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.

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