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Its No More HeroHonda, Now It's Hero and Honda.

Hero and Honda Group has tied to do business in India in the year 1984, now after an 27years Joint venture between BM Munjal-owned Hero Group and Japanese origin Honda Group has come to end.  One of the successful association and continued to be an market leader in Two wheelers in India both companies has decided to split up.  The news itself has discouraged the investors to rest their capital in this stock as a fall is been observed in the stock price on the day itself when the news broke out.
Hero-Honda Stock Fall down From December 2010- April 2011
[More Info: 5lakhs Shares were traded on an single trading day which is 8 times th
e normal of the particular stock.
9% down in stock price of Hero Honda Motors India Limited]

Case Study: Consequences of this Hero-Honda De-merger/ Joint Venture Split Up:
At the time of Split up Honda Group was holding 26% stake in the Hero-Honda Group which for approximately  $1.2bn.  The company is function in the same name for few more months until Hero group makes it own identity in Two-wheeler market.

Honda Group Logo

Impact on Honda Group:
First of all lost its Indian partner. But where as the company(Honda Group) is function in the country for past few years and made an strong presence though having less market share. So it doesn't need to create a new Identity/Brand awareness among the people and can directly target its customers and attack its competitors(Hero Group, TVS, Bajaj Auto etc) with its Competitive Advantage.
Honda Group has Advantages even after ending up the Joint venture with Hero Group. Few are,

  • Got Brand Identity.
  • Technology as an Competitive Advantage.
  • Market Presence in this huge Two-wheeler market.
  • Good Reputation/Goodwill as a brand.
But the company doesn't have a strong production and distribution channels compare to its competitors because of which it only takes orders and then produce a vehicle. 

Hero Group Logo
Impact on Hero Group after the Split up and current situation:

The company has posted a 16.2% decline in Net Profit (Quarter-4 ended March 2011) this is because of two reasons.
  • Because of rising Input cost, as Raw materials like steel, non-ferrous, and Rubber based components are not showing any signs of easing and
  • Higher Advertising spending during the World Cup Cricket.
Direct Impact:
The Hero Group has to pay total Royalty of Rs.2479 crores to Honda Motors (which includes Rs.550 crore for export license) for the purpose of producing, Selling and Servicing current products.
The company has roped Law and Kenneth(L&K) as an Creative partner to launch and establish a New Brand for the company.
Company is in search for hiring an International Brand and Innovator Specialist.

Strengths of Hero Group:
  • Market Leader in Two wheeler category.
  • Strong Distribution channel across the length and breadth of the country.
  • Huge Production units.
    • The company has increase its production capacity this year from 5.5Million to 6.15Million units with an initial investment of Rs300crores.
  • Brand Loyal Customers( this acts also like an threat, because people now are familiar with the name HeroHonda rather than Hero)
  • Good Product Mix as an Portfolio.
  • Enriching its R&D capabilities as an part of its long term plan.
Huge Opportunity: The company has got an huge opportunity to remain as an Market leader for longer time by holding majority of the Market share.  In addition because of the Increase of the Bank Interest rate the sales of the Car has been decreased and an increase in the sales of Two-wheelers/bikes is expected.

Because most of the Cars are bought on Equal Monthly Installment(EMI) basis and have to opt for an loan, but whereas  for bikes 70% of purchases are done through Cash payments. This will create and huge opportunity to grab it. 


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