Hero Moto's royalties to Honda may be 24% higher in FY12

Our Bureau New Delhi | Updated on November 22, 2017

Mr Ravi Sud, Chief Financial Officer, Hero MotoCorp (file photo). -- Ramesh Sharma

Rupee depreciation leads to unexpected increase

The rupee depreciation is likely to lead to around 24 per cent increase in Hero MotoCorp's royalty payments to erstwhile partner Honda in the fiscal, than what it had previously expected at the start of 2011-12.

However, the rupee value of yen-denominated payments could drop from the next fiscal on expectations of an appreciation of the rupee, the CFO, Mr Ravi Sud, said at an investor call.

“We expect the royalty payment for the March quarter (Q4) to be lower than last quarter, as we expect the rupee to appreciate from the current levels… Rs 53-54 (versus dollar) is not stable,” he said.

In the third quarter ending December 31, the New-Delhi-based two-wheeler maker paid Rs 228 crore to the Japanese firm under a technology licensing pact that stretches till June 2014. It expects the fourth quarter payment to also remain at the same level or lower than the third quarter. In the first and second quarters of the current fiscal, it paid Rs 180 crore and Rs 210 crore, respectively.

The cumulative royalty for 2011-12 is higher than what it had expected when it signed the licensing pact worth ¥45,000 million (about Rs 2,400 crore) in April last year. The amount was payable over 14 quarters.

“The royalties will be paid in annual instalments to Honda … Our estimate is that it will increase to Rs 670-680 crore a year till 2014,” Mr Sud had said in April. However, the cumulative royalty for 2011-12 is now likely to be around Rs 846 crore (if Q4 royalty is also at Rs 228 crore).

Despite higher royalties, Hero MotoCorp's profits in the December quarter rose 43 per cent to a record Rs 613 crore. It also sold the highest-ever number of vehicles at 15.89 lakh units.


The company plans to enter new overseas markets to the first half of 2012-13, as it finalises its partner and business model. It had earlier planned to expand exports in the current quarter.

“We are completing our strategy, business model and partners to enter into the new markets. We should be able to start our operations in the next couple of quarters,” Mr Anil Dua.

Meanwhile, output across its three plants at Haridwar, Gurgaon and Manesar is being increased to seven million units by March, from 6.2 million. The company has also hired about 255 engineers at its R&D centre, and hopes to develop its own bike by 2015.

Hero MotoCorp shares on the BSE were up 2.63 per cent at Rs 1,950.70 on Friday.


Published on January 20, 2012

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