Honda could emerge stronger post-divorce

Hero group may focus more on smaller markets.

While one story doing the rounds is that Honda will offload its entire 26 per cent stake to a clutch of PE investors, another suggests that the Munjals will pick up the stake.

The imminent split between Honda and the Hero group will mark the end of the last Indo-Japanese bike collaboration wave, which kicked off in the mid-1980s.

The only difference though, according to sources, is that Honda will emerge even stronger on its own, quite unlike Yamaha and Suzuki which, after parting ways with Escorts and TVS Motor respectively, are still fringe players.

Bajaj and Kawasaki have confined their decades-long partnership to the technical sphere though there were talks some years ago of a possible equity stake. The two continue to work together on local assembly and sale of Kawasaki bikes and retailing Bajaj products in key markets across the Asean region.

Both Honda and the Hero group have constantly denied any news of a separation but industry circles do not buy this while insisting that ‘there is no smoke without fire'. What remains to be seen are the modalities of the divorce.

Outlay

While one story doing the rounds is that Honda will offload its entire 26 per cent stake to a clutch of PE investors, another suggests that the Munjals will pick up the stake.

This will cost the Indian partner upwards of Rs 8,000 crore which would typically be an outlay for setting up nearly three motorcycle plants.

Is it worth the Hero group's while to spend this kind of money just to access the present bike portfolio? “It does seem an awful lot to cough up unless there are added goodies like royalty waivers, new products coming in and so on,” said a source.

From Honda's point of view, it is getting increasingly aware that the Indian two-wheeler terrain may not be a cakewalk parade as was the case over the last few years. Competition has been intensifying with rivals like Bajaj Auto and TVS Motor, becoming far more confident and focused on their product development plans.In addition, said an industry veteran, Honda could just be getting peeved about the fact that its 100 per cent arm, Honda Motorcycle and Scooter India (HMSI), has just not been able to make a forceful impact in the motorcycle space. The company has, doubtless, emerged the undisputed leader of the gearless scooter pack but the real action is still in the bike arena.

Even while HMSI has constantly positioned itself as a premium motorcycle maker, this has not translated into the kind of volumes that could even remotely scare competition.

One key reason is the fact that nearly all of its bikes are relatively expensive when competitors have local alternatives that are as good and more affordable. Its only offering in the volumes-driven commuter segment is the Twister, which is still someway behind the Splendor, Passion and Discover brands in terms of sales.

Competition

Sources said Honda's top priority is to position HMSI as a formidable rival in this space. “Once it parts ways with the Hero group, the company will launch at least two top-class commuter bikes which would be priced at Rs 40,000 each. This is the only way it can hope to knock off competition,” said a source.

And what would the Hero group do in the meantime? Assuming the terms of the split include use of the Honda name on the bikes, the Indian company will continue to focus aggressively on smaller markets where its brand equity is still very strong.

In fact, the Hero group has played a big role over the years in stretching the joint venture's retail network to every nook and corner of the country.