Hero with or without Honda

The 12-million-bikes-a-year Indian market shows no signs of cooling, and as the market leader, Hero Honda is well placed to flourish in a country with rising rural incomes.

Hero Honda, the hugely successful joint venture between Munjal family’s Hero Group and Japanese automotive giant Honda, came under a bit of stress last week with speculation about the overseas partner wanting to pull out. Hero Honda’s stock fell more than 5 per cent, only to climb back when the company quashed the rumours. The 26-year-old partnership has proven to be one of the most durable in India Inc. It even survived Honda’s decision to go solo ( as Honda Motorcycle & Scooter India—HMSI) and make two-wheelers under its own brand. Both companies compete head on in this market. Hero Honda has lined up its fourth plant with a capacity of 5 million units, while HMSI has invested Rs 500 crore to set up its second plant that will make 2.2 million bikes. 

But even if Honda sells back its 20 per cent stake in the JV to the Munjal family, for a purported sum of $1.5 billion, analysts believe it would be business as usual for the world’s largest motorbike company. The Hero Group quickly issued a statement saying relations with Honda have been cordial and that there has been no change in the relationship in any manner. For now, there is already a 10-year technology transfer deal between the two companies, which expires only in 2014. Even if it doesn’t get renewed (a remote possibility at the moment), the experience of other Indian two-wheeler makers suggests it wouldn’t be a big loss. India’s third largest two-wheeler maker TVS Motors in 2001 ended its alliance with Suzuki Motors of Japan and hasn’t experienced a slide in its fortunes since. In fact, TVS’s first indigenous bike Victor, launched after the breakup, proved to be a runaway success. 

The 12-million-bikes-a-year Indian market shows no signs of cooling, and as the market leader with a share of about 40 per cent, Hero Honda is well placed to flourish in a country with rising rural incomes.

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