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Honda aims for peaceful co-existence - Views on News from Equitymaster
 
 
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  • Nov 23, 1999

    Honda aims for peaceful co-existence

    Honda Motors of Japan plans to dilute its shareholding in Hero Honda JV in favour of one or more companies. The company believes it can co-exist peacefully with its venture partners. This was reported by a leading financial daily.

    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.

    Honda Motors has ambitious plans to corner 50% market share in the motorcycles segment by 2010. The company has cited this as the reason for setting up another company in India in addition to the existing venture with the Munjals of Hero Honda. It believes that the India market is large enough to accommodate more players. Honda cited the example of China where the company operates through three different ventures.

    Hero Honda acknowledges the fact that the company would not be able to exploit the potential of the explosive growth in the Indian two-wheeler market.

    While Honda Motors will be aiming for peaceful co-existence with its partners, this will be an idealistic situation, while the reality could be quite different. It is very unlikely that relationship between Honda and its partners will be devoid of friction. Over a period of time, there is bound to be some conflict of interest between Honda and its partners.

    Hero Honda's comment that it will unable to exploit the growing motorcycle market on its own is very puzzling. If that is really case, then why is there a five-year moratorium on Honda's 100% subsidiary for the launch of motorcycles. If Hero Honda really feels that it is inadequate to tap the potential then why does it need the five-year head start over Honda subsidiary. On the contrary, Hero Honda must ensure that Honda manufactures motorcycles from year one, if the two partners want to fully exploit the boundless potential of the motorcycle segment.

    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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