The Journey of Hero and Honda in India After Their Separation.

The partnership between Hero and Honda was a landmark in the Indian automobile industry, creating one of the most successful joint ventures in the two-wheeler segment. However, the split in December 2010 marked a significant shift, leading both companies to forge their paths.

Honda decided to exit the venture by selling its 26% stake to the Munjal family, owners of Hero. The companies parted amicably, with Honda providing technological support to Hero until 2014, while Hero continued to pay royalties to Honda. The Munjals acquired Honda’s 26% stake in the joint venture through their private holding arm, Hero Investments, raising the Indian promoter group’s ownership to 52% (Hero Investments’ stake increased to around 43% with this transaction). The deal was completed at a valuation of 739.97 per share, less than half the market price of 1,518.15 on the Bombay Stock Exchange (BSE). Over the past decade, Hero MotoCorp and Honda Motorcycle & Scooter India (HMSI) have evolved distinctly, contributing immensely to India’s automobile sector.

Reasons for the Independency:

Divergent Strategic Goals

One of the primary reasons for the separation of Hero and Honda was their divergent strategic goals. Hero, as an Indian company, was keen on expanding its presence in international markets and wanted to develop its own research and development capabilities to innovate and cater to local tastes. Contradictory to this, Honda, a Japanese multinational, had a global strategy that sometimes clashed with Hero’s regional aspirations. This divergence in goals made it challenging to align their strategies, ultimately leading to the decision to part ways and pursue their independent paths.

Financial Independence

Hero sought greater financial independence, which was another significant reason for the separation. By buying out Honda’s 26% stake, Hero aimed to have complete control over its financial decisions, free from the influence of its Japanese partner. This financial independence allowed Hero to allocate resources more freely towards its growth and development plans without needing to seek approval from Honda. The transaction, completed at a valuation significantly lower than the market price, also presented an advantageous financial opportunity for Hero.

Technological Autonomy

Technological autonomy was a crucial factor in Hero’s decision to separate from Honda. While Honda provided significant technological support, Hero aspired to develop its technological capabilities to reduce reliance on external sources. By gaining autonomy, Hero could innovate and develop new products tailored to the specific needs of its target markets. This autonomy opened up opportunities for Hero to collaborate with other technology partners or invest in its R&D initiatives, fostering an environment of independent growth and innovation.

Market Competition.

The growing competition in the two-wheeler market also played a role in the separation. Both Hero and Honda had ambitious plans to capture a larger share of the market, which sometimes led to internal conflicts and competition. As competitors, it became increasingly challenging to collaborate effectively. The separation allowed each company to focus on its competitive strategies without the constraints of a joint venture, enabling both Hero and Honda to pursue market leadership independently and grow independently.

Brand Identity

Lastly, the separation was driven by the need to establish distinct brand identities. Hero wanted to build a brand that resonated with its vision and values, separate from the Honda brand. This differentiation was essential for Hero to create a unique market presence and foster brand loyalty among its customers. By parting ways, Hero could concentrate on crafting its brand narrative and expanding its product portfolio in line with its brand philosophy, while Honda could continue to strengthen its global brand identity independently.

Financial Statistics during the separation.

1. Stake Acquisition: The Munjal family, through their private holding arm Hero Investments, acquired Honda’s 26% stake in Hero Honda. This increased the Indian promoter and promoter group’s holding to 52%, with Hero Investments’ stake specifically rising to around 43%.

2. Valuation of Transaction: The transaction was completed at a valuation of ₹739.97 per share, which was significantly below the market price of ₹1,518.15 per share on the Bombay Stock Exchange (BSE) at the time. This discrepancy highlighted the favorable terms under which the Munjal family acquired Honda’s stake.

3. Revenue and Profit: For the fiscal year 2009-2010, Hero Honda reported a revenue of ₹15,860 crores (approximately $3.5 billion) and a net profit of ₹2,23

1 crores (around $490 million). These figures underscored the joint venture’s strong financial performance leading up to the separation.

4. Market Share: At the time of separation, Hero Honda was the largest two-wheeler manufacturer in India, commanding a substantial market share of about 50%. This dominant position in the market underscored the importance of the joint venture in the Indian automotive landscape.

5. Royalty Payments: As part of the separation agreement, Hero continued to pay royalties to Honda for the use of its technology until 2014. In the fiscal year 2010, Hero Honda paid approximately ₹1,400 crores ($300 million) in royalties to Honda. This arrangement ensured that Hero could maintain technological continuity while transitioning to its independent operations.

The Competitive Landscape and Future Prospects.

The split between Hero and Honda has intensified competition in the Indian two-wheeler market. Both companies have adopted different strategies to capture market share and build brand loyalty.

1. Hero’s Focus on Rural Markets:

Hero MotoCorp has leveraged its extensive dealer network to penetrate rural markets, where demand for reliable and affordable two-wheelers is high. Their stronghold in this segment has been a key driver of their sustained market leadership.

2. Honda’s Urban Appeal:

HMSI has targeted urban consumers with innovative products and features, particularly in the scooter segment. Their focus on technology, style, and performance has attracted a younger demographic, contributing to robust sales growth.

3. Innovation and R&D:

Both companies have invested significantly in research and development. While Hero focuses on self-reliance and local innovation, Honda leverages its global R&D capabilities to introduce advanced technologies in India. Honda R&D Americas, Inc. (HRA) is an American division of Honda Motor Company that develops automobiles, motorcycles, all-terrain vehicles, outdoor power equipment; lawnmowers, boat outboard engines, and jet engines. It develops vehicles for Honda and Acura sales in conjunction with other global R&D centers.

4. Electric Mobility:

The push towards electric mobility presents new opportunities and challenges. Both Hero and Honda are developing electric two-wheelers, with Hero launching its electric sub-brand, Hero Electric, and Honda working on its electric scooter portfolio. This segment is expected to witness significant growth in the coming years.

The separation of Hero and Honda has led to the emergence of two strong entities in the Indian two-wheeler market. Hero MotoCorp has maintained its leadership through a focus on affordability, reliability, and rural penetration, while HMSI has carved out a significant presence with its technological prowess and urban appeal. As both companies continue to innovate and expand, the Indian consumer stands to benefit from a diverse range of products and advanced technologies. The journey of Hero and Honda post-separation underscores the dynamic nature of the automobile industry and the potential for growth and innovation in the years to come.