Hero Honda Surges

Hero Honda Surges as Honda Stake Sale Pares Technology Payments

Dec. 20 (Bloomberg) -- Hero Honda Motors Ltd., maker of half the motorcycles sold in India, jumped the most in more than a year after saying that Honda Motor Co.'s sale of a $1.9 billion stake will lead to lower technology-royalty payments.

The motorcycle maker rose as much as 11 percent to 1,871.80 rupees at 10:28 a.m. in Mumbai trading, the biggest intraday jump since May, 2009. The company fell 8.3 percent in a month through Dec. 16 on concern it would need to pay more to use Honda's technology following the Tokyo-based company's exit from the venture.

Hero Honda's royalty payments will decline from as early as January as the company will develop more models itself, Hero Group said last week after agreeing to buy Honda's stake in the motorcycle-maker. The company will also be freed from restraints that were part of the venture agreement, allowing it to begin sales in new markets such as Africa and Indonesia, said Ashish Nigam, an Antique Stock Broking Ltd. analyst.

"The management has addressed a very serious concern by categorically stating that the underlying royalty rates will not increase," Mumbai-based Nigam said in a note to clients today. The company has previously "missed out" on export opportunities that have helped boost sales for Bajaj Auto Ltd. because of the ties with Honda, he said.

Nigam raised his recommendation on New Delhi-based Hero Honda to "buy" from "hold." He also raised his forecast for Hero Honda's unit exports next fiscal year by 1 percent.

The motorcycle-maker rose 10 percent to 1,853.55 rupees as of 10:29 a.m. in Mumbai trading. It was the only stock among the 30 companies in the Sensex index to rise more than 1 percent. The index fell 0.4 percent.

Hero Group Purchase

Hero Group, controlled by the Munjal family, will buy Honda's 26 percent stake in a "phased manner," the companies said in a statement on Dec. 16, without saying how much it will pay. The company already owns 26 percent of the motorcycle- maker, which has a market value of $7.4 billion based on the Dec. 16 closing price, according to data compiled by Bloomberg. India markets were closed on Dec. 17 for a holiday.

Honda, the world's largest motorcycle maker, plans to exit the venture to focus on its fully owned unit in India. The company, which formed Hero Honda with Hero Group in 1984, rose 1.6 percent to 3,285 yen in Tokyo.

Hero Honda will create a new brand and search for "new markets" overseas as Honda quits the venture, Chief Executive Officer Pawan Kant Munjal said on Dec. 16. The motorcycle-maker paid 2.6 percent of sales to Honda as royalties in the fiscal year ended in March, according to its annual report.

To contact the reporters on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net