The annual royalties paid by the Hero Group to its erstwhile Japanese partner, Honda Motor, will increase to about Rs 680 crore from the current fiscal. In 2009-10, it paid about Rs 425 crore.

This is part of a licensing agreement valid till June 2014, under which Hero will continue to use Honda's technology in two-wheelers. It will, however, not pay any royalty after that date.

Honda's 2010-11 results announcement on Thursday said, “Honda and HHML (Hero Honda) have signed a new licensing agreement which enables HHML to continue producing, selling and servicing its current products. Consideration for the licensing agreement was ¥45,000 million (about Rs 2,400 crore), and becomes due through 2014.”

However, the royalty rates would not exceed a maximum of 3 per cent of net sales over the next three-and-a-half years (14 quarters), Mr Ravi Sud, CFO, Hero Honda, told Business Line .

“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. Since the revenues are also slated to increase, the royalties as a percentage of revenue will not see as large as a jump — this has been mentioned by the company before. We have been growing at 15-20 per cent and if I project a turnover for the next three years, we should at least grow at 12 per cent, which is a reasonable assumption,” he said.

He added that in 2009-10, the royalties were 2.7 per cent of net sales, which in 2010-11 would go up to 2.8 per cent of net sales.

Hero Honda is expected to announce its full year results for the previous fiscal next week.

In March, Honda sold its 26 per cent stake in the 26-year-old Hero Honda joint venture — the world's largest two-wheeler maker.

The purchase of the stake by Hero was for Rs 3,842 crore, which was at over 50 per cent discount to the market price (Rs 7,882 crore) at that time.

> roudra.b@thehindu.co.in

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