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.