MUMBAI: Japanese carmaker Honda Motor Company has invested Rs 1,200 crore through a rights issue in its Indian subsidiary, even as speculation gains currency that its co-promoter Shriram Industrial Enterprise (Siel) is likely to exit Honda Siel Cars.
The maker of Honda City recently passed a resolution to raise Rs 1,200 crore through a rights issue, which was wholly-subscribed by Honda Motor Company, Japan. The company issued over 20.99 crore equity shares of Rs 10 each at a premium of Rs 47.15 per share, aggregating Rs 1,999.99 crore. The allotment happened about two weeks ago. The proceeds of the fresh issue of shares is expected to be utilised for expanding capacity, which includes setting up of a manufacturing line at its Tapukara plant in Rajasthan while a part of it may even go into engine assembly, where diesel engines could be assembled in the future.
Honda Siel spokesperson offered a cryptic response. "We do not have any comments to make," the spokesperson said when ET reached out to the Indian subsidiary of Honda on the rights issue and the position its Indian minority partner Siddharth Shriram and his associates would take on the rights issue.
In a response to a detailed query to the promoter Siddharth Shriram and his son Krishna Shriram, Krishna responded, "We would not like to comment on these issues at this stage. I hope you understand."
If Usha International - the investment company for the Shriram family - has indeed not partaken in the rights issue, Honda Motors' stake in Honda Siel Cars will inch up to 96.84% from the existing 95%, while shareholding of Usha International will correspondingly come down to 3.16% from 5%. In case, Usha International decides to maintain its 5% stake, it would have had to shell out Rs 60 crore in the rights issue. There is no indication that the Indian partners had indeed subscribed to the rights issue.
Recently, some reports suggested that the two partners were in talks over valuation to provide an exit route for the Indian partner. In 1995, Shriram Industrial Enterprise had entered into a 40:60 JV with Honda Motor Company to form Honda Siel Cars India (HSCI).
In order to meet the group's expansion plan, Siddharth Shriram later sold 38% stake in Honda Siel Cars India, with a buyback option. With Indian subsidiary getting further capitalised by the parent to meet the expansion plans, Siel's right to buyback almost halved and in 2010 it bought back 3% stake in Honda Siel to take its share up to 5% currently.
"It makes sense for Siddharth Shriram to focus on his core business and invest in his own business verticals instead of holding on to 5% share. Honda Siel has been incurring losses and the absence of diesel-powered vehicles is putting pressure on volumes. He should negotiate for a good valuation and exit," said an automotive consultant, requesting anonymity.
Honda Siel had posted a net loss of Rs 35.31 crore in 2009-10, which jumped almost 6 times to Rs 212.83 crore in 2010-11, while suffering from component shortage for a major part of this fiscal. This year, too, losses are likely to pile up further.
Although Honda Siel sales declined 3.8% to 59,463 units in 2010-11 from 61,815 in the previous year, the company was banking on Brio to boost sales in the current fiscal. FY2011-12, however, proved to be one of its worst years as production was crippled in India because of the tsunami in Japan and then floods in Bangkok. Honda still sources critical components from the two countries. Honda operated at less than 50%.
Between April and February this financial year, its sales have declined a whopping 22.32% to 43,411 vehicles. The company's market share has slipped below 2% and the likes of Volkswagen and Toyota have overtaken the company in volumes.
In addition, without any diesel car in its portfolio, the Japanese firm could not cash in on the trend of customers shifting preference towards diesel cars because of the widening price differential between petrol and diesel cars. With good response to the new City and component supply for its small car Brio resurrecting, Honda Siel is now expecting a major turnaround.
Honda Siel is inching towards optimum capacity of 1.2 lakh units annually at its Greater Noida plant on the outskirts of Delhi, with supply of component reaching normalcy again. If the company manages to maintain the current sales momentum, it would need fresh capacity by end of next year.
The company has already stopped the booking for its small car Jazz, with waiting period running into six months and both Brio and the new City have a waiting period of 4-6 weeks with an order book of 2,500 to 3,000 units for Brio and City.
Honda Motor Company is the sixth-largest automobile company in the world with a turnover of $107 billion, Honda Siel's share is less than 1% to the global turnover.
(Source- http://economictimes.indiatimes.com)
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