Hero Honda shares up 10% following deal with Honda

Hero Honda shares up 10% following deal with Honda

Mumbai: Shares of Hero Honda Motors rose more than 10% on Monday, following brokerage upgrades of the stock, which cited unchanged or lower royalty payments to Japanese partner Honda Motors.

Hero Honda, India’s largest motorcycle maker, on Thursday said it agreed to buy out Honda Motors’ 26% stake in the Indian joint venture, ending a nearly 25-year-old partnership. It said royalty payments to Honda Motors would remain unchanged or fall.

The deal, which was announced after the markets closed on Thursday, would also allow Hero to expand its presence overseas. Hero Group shares fell as much as 9% a day before the deal was announced, after media reports said it might have to pay higher royalties to Honda after buying out its stake.

“The royalty payment issue that was earlier a worry and hampered the stock has been resolved now and the stock movement (today) is in reaction to that," said Vaishali Jajoo, automotive analyst at Angel Broking.

Shares in Hero Honda, which holds more than half of India’s motorcycle market, reached 1860.95 on Monday. Bank of America-Merrill Lynch on Friday upgraded the stock to “buy" from “neutral," citing “alleviation of concerns over business impact of Honda’s exit as JV partner".

Emkay Global Financial Services on Thursday raised its rating on the stock to “hold" from “reduce."

The Bank of America report also said technology would not be an issue in the near term, because the two companies would continue sharing knowledge through 2014.

Jajoo said Angel Broking would continue to be “neutral" as it awaited more clarity on the funding and financials for the deal.

The two companies declined to disclose financial details of the deal on Thursday. Honda’s stake, created after the joint venture was formed in 1984, has a market value of $2 billion.