Munjals decline stake in Honda subsidiary - Views on News from Equitymaster

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Munjals decline stake in Honda subsidiary

Nov 9, 1999

Munjals of Hero Honda have declined Honda's (of Japan) offer for an equity stake in the latter's 100% subsidiary. This was revealed by a leading financial newspaper. Hero Honda, a joint venture between the Munjals and Honda Motors, is India's leading manufacturer of motorcycles (44% market share in 1HFY2000). Some of its famous brands include Splendor, CBZ(ee) and CD 100/SS.

Munjals have declined Honda's offer for an equity stake in its subsidiary, Honda Motorcycle and Scooter India Ltd. Brij Mohan Lal Munjal, Hero group chief, remarked, 'We are comfortable with on one company.' He stated that the Hero group enjoyed cordial relations with Honda and there would be no adverse impact of the latter's fully owned subsidiary on Hero Honda.

The family patriarch revealed that the Honda brass was coming to India to ward off any reservations that the Munjals may have about the new subsidiary. A joint team of Honda and the Munjals will outline a ten-year strategy to ensure that Hero Honda and the Honda Motorcyle & Scooters compliment each other in the market place, instead of competing with each other.

Despite the assurances from both the sides, it is difficult to imagine both these parties co-existing in the two-wheeler segment for long. Sooner or later there is bound to be some friction between the partners. This could have a serious impact on Hero Honda, leading to a shakeout in the company.

Market view:

Analysts have flagged the stock as a 'BUY', as the company has been riding the motorcycle boom with well-acknowledged brands, and future launches will help it sustain market share, if not enhance it. Its excellent 2QFY2000 results (44% net profit growth) has lent credence to analysts' views.

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