajaj Auto with over 66 per cent share of the market, could be in for a fundamental transformation.
With the impending divorce between Japanese giant Honda and Hero Group’s Munjals now a certainty, the two key issues are: Can the Munjals maintain their number one position in the domestic market, which they have done effectively for decades?; and can Honda — the fourth-largest player in India after TVS –elbow its way to one of the top slots?
Observers of Honda say it certainly has the financial and technological muscles to do so. Even while it held 26 per cent stake in a joint venture with Hero (which will be sold to the Munjals and private equity firms), Honda set up an Indian subsidiary, Honda Motorcycle & Scooters India.
Honda has so far treaded very cautiously in the market to avoid conflict with its partners. It started with scooters, not a segment most two-wheeler makers concentrated on — certainly not the Munjals.
Honda did enter the motorbike segment, but clearly avoided the mass 100cc market, which constitutes over 60 per cent of the 9-million two-wheeler sales. It is in this space that their JV reigns supreme, with over 60 per share.
That situation is posed to change dramatically with the partnership coming to an end. Honda has a research & development (R&D) facility in Shanghai, China, to design low-cost bikes for Asia, including the key Indian market. It is planning to launch a Rs 27,000 100cc bike, which would be the cheapest in India and could clearly upset the Munjal’s applecart.
The Japanese giant will also leverage the large volumes expected for this bike in China and India to bring down component costs. To test the waters in Hero Honda's territory, Honda launched the 110cc Twister in April, which sells around 15,000 a month.
Honda also knows it requires more capacity to operate independently in the 100cc market. That’s why it is already investing Rs 500 crore to set up a second plant in Rajasthan with a capacity to make 600,000 bikes annually, which can be doubled, by the second half of 2011.
By then, the company will have a total capacity of 2.2 million two-wheelers. That will reduce the capacity gap that it currently has with Hero Honda (5.2 million) and Bajaj Auto (4.98 million by March 2011).
But Honda does not have the distribution or after sales strength to address a mass market, especially rural India, and that could be a major impediment. With a dealer and sub-dealer strength of 765 and over 315 authorised service centres, it is a pygmy compared with Hero Honda, which has over 4,500 touch-points (including dealers and spare parts dealers) and over 2,000 rural sales channel partners. Bajaj Auto will soon hit 600 direct dealers and has over 1,100 service centres. Building a distribution network like Hero Honda’s could take four to five years.
Some analysts disagree. Honda stands to make around Rs 5,400 crore from the sale of its stake in Hero Honda and another Rs 4,500 crore from royalty payment for its products with the rate being hiked from around 2.2-3.0 per cent to 8.0 per cent under a new agreement being hammered out. “That is enough cash for Honda not only to finance its aggressive foray into two-wheelers, but also its car venture,” says the CEO of a leading two-wheeler company.
But other rivals say building a distribution network is not about money — it might cost Honda Rs 400-500 crore to go to a similar size. It’s about getting committed dealers who share the same aggression, vision and culture. One suggestion is for Honda to sell its motorcycles through Munjal’s outlets, which in return will make a good margin.
Analysts say the Munjals, who own the largest two-wheeler maker in the world with over Rs 4,400 crore in cash reserves, can do two things to counter a possible threat from Honda.
With the impending divorce between Japanese giant Honda and Hero Group’s Munjals now a certainty, the two key issues are: Can the Munjals maintain their number one position in the domestic market, which they have done effectively for decades?; and can Honda — the fourth-largest player in India after TVS –elbow its way to one of the top slots?
Observers of Honda say it certainly has the financial and technological muscles to do so. Even while it held 26 per cent stake in a joint venture with Hero (which will be sold to the Munjals and private equity firms), Honda set up an Indian subsidiary, Honda Motorcycle & Scooters India.
Honda has so far treaded very cautiously in the market to avoid conflict with its partners. It started with scooters, not a segment most two-wheeler makers concentrated on — certainly not the Munjals.
Honda did enter the motorbike segment, but clearly avoided the mass 100cc market, which constitutes over 60 per cent of the 9-million two-wheeler sales. It is in this space that their JV reigns supreme, with over 60 per share.
That situation is posed to change dramatically with the partnership coming to an end. Honda has a research & development (R&D) facility in Shanghai, China, to design low-cost bikes for Asia, including the key Indian market. It is planning to launch a Rs 27,000 100cc bike, which would be the cheapest in India and could clearly upset the Munjal’s applecart.
