Friday, March 30, 2012
By Manoj Kumawat
Honda SIEL JV to end soon; valuation of Shriram Group’s 5 percent stake on
Japanese car maker Honda is on the brink of ceasing its ties with India based Shriram Industrial Enterprises Lid (SIEL). Notably, the joint venture started in 1995 and since then the Honda-SIEL JV has given some of the best selling cars including the Honda City, Honda Civic, Honda Accord and Honda CR-V SUV. As per reports, it is SIEL that is unwilling to carry on with the partnership and as per industry sources, SIEL does not intend to invest further in launching new cars and bringing in Honda diesel cars in India. SIEL will sell its share to Honda. Though it is only a 5 percent stake and reports suggest that the valuation of the said stake is underway.
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The partnership between Honda Japan and Shriram Group began in 1995 and it all started with SIEL holding 40 percent shares. Later on the latter sold 35 percent of the share to Honda and held only 5 percent stake. Now that SIEL wishes to set itself apart from this JV the two are meticulously seeking a decision on the valuation of the 5 percent stake. Shriram is said to be selling the stake for the expansion of its group. The decision on the valuation of the stake is expected to be clear in a couple of months.
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Since it is merely 5 percent stake, Honda will have little effect due to it. However, it will be a strategic decision by Shriram Group as it will then cease to have any share in the operations of the Honda cars in India. Though there are reports that due to the buyout Honda plans for India will get a little delayed but since it is merely 5 percent it is expected not to affect Honda operations in India in a big way. Notably, this was a strategic time and quitting at this time means that Shriram Group looses a major stake as Honda was about to launch the diesel version of its cars in India and this was expected to double the sale of Honda cars in India.
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The split will certainly not affect Honda operations in India; however, might marginally delay their long-term plans here, as the company might have to wait to resolve the current issue and may also have to divert funds for the buyout. Not so long-ago the Honda two-wheelers also splitting from its long-term partner Hero Motor Corp to continue independent operations in India.