Shares of Hero Honda, India’s biggest two-wheeler maker, plunged nine per cent during trading hours today on the Bombay Stock Exchange, after a television channel stated that the board of Hero Corporate Services had given a go-ahead for the much-discussed royalty deal with Honda of Japan.
Hero Honda shares closed at Rs 1,621.30, down 5.4 per cent, after analysts tracking the company feared an erosion in margins, especially after news of steep royalty payments and fresh investments required to set up a new research and development centre surfaced.
The benchmark Sensex dipped 0.76 per cent to end at 19,647.77. Hero Honda marked the biggest fall among the 30 companies that make up the benchmark Sensex on the BSE.
According to CNBC TV18, Hero Corporate Services, the privately held company based in Delhi which is buying Honda’s 26 per cent stake in Hero Honda, held a meeting today where its board agreed on the royalty payout rate and a buy-out price of $1-1.2 billion.
Reports suggest Hero Honda’s royalty payment to Honda Motor Company, presently around three per cent, will be more than doubled to eight per cent after the joint venture termination deal was signed. This would mean payout of Rs 2,300-2,400 crore for four years.
Honda had earlier stated the company was looking at a time frame of three months for terminating the 26-year-old joint venture.