The Japanese giant will also leverage the large volumes expected for this bike in China and India to bring down component costs. To test the waters in Hero Honda's territory, Honda launched the 110cc Twister in April, which sells around 15,000 a month.
Honda also knows it requires more capacity to operate independently in the 100cc market. That’s why it is already investing Rs 500 crore to set up a second plant in Rajasthan with a capacity to make 600,000 bikes annually, which can be doubled, by the second half of 2011.
By then, the company will have a total capacity of 2.2 million two-wheelers. That will reduce the capacity gap that it currently has with Hero Honda (5.2 million) and Bajaj Auto (4.98 million by March 2011).
But Honda does not have the distribution or after sales strength to address a mass market, especially rural India, and that could be a major impediment. With a dealer and sub-dealer strength of 765 and over 315 authorised service centres, it is a pygmy compared with Hero Honda, which has over 4,500 touch-points (including dealers and spare parts dealers) and over 2,000 rural sales channel partners. Bajaj Auto will soon hit 600 direct dealers and has over 1,100 service centres. Building a distribution network like Hero Honda’s could take four to five years.
Some analysts disagree. Honda stands to make around Rs 5,400 crore from the sale of its stake in Hero Honda and another Rs 4,500 crore from royalty payment for its products with the rate being hiked from around 2.2-3.0 per cent to 8.0 per cent under a new agreement being hammered out. “That is enough cash for Honda not only to finance its aggressive foray into two-wheelers, but also its car venture,” says the CEO of a leading two-wheeler company.
But other rivals say building a distribution network is not about money — it might cost Honda Rs 400-500 crore to go to a similar size. It’s about getting committed dealers who share the same aggression, vision and culture. One suggestion is for Honda to sell its motorcycles through Munjal’s outlets, which in return will make a good margin.
Analysts say the Munjals, who own the largest two-wheeler maker in the world with over Rs 4,400 crore in cash reserves, can do two things to counter a possible threat from Honda.
Aberdeen to hold on Hero Honda stake
Dec 7 (Reuters) - Aberdeen Asset Management said on Tuesday it will hold on to its minority stake in India's Hero Honda despite reports that Honda is pulling out of the joint venture.
"We have decided to stay with the company because we know the company so well that we understand where the value is," Aberdeen strategist Peter Elston told Reuters. "If anything the company is perhaps more interesting.
"We are very comfortable with the stock even once the ties with Honda are ended because we think that the value is in the distribution, not in the brand frankly."
According to Thomson Reuters data, Aberdeen holds around 5 percent in Hero Honda.
Honda Motor Co. reached a basic agreement this week to dissolve its partnership in Hero Honda, the Nikkei business daily reported.
Honda will sell its entire stake in the motorcycle maker to the Hero Group's founding family and investment funds by as early as March, the report added.
"We have decided to stay with the company because we know the company so well that we understand where the value is," Aberdeen strategist Peter Elston told Reuters. "If anything the company is perhaps more interesting.
"We are very comfortable with the stock even once the ties with Honda are ended because we think that the value is in the distribution, not in the brand frankly."
According to Thomson Reuters data, Aberdeen holds around 5 percent in Hero Honda.
Honda Motor Co. reached a basic agreement this week to dissolve its partnership in Hero Honda, the Nikkei business daily reported.
Honda will sell its entire stake in the motorcycle maker to the Hero Group's founding family and investment funds by as early as March, the report added.
Hero Honda stock slips 5% on JV split details
Hero Honda Motors stock tumbled nearly 5% on Monday in early trade before closing 3% down at Rs 1,774 on the Bombay Stock Exchange, after news reports that the two-wheeler major has reached an agreement to dissolve its 26-year-old joint venture with Japanese automaker Honda.
Honda and its Indian partner, Hero Group, are currently seeking approval from their respective boards. The deal valued at $1.2 billion (. 5,400 crore), a discount of 45%, will be concluded by the end of the month, said two people familiar with the matter.
A number of institutional investors are opposing the sale of shares by Honda to its Indian joint venture partner — the Hero Group—at a discount to the current market price. The institutional investors are also uneasy about the fact that the Hero Group is likely to sell Honda’s 26% holding to private equity investors at a premium to the purchase price but below the market price, ET reported on Monday.
