New Delhi, Dec. 16: The Munjals of the Hero group and Honda Motors of Japan have decided to terminate their 26-year-old joint venture, unscrambling the last of the great motorcycle tie-ups that Indian companies had forged in the mid-eighties with the four leading Japanese bike makers.

Under the terms of the deal, the Hero group will buy out the 26 per cent stake that Honda Motors holds in Hero Honda, which proudly declares itself as “the world’s single largest two-wheeler manufacturer”.

The partners refused to disclose the financial details of the deal. However, analysts speculated the deal would be valued at anywhere between $1 billion and $1.5 billion.

The Munjals will be permitted to use the Honda tag for sometime but the brandname will eventually have to change.

The other three famous motorcycle tie-ups — Escorts with Yamaha, TVS with Suzuki, and Bajaj with Kawasaki — came unstuck more than a decade ago amid bitterness and acrimony.

The Fab Four had redefined India’s two-wheeler landscape that was overrun till then by the deep-throated Enfield Bullet, the temperamental Yezdi and the sputtering Rajdoot — in much the same way that the Maruti 800 sparked a revolution in cars.

The parting of ways will be gradual with the Munjals assured of access to a “continual flow of new models” from the Honda stable — at least till 2014 — under a new licensing arrangement that the boards of the two companies approved today.

The Munjals will continue to pay royalty to the Japanese company but again did not spell out how much it would be.

“The royalty will remain in line (with what we pay now) or even go lower. It is incorrect to say that royalty will go up to 8 per cent,” Pawan Munjal, managing director and CEO of Hero Honda, told reporters here, squelching a burst of speculation on this front that initially drove the stock down on the bourses.

In 2009-10, the company had paid a royalty of around 3 per cent on sales, or roughly Rs 500 crore.

Good relations

The Munjals and Honda Motors have largely enjoyed amicable relations over the past 25 years.

This explains why the Munjals had given a no-objection certificate when Honda Motors applied to the government for permission to set up a wholly owned two-wheeler plant at Manesar, Haryana in August 1999.

Honda Motorcycles and Scooters India (HMSI) — the wholly owned subsidiary of Honda Motors — has since grown aggressively and hopes to produce 1.6 million two-wheelers this fiscal.

Honda Motors has already invested Rs 800 crore in its Manesar factory

In the eight months till November, Hero Honda had registered sales of 3.36 million vehicles against 1.03 million by HMSI — which foreshadows an interesting rivalry in the two-wheeler market in the days ahead.

The deal also means that both Hero Honda and HMSI will be able to break free from the restrictions that they had slapped on each other.

The big benefit for Hero Honda is that it will have the freedom to export to new markets, which it couldn’t do under the terms of the earlier agreement. This fetter meant that it lost out on a very profitable stream of revenue that rivals such as Bajaj Auto were able to access.

“The Hero group will now be able to focus on larger export markets such as Indonesia and Africa in addition to the smaller markets such as Sri Lanka and Bangladesh where it exports,” said Ashish Nigam, an analyst with Antique.

HMSI produced only scooters in the first five years; a motorcycle in the 150cc segment appeared only in September 2004. Last year, Honda went right into the scrum with its 125cc Honda CBF Stunner.

Industry experts said Honda was keen to expand its business in India and looking to fast-track several projects. These include plans to develop a low-cost motorcycle priced at Rs 27,000 in the 100cc category — a segment that Hero Honda has a dominant market share — and set up a new factory.

In March, Honda said it would invest about $99 million to build a second motorcycle plant in India with a capacity to make 600,000 units a year and start production in the second half of 2011.

Experts, however, believe that Hero Honda will be able to face down the challenge from its partner.

Nigam said, “Hero Splendor and Passion are extremely strong brands. This is the primary factor behind Hero Honda’s dominance in the 75-125cc segment where it has a 70 per cent market share.”

For Honda, this marks the close of two of their four automotive ventures in India where they were minority partners. The first came unstuck two years ago when they broke off from Kinetic Honda, a joint venture with the Firodias.

The Hondas are now effectively left with two ventures in the country — the wholly owned HMSI and Honda Siel, the Bangalore-based car maker that produces the Accord and the City in which the Kirloskars hold less than 5 per cent.

Hero Honda shares jumped 3.57 per cent today and closed at Rs 1,679.10 on the Bombay Stock Exchange.