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Honda to exit Hero Honda; to sell entire 26% stake

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 Japanese auto giant Honda has reached an agreement to dissolve their 26-year old joint venture, Hero Honda, with the Hero Group by selling its entire stake in the India's largest two-wheeler maker. Honda Motor Co is expected to sell its entire 26% stake in Hero Honda to its partner Munjals-promoted

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Hero Group and would earn USD 1.2 billion from the sale, Kyodo reported quoting Japanese Nikkei business daily.
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"Honda and the Hero Group have reached the basic agreement this week to dissolve the partnership," Nikkei said, adding that the two companies will seek final approval from their respective board of directors later this month for the break-up.

The parting of ways comes 26 years after the joint venture was set up in 1984.

The Japanese firm will offload its entire stake by as early as March next year and will no longer provide technical support to Hero Honda, the paper said.

However, the two companies, which renewed the agreement for technology support from Honda to the JV in 2004, will let the pact run till its expiry in 2014, Nikkei said.

Honda proposes to focus its resources on the new wholly-owned subsidiary Honda Motorcycle and Scooter India (HMSI).

Hero Honda sold 4.5 million two-wheelers in the last fiscal, grabbing 48% of the growing Indian two-wheelers market, which is the second biggest in the world after China.

Honda and the Munjals-promoted Hero group holds 26% each in Hero Honda, the world's largest two-wheeler maker.

However, there has been market speculation that there is unease between the partners after the Japanese firm decided to enter the Indian two-wheeler market through its wholly-owned subsidiary Honda Motorcycle & Scooter India (HMSI).

Currently, Hero Honda is finalising plans to set up the fourth plant in the country. It already has three facilities at Dharuhera and Gurgaon in Haryana and at Haridwar in Uttarakhand with a total capacity of 50 lakh units a year.

On the other hand, HMSI has announced an investment of Rs 500 crore to set up its second plant near Bhiwadi (Rajasthan), with an annual capacity of six lakh units. Once the facility becomes operational, in the second half of 2011, the company's total annual capacity will reach to 22 lakh units.

HMSI is also reportedly scouting for a location to set up its third facility.