Honda - Siel

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http://www.business-standard.com/india/printpage.php?autono=469295&tp= Valuation battle hots up as Shriram looks to exit Honda JV Sharmistha Mukherjee / New Delhi March 28, 2012, 0:10 IST An acrimonious battle seems imminent between Japanese automobile giant Honda Motor Company (HMC) and its 17-year-old Indian joint venture partner, Shriram Industrial Enterprises Ltd (Siel), promoted by Siddharth Shriram, over the valuation of the latter’s five per cent stake that it wants to sell. In 1995, th
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  Valuation battle hots up as Shriram looks to exit Honda JV Sharmistha Mukherjee / New Delhi March 28, 2012, 0:10 IST An acrimonious battle seems imminent between Japanese automobile giant Honda Motor Company(HMC) and its 17-year-old Indian joint venture partner, Shriram Industrial Enterprises Ltd (Siel),promoted by Siddharth Shriram, over the valuation of the latter’s five per cent stake that it wants to sell.In 1995, the partners had set up their joint venture, Honda-Siel Cars India (HSCI), to manufacturepassenger cars in the country.Honda, according to sources in the know, wanted to raise over Rs 3,000 crore (till date it has investedRs 1,620 crore in its Greater Noida plant) through an additional infusion of equity capital, to finance itsaggressive plans of launching new small cars and diesel variants in the Indian market.However, Shriram was unwilling to participate in this resource mobilisation, which would require Siel toinvest commensurate cash to maintain its current holding, and preferred to call it quits by selling off itsminority stake in the JV.Though negotiations are on, there are clear differences between the sides on the valuation at whichShriram expects to sell the shares. A solution is expected in the next few weeks.An HSCI spokesperson said: “Matters related to the partnership concern only the two partners and wehave no information at this moment.” When contacted, Siel chairman Siddharth Shriram declined tocomment on the issue.Siel currently holds five per cent stake in the JV through Usha International Ltd. Its exit from Honda,when it happens, would be the sixth case of a Japanese auto company calling off its partnership withan Indian firm. And, some of those were quite acrimonious, with the exit taking place after a bitter battle — for instance, TVS buying out Suzuki in its two-wheeler JV and the government virtually pulling out ofMaruti Suzuki after a bitter court battle.In the recent past, Honda has preferred to chart its own course and has pulled out of its JVs. Just 15months ago, it terminated its 26-year-old JV agreement in Hero Honda Motors Ltd with Munjals’ HeroGroup, to go solo in the country. In 1998, it had pulled out of its JV with the Pune-based Firodias inKinetic Honda, which manufactured scooters, after the company made losses. Earlier, the Japanesecompany had bought over Shriram’s stake in Shriram Honda Power Equipments, which manufacturedgensets, for Rs 80 crore. The car project is the only venture in which the company has a minority equitypartner.Honda, which commenced sales operations in India with flagship sedan City in 1998, has seen itsmarket share drop over the past decade due to increased competition from global players.The company’s lack of diesel engines has only added to its cup of woes in the domestic market.Between April and February this financial year, its sales have declined a whopping 22.32 per cent to43,411 vehicles.Though sales were limited during the period due to constraints in supply of components from Japanand Thailand, HSCI’s volumes saw a drop even in the previous financial year. This was at a time whenthe overall automobile industry in India grew by a scorching 29 per cent to sell 2.52 million units.The company only recently introduced its first small car, Brio, in October last year, after more than adecade of selling large cars in the country. HSCI’s market share has dipped to less than two per cent,whereas compatriot Toyota has raced ahead, selling over 136,000 units last year to become the fifth-largest car maker in the country. A HISTORY OF EXITSBroken Japanese auto JVs FalloutValuation Honda-Siel(under negotiation)Honda looking at buying out Siel’s 5%stakein the companyDeal sizenotfinalised http://www.business-standard.com/india/printpage.php?autono=469295&tp=1 of 2 3/29/2012 12:11 PM  Hero Honda (2010)Hero buys out Honda’s 26% stake Rs 3,842 crMaruti Suzuki (2007)Govt sells off its 18.28% stake in MarutiUdyog to Indian financial institutions in May2007 after prolonged battle with SuzukiNA TVS Suzuki (2001)TVS buys Suzuki’s 25.97% stake Rs 9 cr Yamaha Escorts (2001) Yamaha buys out Escorts’ 26% stake in the companyRs 70 crKinetic Honda (1998)Kinetic buys out Honda’s 51 % stakeRs 35 cr Source : Industry  Siel, when it entered into the JV in 1995, had begun with a 40 per cent stake in HSCI. But, it later soldover 38 per cent to Honda to part finance the Siddharth Shriram group’s expansion plans. Siel had theoption to buy back 30 per cent stake in HSCI. However, with the paid-up capital doubling to Rs 360crore from Rs 180 crore in 1995, Siel’s rights were eventually limited to re-purchase 15 per cent stakein the JV. The Group exercised the option a year back and picked up an additional three per cent stake. http://www.business-standard.com/india/printpage.php?autono=469295&tp=2 of 2 3/29/2012 12:11 PM
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