Honda Motors goes for rights issue for gaining stakes in its Indian subsidiary firm HSCI

Honda Motors from Japan has recently invested a sum of Rs 1,200 crore through a fully-subscribed rights issue for the sole ambition of embellishing its stakes in Honda SIEL Cars India which is its subsidiary in the country. It has been assumed that the Indian associate of the firm SIEL (Shriram Industrial Enterprise Limited) will most probably exit the partnership by the end of May 2012. Two weeks earlier, the firm issued equity shares of around 20.99 crore of Rs 10 each at a premium of Rs 47.15.This formed a sum total value of Rs 1,999.99 crore. The returns from these shares are supposed to be used in the amplification of the firm’s capacity. Through this amplification plan the firm is looking ahead to establish a production line at its Rajasthan based Tapukara plant where it could set-up a unit specifically for engine assembly.

Looking back in time, in 1995 SIEL started a joint venture with Japanese firm Honda Motors and created a joint venture called HSCI or Honda SIEL Cars India, where it held 40 percent share. Later, the Shriram group sold its 38 per cent stake of HSCI on a buy back option to meet its own embellishment intentions, however, the Indian partner took ascendency of HSCI for its embellishing and the firm’s right to the buyback option decreased to half of what was settled upon previously, by 2010. This is when the Shriram Group bought 3 percent of the stake back from the HSCI to form the existing share of 5 per cent in the joint venture. Now the valuation of this same 5 per cent is being calculated by both the partners once it has been enunciated that SIEL, the Indian associate of the HSCI is contemplating to exit the joint venture.

Honda Motors

The promoters of Honda SIEL, Krishna Shriram and Siddharth Shriram did not say anything in the context of the rights matter and the decision the firm’s associates may take on this particular matter. Usha International is the investment firm which is backing the Shriram group in case it does not take any action on the rights issue, its stake in Honda SIEL India will drop down from 5 per cent to 3.16 percent immediately, whereas Honda Motors’s stakes would go up from its existing 95 percent to 96.84 percent. In order to maintain the 5 percent of its existing share in Honda SIEL Cars India, a sum of Rs 60 crore will be required to be dispensed by Usha International, but as of now, there are no signs of this kind of requirement.

As per an auto expert and critic, Siddharth Shriram, the head of SIEL must now focus to invest in the ithyphallic of their crux business rather than promiscuously holding on to its stake of 5 per cent in the HSCI. In the current scenario, it would be excellent for Siddharth Shriram to walk out nicely by discussing terms for a reasonable valuation since the HSCI has been making no profit lately and a pressure on capacity existing because of the non-availability of diesel cars in its current line-up.

Honda SIEL had Rs 35.31 crore loss in the fiscal year of 2009-2010 which has increased six times by the fiscal year 2010-2011 to Rs 212.83 crore. A fall of 3.8 per cent in the sales of cars of HSCI, making it a total of 59,463 from the previous year’s volume of 61,815 in the fiscal year of 2010-2011 has been recorded. Whereas, in the fiscal year 2011-2012 the sale of HSCI went down the line way further, the main reason of this heavy loss was the flood in Thailand and earthquake in Japan from where the firm procures its necessary elements for production in India. Between April 2011 and February 2012 the firm had gone down touching the lowest water-mark in terms of sales which has diminished by a mammoth 22.32 per cent making it 34,411 vehicles. The lost volume of the firm in the market has been overtaken by the Toyota and Volkswagen which has also made the share of HSCI in the market by a fall of 2 per cent flat.

One of the main reasons for the HSCI’s losses in the recent years is the unavailability of diesel cars in its portfolio. With the ever increase in the gap between the price of both the petrol and diesel fuels, the current automobile market of India is more inclined towards diesel cars rather than traditional petrol cars, for diesel is cheaper than petrol and the customer gets to save a lot in the long run. The hatchback Honda Brio and the luxury sedan Honda City is still seeing a good response from the Indian customers with an order booking of 2,500 to 3,000 with a waiting period of at maximum four to six months. Honda Jazz is another model of the company which also has a waiting period of six months but the bookings of the same has been stopped since some time now.

With the component supply to the firm’s plant in Greater Noida getting back to normal and with a targeted volume of 1.2 lakh units per annum, the firm’s fate seems to take a full circle back to its good old days. This situation has credits to its successful sales of Honda Brio, Honda City and Honda Jazz as well.

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