Munjals to buy 26 percent Honda stake in JV

The Japanese motorcycle giant Honda is soon going to  pull the plugs on the 25-year-old joint venture with the Munjals in Hero Honda. Possibly, the entire alliance would end in the coming six months. It is being said that the deal will be executed in two phases. It will involve the Munjal family which will be led by Brijmohan Lal Munjal group The deal will also see the Munjal family  form a special purpose vehicle (SPV) for buying out Honda's entire 26% stake in the venture. According to the sources close to the matter, Honda has taken the decision to exit the highly-profitable Hero Honda JV.  Hero Honda JV controls more than 50% of the Indian two wheeler market. Honda says that it wants to focus more on Honda Motorcycle and Scooter India (HMSI ) the fully-owned two-wheeler subsidiary of Honda. It is worth mentioning here that  HMSI is constantly growing and is soon planning for setting up a second factory in the country.

According to the market sources, the reason why the two partners, Honda Group and Hero Group ,are parting their ways include the emerging friction between them and also the growing competition of HMSI with Hero Honda. A spokesperson for Honda Motor Japan was quoted saying that there is no such plan at the moment. Also, a spokesman for the Hero group stated that the information is incorrect. The Hero Group and Honda Motor Co, Japan, have for years enjoyed a very cordial and fruitful relationship, resulting in millions of satisfied Hero Honda customers across the country. Contrary to market speculation, there has been no change in this relationship, said the spokesman.

However, sources in the banking sector have said that  the deal would be completed through an SPV (special purpose vehicle) formed by the Munjal family. A foreign bank will extend a loan to the SPV to buy Honda’s 26% stake. The sources also say that Honda may offload its stake at a discount to Hero Honda’s existing market price. The company’s scrip closed at Rs 1,736 on the Bombay Stock Exchange, up 2.14%. At the current market price, Honda’s 26% stake in the company is valued at Rs 9,000 crore.

This break in the alliance would mean a lot to the industry which has seen a lot many alliances break in the past, Kinetic-Honda, LML-Vespa, TVS-Suzuki to name a few.