Honda set to house all arms under one roof

If Japan’s Honda Motor succeeds in wresting full control in its Indian entity Honda Siel by buying out minority Indian partner Siddharth Shriram’s stake, it will be a step closer to fulfilling a long-pending plan — of creating a holding company in India that would house all its other ventures in the country. In all probability, Honda’s wholly-owned subsidiary Honda Motor India, which was created in 2006 to deal in components, will act as the holding company.

Honda has long been present in India in the areas of automobiles, motorcycles and power generators but mostly through joint ventures with Indian partners. This in a way inhibited its plans of creating a holding company structure, which would bring synergies among its different operations in a much better manner. However, sources in the know of development told FE that with the parting of ways with Brijmohan Lall Munjal’s Hero Group in 2010 through which it had created the world’s largest two-wheeler company by sales, Hero Honda, the company has started the first, nascent moves towards creating a new structure for its Indian operations.

However, a Honda Motor spokesperson declined to comment. “We would not like to comment on any such speculations,” the spokesperson said in response to an email query.

In the two-wheeler space, Honda had already created a wholly-owned subsidiary in 2004 christened Honda Motorcycles and Scooters India (HMSI), which in March overtook Bajaj Auto as the second largest two-wheeler company by sales.

Similarly, in the passenger car segment it entered in 1995 through a joint venture with Siddharth Shriram’s Shriram Industrial Enterprise (Siel), Honda is now close to gaining full control. Siddharth Shriram initially had around a 40% stake in the venture but due to a fund crunch had let Honda up its stake to 98%. Later, after having bought back 3% in 2010, his stake currently is at 5%. However, a rights issue to fund its expansion plan has driven a wedge between the two and sources said that Shriram wants to exit the venture and is seeking a right valuation of his stake. “It is only a matter of time before Honda gains full control of the company,” sources said.

Honda has another venture with Siddharth Shriram – Honda Siel Power Products (HSPP) – which manufactures portable power generators, portable engines and portable water pumping set. Incorporated in 1985, Honda holds around 67% stake in the publicly listed firm and the Shriram Group's stake is as low as around 1%.

“In the past, Honda has faced problems in sourcing components from its own companies because of objections by the Indian joint venture partners. In some cases expansion plans have been halted or delayed by problems with the Indian partners ability to raise funds. Such problems would be effectively tackled and a straight, simplified structure can be put in place in reporting to the parent firm in Tokyo,” an industry official said.