The Hero Group will venture aggressively into export markets soon after it signs a “definitive agreement” with its former joint venture partner Honda Motor Co. Ltd, from which it plans to continue to source technology to launch some new models.
The company will be using its own logo in the overseas markets where it could potentially compete directly with its former joint venture partner.
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Contractual commitments with Honda meant that Hero Honda had to ignore the lucrative motorcycle export market. In the eight months ended 30 November, rival Bajaj Auto Ltd exported 674,816 motorcycles, a 38% growth over the same period in 2009. Hero Honda exported a total 91,177 two-wheelers in the same period. Out of this, 80,649 were motorcycles and the rest were scooters.
As if in recognition of this opportunity, shares of the company rose 18% on Monday to end at Rs 1,981.20 each on the Bombay Stock Exchange, within kissing distance of their 52-week high of Rs 2,094. The exchange’s benchmark index, the Sensex, rose 0.12%.
“Now that the company is free of any such obligation, it is quite expected that it will pay more attention to (the) export market,” said Vaishali Jajjo, an analyst at Angel Broking Ltd.
“We will be exporting to a number of new areas, including Latin America, Africa and the Middle East. In the new export markets, the Hero brand will be taken forward. We are free to export any models under our brand name,” said Anil Dua, senior vice-president (marketing and sales) during a conference call organized by the company with analysts and investors.
Mint reported on Saturday that the Hero Group has already started working on a new corporate identity and a new brand logo.
Honda Motor is selling its 26% stake in Hero Honda Motors Ltd to the New Delhi-based Hero Group for an undisclosed sum. The stake has a market value of nearly $2 billion. The companies announced the transaction, news of which had been doing the rounds for some time, in a press conference in New Delhi on Thursday. They expect to sign a definitive agreement in two-three weeks, said Ravi Sud, Hero Honda’s senior vice-president and chief financial officer.
The two companies have signed a fresh licensing agreement that runs through 2014 and covers current models and new launches. The agreement also allows Hero to launch other models, which will not carry the Honda brand name.
Dua said that between its own research and development (R&D), the arrangement with Honda, and the freedom to scout for other technology partners, Hero Honda would launch seven-eight new models every year.
The company also clarified during the call that Honda could support the new products launched with its technology even after 2014.
“As far as the current agreement is concerned, we will get long-term rights. For the existing products, there will be no technology support but for new products, it may continue after 2014,” Sud said.
“The immediate challenge is to develop our own R&D and technological capability. We’ll have to quickly put together our R&D capability. This will be taking a lot of our attention,” Sud added.
In response to a question on royalty payments, Sud said these had varied between 2.4% and 2.6% in the past four-five years and that it could range between 2.6% and 3% in the current year. “It’ll not go beyond that,” he added, and clarified that beyond 2014, Hero Honda would pay no royalty on existing models.