Aberdeen Asset Management, which owns 5.14% in the company, is its largest institutional shareholder while Capital World, Life Insurance Corporation of India and Vanguard have holdings ranging from 1-2 % in the Indian company. The company currently pays 2.5% of its annual sales as royalty to Honda and a steep increase is bound to impact the company’s earnings, said analysts.
Honda Motor operates in India through a 100%-owned subsidiary, Honda Motorcycles and Scooters (HMSI), which directly competes with Hero Honda in the key two-wheeler segments. Honda is also planning to enter the 100cc motorcycle market in which Hero Honda enjoys a majority market share.
The disagreement between the two partners started after Honda asked Hero Honda to increase supply of components from HMSI. The company wants to increase its royalty from the sales of the joint venture, but has been unable to do so because bulk of the sales, about 60%, are contributed by relatively older bikes — Splendor and Passion.
The Hero Group and Honda came together in 1984 to build and sell motorbikes. In 2004, the Hero Group and Honda extended their agreement for 10 years, under which the Japanese partner would continue to provide technology to the JV. The technology agreement is valid till 2014.
The Hero Group is planning to set up its own R&D centre in preparation for life after 2014 if — as it increasingly looks likely — it ends up running the company on its own.
Honda and its Indian partner, Hero Group, are currently seeking approval from their respective boards. The deal valued at $1.2 billion (. 5,400 crore), a discount of 45%, will be concluded by the end of the month, said two people familiar with the matter.
A number of institutional investors are opposing the sale of shares by Honda to its Indian joint venture partner — the Hero Group—at a discount to the current market price. The institutional investors are also uneasy about the fact that the Hero Group is likely to sell Honda’s 26% holding to private equity investors at a premium to the purchase price but below the market price, ET reported on Monday.
Aberdeen Asset Management, which owns 5.14% in the company, is its largest institutional shareholder while Capital World, Life Insurance Corporation of India and Vanguard have holdings ranging from 1-2 % in the Indian company. The company currently pays 2.5% of its annual sales as royalty to Honda and a steep increase is bound to impact the company’s earnings, said analysts.
Honda Motor operates in India through a 100%-owned subsidiary, Honda Motorcycles and Scooters (HMSI), which directly competes with Hero Honda in the key two-wheeler segments. Honda is also planning to enter the 100cc motorcycle market in which Hero Honda enjoys a majority market share.
The disagreement between the two partners started after Honda asked Hero Honda to increase supply of components from HMSI. The company wants to increase its royalty from the sales of the joint venture, but has been unable to do so because bulk of the sales, about 60%, are contributed by relatively older bikes — Splendor and Passion.
The Hero Group and Honda came together in 1984 to build and sell motorbikes. In 2004, the Hero Group and Honda extended their agreement for 10 years, under which the Japanese partner would continue to provide technology to the JV. The technology agreement is valid till 2014.
The Hero Group is planning to set up its own R&D centre in preparation for life after 2014 if — as it increasingly looks likely — it ends up running the company on its own.
Stallio fails toput brake as Mahindra motorcycle sales slips by 36%
Mahindra & Mahindra which has been aggressively trying to make inroads in the 7.3 million units per year motorcycle with the help of Bollywood actor Aamir Khan, has failed to create much excitement, with sales slipping 36 per cent last month from the previous one.
Sales of Stallio, a 110 cc bike launched bt M&M towards the end of September, were just 1,706 units in November as against 2,664 units in October.
The Stallio has to compete with segments leaders like Hero Honda’s Splendor and Passion brands and Bajaj’s Discover on pricing and power. It is M&M’s only motorcycle presently on sale and is priced at under Rs.42,000 (ex-showroom Pune).
Honda’s CB Twister, a 110 cc bike launched to challenge the Splendor , sells more than 15,000 units per month and is priced at around Rs.45,000 (Ex-showroom, Pune)
While executives at Mahindra Two Wheelers, the newly created company or the Rs. 32000 crore Mahindra Group, claimed the Stallio is facing encouraging demand, it is in the process of expanding the reach of the bike to all it’s dealers. When asked about the sharp drop in sales, Devendra Shinde, vice president (Marketing), 2-wheeler said “about 250-275 dealerships are selling the bike, while others are only displaying it.
We are in the ramp-up mode. Our production of the earlier period got cleared in October and whatever we produced then were sold in November. We have got into the Motorcycle segment for the first time and we are still learning”.
Mahindra 2-Wheelers has put in place about 400 dealers for it’s 2 Wheelers with an additional 250 service outlets. The company would be expanding it’s reach to the Taluka level from the district-level.
