Mumbai: Shares in Hero Honda Motors fell as much as 9% on Wednesday, after a TV channel reported the board of Hero Corporate has approved the termination of the joint venture with Honda Motor.
Hero Corporate will acquire Honda Motor’s 26% stake in Hero Honda, India’s largest motorcycle maker, for $1 billion to $1.2 billion, CNBC TV18 channel reported, citing unnamed sources.
It said the board of Hero Honda, the joint venture which was formed in 1984, was likely to meet on Thursday to approve Honda’s exit from the venture.
Hero Honda shares were down 6.8% at Rs1,598 at 2:23 pm, after falling as much as 9% to their lowest level in two months, while the BSE Sensex was down 0.7%.
A Honda spokeswoman in Tokyo said the company could not comment on the report, adding it would make any announcements at the appropriate time.
Calls to the spokesman for Hero Honda in New Delhi were not returned.
More than 500,000 Hero Honda shares were traded at the Bombay Stock Exchange (BSE), nearly eight times the average daily volume over the past 30 days. The stock is down more than 9% this year, lagging the sector index that is up by a third.
At Tuesday market price, a 26% stake in Hero Honda was valued at $2 billion.
CNBC TV 18 said the Indian partners of the joint venture would make royalty payment of Rs2,300 crore to 2,400 crore ($508 million to $530 million) to Honda over three to four years as part of the JV termination deal, the report said.
The Hero Corporate board expressed concern over the high royalty payment, the report said.
“If the technology transfer continues and Hero has to pay royalty for the next 3-4 years, this could seriously dent profitability,” said Kunal Dalal, analyst at brokerage KR Choksey Shares in Mumbai.
Dalal said royalty payment was about 2.5% to 3% of sales now and at Rs2,400 crore over three to four years that would go up to 8%, impacting Hero Honda’s earnings per share.
Local media had earlier reported that the Indian partners in Hero Honda would first buy Honda’s stake by raising a bridge loan, and then sell a significant portion of the stake to a group of private equity firms.