Hero Honda to pay Rs 24.5 bn to Honda for licensing

India's largest two wheeler-maker Hero Honda will pay Honda 45 billion yen (about Rs 2,4.5 billion) till 2014 as part of a new licencing agreement signed between the Hero Group and the Japanese auto major after deciding to part ways on their joint venture.

Hero Honda Motors Ltd (HHML) said the amount is in line with its existing rate of royalty payment, which is about 2.7 per cent to 2.8 per cent of net sales. For the existing products, the Indian group will stop paying royalty by June, 2014, it added.

"... Honda and HHML have signed a new licencing agreement, which enables HHML to continue producing, selling and servicing its current products. Consideration for the licencing agreement was JPY 45,000 million and becomes due through 2014," Honda Motor Co said in a statement.

Last December, the Hero Group and Honda had agreed to end their 26-year-old relationship, with the Indian partner agreeing to buy out Honda's 26 per cent stake in Hero Honda for Rs 3,841.83 crore (Rs 38.41 billion).

When contacted, HHML Chief Financial Officer Ravi Sud said the amount to be paid to Honda till June, 2014, does not reflect any increase in royalty payment.

"Hero Honda has been paying royalty to Honda at around 2.7 per cent to 2.8 per cent of net sales and it will remain the same even in future," said Sud.

The royalty payment will gradually taper off from about 2.75 per cent now to 2.2 per cent by 2014 and after that for the existing products, the Hero group will not pay any royalty for the existing products, he insisted.

"Even for new products, which we may get from Honda after June, 2014, the royalty will be in line with what we are paying today," Sud said.

Shares of Hero Honda were trading 0.95 per cent down at Rs 1,680 apiece on the Bombay Stock Exchange in the late afternoon on Friday.