The Stallio is promoted by M&M as a stylish and practical bike, with attractive fuel efficiency. The company reportedly paid Rs. 14 crores to Bollywood Actor and Director Amir Khan as endorsement fee for promoting the bike.
In addition to the Stallio consumers don’t seem to be rushing to buy M&M’s scooter range, of 3 odd models. Collectively, the company sole just 14148 automatic scooters in November, a fall of nearly 24% compare to the 18540 units sold in October.
However the sale numbers are up on a month-on-month comparison from last year. M&M sold 7020 two wheelers in November 2009 and 6804 units in October 2009.
Mahindra 2 wheels dispatched a total of 16569 units in September which grew in October to 21204 units and it dropped sharply to 15854 units in November. The drop in November was despite a motorcycle been added to the production line.
A company executive, however maintained that demand for it’s products were outstripping supply. “We haven’t been able to satisfy demand for our products and we are in the process of ramping up production”, Shinde added.
Sales of Stallio, a 110 cc bike launched bt M&M towards the end of September, were just 1,706 units in November as against 2,664 units in October.
The Stallio has to compete with segments leaders like Hero Honda’s Splendor and Passion brands and Bajaj’s Discover on pricing and power. It is M&M’s only motorcycle presently on sale and is priced at under Rs.42,000 (ex-showroom Pune).
Honda’s CB Twister, a 110 cc bike launched to challenge the Splendor , sells more than 15,000 units per month and is priced at around Rs.45,000 (Ex-showroom, Pune)
While executives at Mahindra Two Wheelers, the newly created company or the Rs. 32000 crore Mahindra Group, claimed the Stallio is facing encouraging demand, it is in the process of expanding the reach of the bike to all it’s dealers. When asked about the sharp drop in sales, Devendra Shinde, vice president (Marketing), 2-wheeler said “about 250-275 dealerships are selling the bike, while others are only displaying it.
We are in the ramp-up mode. Our production of the earlier period got cleared in October and whatever we produced then were sold in November. We have got into the Motorcycle segment for the first time and we are still learning”.
Mahindra 2-Wheelers has put in place about 400 dealers for it’s 2 Wheelers with an additional 250 service outlets. The company would be expanding it’s reach to the Taluka level from the district-level.
The Stallio is promoted by M&M as a stylish and practical bike, with attractive fuel efficiency. The company reportedly paid Rs. 14 crores to Bollywood Actor and Director Amir Khan as endorsement fee for promoting the bike.
In addition to the Stallio consumers don’t seem to be rushing to buy M&M’s scooter range, of 3 odd models. Collectively, the company sole just 14148 automatic scooters in November, a fall of nearly 24% compare to the 18540 units sold in October.
However the sale numbers are up on a month-on-month comparison from last year. M&M sold 7020 two wheelers in November 2009 and 6804 units in October 2009.
Mahindra 2 wheels dispatched a total of 16569 units in September which grew in October to 21204 units and it dropped sharply to 15854 units in November. The drop in November was despite a motorcycle been added to the production line.
A company executive, however maintained that demand for it’s products were outstripping supply. “We haven’t been able to satisfy demand for our products and we are in the process of ramping up production”, Shinde added.
Auto sales falter 16% in Nov over Oct
With the festival season demand tapering off and continuing component shortage, auto sales in November dropped 16 per cent to 12.21 lakh units, as compared with the previous month of October. This is after domestic vehicle sales had touched record numbers for the past four consecutive months, peaking in October (14.60 lakh units).
Overall vehicle sales in the month rose 18 per cent on a year-on-year basis, though exports took a hit with a 4 per cent drop over the same month last year. In October 2010, exports had risen 30 per cent.
According to the Society of Indian Automobile Manufacturers (SIAM), car sales have risen 21 per cent to 1.61 lakh units in November, compared with the same month last year. Over October 2010, however, car sales were lower by 12 per cent. The larger passenger vehicle segment, which includes the car, utility and multi-purpose vehicle segments, saw 22 per cent higher sales.
Mr Sugato Sen, Senior Director, SIAM said, “This month the industry has come down from the festive peak, besides around 2 per cent growth has been lost on component shortage across segments. The good part is that consumer confidence is growing on rising income levels, while the interest rate is still manageable. Government schemes such as payment of arrears for the Sixth Pay Commission and MNREGS have also put more money in the hands of people.”
