Team-BHP - Usha International exits JV with Honda India

Honda Siel (HSCI) announced the end of the Joint Venture between its Japanese parent company Honda Motor Co. and its Indian partner of 17 years, Usha International (UIL).

According to the agreement, Honda Motor Co. has bought the 3.16% share that UIL owned in HSCI for Rs 180 crore. HSCI will now be a 100% Honda subsidiary in India.

This move comes as no surprise as the JV partners have been at loggerheads over the way forward for HSCI, especially in terms of future investments. UIL was unwilling to participate in raising investments for new small cars and diesel variants, possibly due to the fact that HSCI has not been profitable for a while now. In fact, 2010-11 was one of its worst years with Rs 212.83 crore in losses reported.

That year, floods in Thailand and tsunamis in Japan hit Honda’s components production, and the company operated at only 50% output. After that came the incessant price hike in domestic petrol prices that hit Honda hard. While its rivals populated the market with diesel products, Honda persisted with its diesel-less portfolio in India. Even potential sellers like the Jazz were undone by poor pricing strategies. The result – just over 2% current market share and losing place to global competitors like Toyota and Volkswagen in the past year or so.

UIL had made clear its intention to dissolve this partnership a while back. However, Honda Motor and UIL could not agree on the valuation of the shares owned by UIL, which delayed the process.

So what does a 100% subsidiary mean for Honda? It can raise capital without any hindrances now; possibly invest in diesel variants of their existing portfolio of cars. It could look to streamline its existing products and prepare new models for the festive season. One would imagine that it will also be looking at the success of its two-wheeler division, Honda Motorcycle and Scooter India (HMSI), which already has about 20% market share, having split from the Hero Group less than two years ago.

Related threads

Honda Siel on brink of turning sick, chairman told via board circular?

Honda India : The Way Forward

Not really surprising, it was only a matter of time before the deal was finalised. Usha was keen to exit since a while, but they couldn't agree on the share price. The valuations ranged from 56 Rupees to 180, IIRC. The two were unable to see eye to eye.

Considering that Honda has been suffering losses and their tumbling marketshare, the only way out was fresh investment. Buying Usha out shows commitment on the part of Honda. This also clears the way for future investments without any hurdle. Let's hope Honda leaves these distractions behind and strengthens its India effort, along with the diesels!

This car would be a good start:

Brio Diesel SCOOP w/ engine sound : Team-BHP - YouTube

Quote:

Originally Posted by smartcat (Post 2870462)

Any idea why so many companies took the piggyback (JV) route to come to India?

My best guess - these guys didn't want to get their hands dirty (bribing politicians/bureaucrats for approvals, land acquisition etc). It's not like Kirloskar (Toyota) or Usha (Honda) had any experience making cars.

I think there was a rule in India before that foreign companies can invest in India only through a joint venture for so and so years before they can go on their own. Hence the Hero + Honda, Toyota + Kirloskar , Siel + Honda , Maruti + Suzuki , LML + Piaggio , TVS + Suzuki etc. Not sure if this rule still applies though!!

Quote:

Originally Posted by smartcat (Post 2870462)

Any idea why so many companies took the piggyback (JV) route to come to India?

Quote:

Originally Posted by shadows123 (Post 2870475)

I think there was a rule in India before that foreign companies can invest in India only through a joint venture for so and so years before they can go on their own.
Not sure if this rule still applies though!!

Correctly said.
Now, there are multiple options available for foreign companies to start up in India. So, JV is not the only option i guess.

More to read at : POLICY

Too much legal things mentioned :P , so thought of sharing the link as such, so that somebody who can interpret correctly can help.

Quote:

Originally Posted by smartcat (Post 2870462)

My best guess - these guys didn't want to get their hands dirty (bribing politicians/bureaucrats for approvals, land acquisition etc).

Bingo! The idea was to have a local partner who mainly helps with the "local" transactions and knowledge of things. This was probably wrong thinking, or it was intended to be a temporary arrangement, as most JVs have ended up in a divorce.

Government & Suzuki (now Suzuki & investors & the Public only)
Mahindra Ford (now Ford only)
GM HM 50:50 JV (now GM or rather, SAIC only)
Fiat Premier (Fiat only, then Tata as a partner)
Honda SIEL (now Honda only)
Mercedes & Tata Motors JV got the E220 to India. Now Mercedes only

The only three active JVs today are that of Toyota-Kirloskar (a successful one), Tata-Fiat (going their independent ways) and Mitsubishi-HM (a miserable one where both partners sleep all day).

Quote:

Originally Posted by shadows123 (Post 2870475)

I think there was a rule in India before that foreign companies can invest in India only through a joint venture for so

Not in the late nineties. At the time that Honda tied up with Usha, Hyundai set up its own, independent operations in India. Pat on the back to Hyundai for realising the potential of the Indian market when few others did. They also launched a relevant small car - the Santro - when everyone else was busy with 8 - 10 lakh sedans.

Quote:

Originally Posted by smartcat (Post 2870462)

My best guess - these guys didn't want to get their hands dirty (bribing politicians/bureaucrats for approvals, land acquisition etc).

Quote:

Originally Posted by GTO (Post 2871114)

Bingo! The idea was to have a local partner who mainly helps with the "local" transactions and knowledge of things.

You will find more JVs between EU/US/JP companies in India. Comapnies with a base in countries like Korea / Thailand are less fearful and have the confidence that their home grown products will provide a value proposition to the Indian buyer (besides their local goverments behave very similar to ours).

EU/US/JP companies use JVs to reduce the risk. They will use an Indian partner to break into the market and slowly develop their brand over the Indian partner's brand. Once they believe they do not need the Indian partner anymore they usually use greenmail to take over the JV.

Quote:

Originally Posted by navin (Post 2871143)

I tend to disagree. I can only think of Hyundai non-JV Korean example, can extend to Nissan perhaps (as a Thai example).
Other Thai players - Mitsubishi, Chevy, Ford, etc - came to India in JV. Some other players like Isuzu & Mazda are pretty much non-existent in India. (Yeah, Isuzu supplies engines to many, but not full vehicles). Same for Korea - there's no SM (Samsung Motors) or Ssangyong in India. Extending the logic a little bit to trucks - India's missing out of the awesome Korean trucks by Hyundai, Daewoo (even though it's owned by Tata), etc.

On the other side - aren't BMW & VW groups non-JV entities? I don't think Asian base helps in any way. I think it is probably a bigger function of when they entered India.

Quote:

Originally Posted by navin (Post 2871143)

(besides their local goverments behave very similar to ours).

Please. No. So wrong.

Quote:

Originally Posted by GTO (Post 2899011)

Honda Siel Cars India (HSCI) today announced the change in its name to Honda Cars India Limited (HCIL), following the divestment by its erstwhile partner Usha International Ltd (UIL) from the company. The name change will be with immediate effect as per the fresh Certificate of Incorporation issued by the Registrar of Companies, NCT of Delhi and Haryana.

HCIL is now a 100% Honda subsidiary in India.

Official Press release here;
http://www.hondacarindia.com/mediace...aspx?pr_id=257