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Stocks

Hero Honda in Some Trouble

Hero Honda has been going down recently, and although I’ve sold my personal holding (disclosure: Family still holds) the story looks bleak:

Hero Honda Chart

This is slightly shady of me, because technically that’s probably not the perfect H&S formation, but hey, I’m using my creative license. The stock broke through all moving averages and is now at a breakdown zone. The 1800 mark is a pretty big resistance on the way back up, so it can be used as a target on a swing reversal, or the 20 DMA (not shown).

Fundamentally the news is that Honda is saying goodbye and there’s a suspicion the Hero group won’t be able to manage. We have to wait and see – TVS and Bajaj seemed to have done okay. Bajaj in fact has gone up 10% in the last two days. (Disclosure: I own that stock)

  • Anonymous says:

    >I will get out of this stock if there is a reversal. Honda is the brain behind Hero.

    MK

  • PVS says:

    >if honda exits, i think serious trouble in technical side..we may think tvs when suzuki exited in 2002, after that their launches expect apache not doing well…also, suzuki's product like max100r, fierro were stopped..in herohonda, if this type of story repeats?..yours view deepak..

  • Shailendra Bisht says:

    >The good news for HeroHonda is that it will save on royalty payments(Rs 5,500 crore for the financial year 2011) which it can direct towards establishing a world class R&D facility.
    The future will depend on the ability of leadership to develop this new team.

    BTW…will they still sell under the name herohonda or only hero??

  • Anonymous says:

    >Shaliendra:
    I have poor opinion about Hero Cycle Maker to graduate to World Class R&D. I have worked in Japan for 9 years in Engineering Industry, I know how they guard their technical secrets. It is impossible for Hero cycles to bridge the gap given the poor work culture and having slept for all these years in not developing their own R&D.

    MK

  • ICM says:

    >Responding to MK's comments. I too lived in Japan for over a decade and would generally agree that they will never allow technology transfer. Also, they invariably want full control (e.g. Maruti/Suzuki, Hero/Honda, TVS/Suzuki, and recently Ranbaxy – I expect a de-listing in the future)

    The Hero Honda saga is also because Honda are not able to get HMSI into pole position. This also shows how good Hero are in managing this partnership for 25 years and also building a fantastic distribution and sales network.

    So I will not put it past Hero to build new products while selling the current models. If TVS, Bajaj and TATA, M&M have build world-class manufacturing capacity, why not Hero?

    There is risk but it is good that Hero has a 3-4 year lead time till the technical agreement with Honda comes to an end (Does it lapse if Honda sells the stake?)

  • Rudra Chowdhury says:

    >At present, HHML pays around 2.5% of sales as royalty fees every year—Rs420 crore in fiscal 2010, slated to rise to around Rs500 crore in 2011.

    This amount is minuscule as compared to setup cost of R&D centers.

  • Anonymous says:

    >Even if the same products of HH are sold under the brand "hero", people might not buy it because HOnda would most probably launch 100cc entry level bikes which will directly compete with "Hero" products. Would you buy a "Honda CG125" or "Hero glamour" ?

  • harry says:

    >hero honda will not go down. market is full of rumers only about them but if so than why its marketing in such a way in all games. and holding market launching new products. i don't think it will go down!