Without the 26% stake in Hero Honda, Honda will lose some bragging rights: Namely the claim that it has about 58% of India's nearly nine million-unit-a-year motorbike market.
But in truth, Honda's share of the joint venture's income is only about $120 million a year, Deutsche Securities estimates. That is a fraction of the $6 billion profit Honda is forecasting for its full year through March.
Even the royalties the partnership generates for technology used in the Hero Honda bikes aren't terribly significant because the technology is old. Hero says it paid Honda $90 million last year. Anyway, Honda is likely to keep collecting the royalties for some time.
Critically, for Honda this isn't an exit from India. Rather, it is a reshaping of its strategy toward the market, which once was unapproachable without a local partner.
Honda already makes and sells bikes and scooters under its own brand in India, holding about 14% of the market by units sold, according to J.D. Power & Associates data.
The company has said it plans to increase production next year there by more than one-third, to 2.3 million units a year. Going alone means Honda can keep building on this sales and production base without worrying about tip-toeing around its current partner. Analysts expect Honda to start exporting more from India, including to the West, as it already does from Thailand.
This break-up will be harder on Hero, which could lose access to Honda's technology and brand name. So all eyes are on the price Honda fetches for such a large chunk of the venture. But even if it leaves something on the table—in the sum of a few hundred million dollars—it would be only a minor setback for a company sitting on more than $15 billion in cash.
Honda's guidance on this issue has been less than stellar, but losing the sidecar in India is a smart thing to do.
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