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Monday, July 26, 2010

Why did Hero Honda stock lost so much in a day?

Hero Honda Motors lost 7.46% (Rs 146.05 to close at Rs 1,811.85) on Monday. There were pending sell orders of 55 shares, with no buyers available.

CNBC-TV18 reported that Japanese Honda Motor company is likely to divest about 6% stake in Hero Honda as per their sources. At present, Honda Motor company holds 26% stake in the joint venture company HERO HONDA.

You may check the news video here.

As per CNBC TV18 news report, Honda is talking to private equity players for this stake sale in Hero Honda. This stake dilution could impact technology transfer and product sharing from HONDA Motor company to HERO HONDA as the sources said.

Why would HONDA do this? This is what my guess is. Japanese HONDA company holds only 26% in HERO HONDA. So they get only 26% of profits from HERO HONDA, whereas, most of the products technology in HERO HONDA products would be from HONDA Motors. Few years back, HONDA has launched it's own products line such as HONDA Unicorn and HONDA Activa.

Why did Hero Honda stock lost so much in a day?This could be the long term strategy from HONDA Motors to go alone in Indian markets and minimize the dependence on JV partners such as HERO. If you look at the HONDA website (http://www.honda2wheelersindia.com/) and the product line, they are surely gearing up to take the market share from other bike makers in India like BAJAJ auto and of course HERO HONDA too. Who knows, HONDA's wings might be ready to fly!

Management of Hero Honda has denied this news.

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