The country’s largest two-wheeler manufacturer, Hero Honda, will pay Rs 2,450 crore (45 billion yen) as royalty to the Honda Motor Corporation (HMC) till 2014 as part of a new licensing agreement signed between the Hero Group and the Japanese auto major.
“Honda and Hero Honda Motors Ltd (HHML) have signed a new licensing agreement, which enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was ¥45,000 million and is due till 2014,” Honda Motor Co said in a statement.
HHML said the amount is in line with its existing rate of royalty, which is about 2.7-2.8 per cent of net sales. For the existing products, the Indian group will stop paying royalty by June 2014.
Last December, the Hero Group and Honda had agreed to end their 26-year-old joint venture Hero Honda, with the Indian partner agreeing to buy out Honda’s 26 per cent stake in the company for Rs 3,841 crore.
Ravi Sud, chief financial officer, HHML said the amount to be paid to Honda till June 2014, does not reflect any increase in royalty payment. “Hero Honda has been paying royalty to Honda at around 2.7-2.8 per cent of net sales and it will continue to be so in future.”
The royalty payment will gradually taper from about 2.75 per cent now to 2.2 per cent by 2014. The Hero Group would not pay any royalty for existing products beyond 2014.
“Even for new products, which we may get from Honda after June 2014, the royalty will be in line with what we are paying today,” Sud informed.
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The company would continue its current trend of introducing seven-eight new products every year, Sud had said earlier. It is understood that most of the new products from HMC would be introduced by HHML in 2011-12 and 2012-13.
Shares of Hero Honda closed at Rs 1,709.65, up 0.80 per cent from yesterday’s close, at the Bombay Stock Exchange today.