Honda exit from Hero Honda stuck?

Honda Motor Corp's exit from the world's largest two-wheeler manufacturer Hero Honda is apparently stuck over differences in valuation of its 26 per cent stake. Sources close to the companies told Hindustan Times that so far Honda has only informed Munjals, the promoters of Hero Group who hold 26.21 per cent in the firm, of their intent to exit 25-year-old joint venture, and no discussion on the worth of the stake has happened.

Over the last month, Munjals have been in discussions with various private equity firms including KKR, Texas Pacific, Blackstone, Carlyle, Clayton Subilier & Rice and Temasek to pick up stakes in the company.

At present, with the Hero Honda share trading at Rs 1,736, Honda's stake is worth over

Rs 9,000 crore but the PE firms feel that post-exit, the scrip would trade much lower.

"I expect the deliberations to go on for quite some time as it is very difficult to analyse what would be the valuation of the company post Honda exit," said an automotive analyst.

"Honda provides the technological back up to the firm. Hero Group's reach in dealer network now virtually covers every corner of the country. For Honda, concentrating on its own Honda Motorcycle and Scooters India (HMSI) would make sense, but Hero Group may be at a loss as they have minimal research and development facilities," he said.

If the Munjals agree on a valuation with some PE firms and make an offer to Honda, the latter may take more time in deciding if the offer is attractive.

It is learnt that Honda intends to invest part of the stake sale proceeds in HMSI, its fully-owned subsidiary.

Though the two companies have denied any such plans, there has been a considerable friction between the two firms ever since HMSI was set up in 2001.

HMSI is the country's largest scooter manufacturer but has ambitions in the motorcycle space, where Hero Honda is the undisputed leader with sales of over 5 million units this fiscal.