In November, car market leader Maruti Suzuki posted 29 per cent higher domestic sales at 87,618 units, while rival Hyundai saw sales rise 12 per cent (31,501 units) and Tata Motors recorded a drop of 33.79 per cent (12,234 units).
Two-wheelers
Two wheeler sales rose 18 per cent, with motorcycle sales in the month growing 16 per cent to 7.10 lakh units and scooter sales rising 31 per cent (1.65 lakh units). Market leader Hero Honda saw 10 per cent higher sales at 4.09 lakh units, while Bajaj Auto and TVS Motor sales jumped 19 per cent (1.93 lakh) and 31 per cent (1.39 lakh), respectively.
Commercial vehicles
Commercial vehicle sales also rose 18 per cent, with LCV sales rising 23 per cent in November to 26,359 units, while the medium and heavy commercial vehicle sales also increased 13.35 per cent to 21,955 units. Tata Motors' posted 21 per cent (30,421) sales growth in CVs, while Mahindra's sales also rose 21 per cent 7,582 units. Ashok Leyland's sales dipped 8 per cent to 3,885 units.
Three-wheeler sales rose a marginal 4 per cent, with Piaggio posting a 3 per cent (16,840 units) increase and Bajaj Auto recording flat sales at 15,188 units.
Giving an outlook for the next few months, Mr Sen said, “We expect December to post lower sales as well, but from January sales should again rise and peak in March. We are targeting a total growth for the fiscal at 20-22 per cent and 25 per cent for passenger vehicles.”
He added that the MPV segment is doing well and expected to become a significant market in the future.
On exports, he said that the European car market continues to be down – leading to a 23 per cent drop in car exports. While two wheeler exports also saw a dip, commercial vehicles and three wheelers exports grew 30 per cent and 13 per cent.
Overall vehicle sales in the month rose 18 per cent on a year-on-year basis, though exports took a hit with a 4 per cent drop over the same month last year. In October 2010, exports had risen 30 per cent.
According to the Society of Indian Automobile Manufacturers (SIAM), car sales have risen 21 per cent to 1.61 lakh units in November, compared with the same month last year. Over October 2010, however, car sales were lower by 12 per cent. The larger passenger vehicle segment, which includes the car, utility and multi-purpose vehicle segments, saw 22 per cent higher sales.
Mr Sugato Sen, Senior Director, SIAM said, “This month the industry has come down from the festive peak, besides around 2 per cent growth has been lost on component shortage across segments. The good part is that consumer confidence is growing on rising income levels, while the interest rate is still manageable. Government schemes such as payment of arrears for the Sixth Pay Commission and MNREGS have also put more money in the hands of people.”
In November, car market leader Maruti Suzuki posted 29 per cent higher domestic sales at 87,618 units, while rival Hyundai saw sales rise 12 per cent (31,501 units) and Tata Motors recorded a drop of 33.79 per cent (12,234 units).
Two-wheelers
Two wheeler sales rose 18 per cent, with motorcycle sales in the month growing 16 per cent to 7.10 lakh units and scooter sales rising 31 per cent (1.65 lakh units). Market leader Hero Honda saw 10 per cent higher sales at 4.09 lakh units, while Bajaj Auto and TVS Motor sales jumped 19 per cent (1.93 lakh) and 31 per cent (1.39 lakh), respectively.
Commercial vehicles
Commercial vehicle sales also rose 18 per cent, with LCV sales rising 23 per cent in November to 26,359 units, while the medium and heavy commercial vehicle sales also increased 13.35 per cent to 21,955 units. Tata Motors' posted 21 per cent (30,421) sales growth in CVs, while Mahindra's sales also rose 21 per cent 7,582 units. Ashok Leyland's sales dipped 8 per cent to 3,885 units.
Three-wheeler sales rose a marginal 4 per cent, with Piaggio posting a 3 per cent (16,840 units) increase and Bajaj Auto recording flat sales at 15,188 units.
Giving an outlook for the next few months, Mr Sen said, “We expect December to post lower sales as well, but from January sales should again rise and peak in March. We are targeting a total growth for the fiscal at 20-22 per cent and 25 per cent for passenger vehicles.”
He added that the MPV segment is doing well and expected to become a significant market in the future.
On exports, he said that the European car market continues to be down – leading to a 23 per cent drop in car exports. While two wheeler exports also saw a dip, commercial vehicles and three wheelers exports grew 30 per cent and 13 per cent.