Hero, Honda sign new licensing pact till 2014

The Hero Group has signed a final licensing agreement with Honda, paving the way for the Indian group to access technology from the Japanese firm for existing and future products till 2014.

In December Hero and Honda had announced the dissolution of their 26-year-old partnership. The Hero Group, owned by the Munjal family, will buy Honda’s 26% stake in Hero Honda -- which dominates the Indian two-wheeler market with a market share of 44% -- according to a memorandum of understanding signed on December 16.

“The company has executed a final binding licensing agreement with the Japanese partner. It was signed last week and pertains to the existing and new products that the company will offer in the Indian market, once the Japanese firm exits the joint venture,” Hero Honda said in a communication to the stock exchange. Analysts said the Hero Group had a challenging task as it gears up for life without Honda.

“The two companies have time to align their operations as the new agreement would be effective till 2014, but Hero would have to organise its house to get the right products for the Indian market. It can source technology from international market but that may lead to similar cracks as with Honda; so it will be prudent to develop its own R&D base, which is a real challenge for the New Delhi-based group,” said Vaishali Jajoo, an automobile analyst at Angel Broking.

The partners will sign a definitive agreement for the share transfer shortly, leading to the Hero Group launching its own brands which will compete with the ones owned by Honda Motorcycle and Scooter India, a 100% Honda subsidiary. Entry-level bikes Splendor and Passion account for roughly 70% of Hero Honda’s sales.

The separation will allow Hero to develop its own R&D activities and export of two-wheelers under its own brand. Under the deal, Hero Honda will continue to pay royalty at the current rate of 2.3-3% of its net sales to Honda for supplying automotive technology and developing new products in future.

The new license would replace the 2004 agreement between Hero Group and Honda Motor under which the Japanese partner was supposed to provide technology to the joint venture till 2014. Hero Honda shares closed 0.33% lower at Rs 1,750.15 on the Bombay Stock Exchange at the close of trading on Monday.