Rise in Hero royalty pay to Honda

Hopes new model launches this year will bring it down

Royalty payments to Honda of Japan by its erstwhile partner, Hero MotoCorp, saw an increase in the past two years although such payments from the Delhi-based two-wheeler major were expected to go down.

In its latest annual report, Hero said it made total royalty payments of Rs 121.41 crore for 2014-15, from Rs 50 crore in 2012-13.

The company continues to pay royalty on four products —Maestro, Ignitor, Passion X-Pro and Impulse — sourced from Honda after the separation. Technology for 17 other products are from in-house.

“Royalty is a function of several factors, including volumes, ex-factory price and the rate of royalty. We will have to pay royalty on the sale of these four products only till June 2017. It is due to the growth in the volumes of Maestro during 2014-15 that the royalty for the year has gone up,” said a Hero MotoCorp spokesperson.  

Hero clarifies that it is free to discontinue any of the four models before June 2017. In 2014-15, it sold only 116 units of the Impulse and a little over 34,000 units of the Ignitor. Despite being the only off-road vehicle in its category, the Impulse, a 150cc bike, failed to generate volumes.  

While the Maestro scooter saw a jump of 22 per cent in sales last year, in this financial year till date (April-July) both the Pleasure and Maestro have struggled to maintain momentum, with a fall of 19 per cent in combined sales. Scooter volumes, in general, grew nearly 10 per cent in this period, according to data supplied by the Society of Indian Automobile Manufacturers.  

In comparison, Activa, the country’s largest selling scooter, from Honda Motorcycle and Scooter India, had growth of 30 per cent last year and with a 48 per cent market share. Growth during April-July period was 20 per cent.  

According to a licensing agreement between the two companies in 2011, Hero was to pay Rs 2,450 crore as royalty to Honda Motor Corporation till June 2014. This was based on factors like volume, product mix and foreign currency movement. They’d ended their 26-year joint venture in late 2010, to chart individual growth paths.

Until June 2014, Hero’s royalty payment of 2.7-2.8 per cent of net sales was said to be in line with the prevailing rate prior to signing the agreement. It was decided to end royalty payments to Honda by June 2014 on all then existing products of Hero.

Hero plans to launch a series of new products in the coming months, including two new scooters, the Dare and Dash. It hopes that these will push down royalty payment outgo, though it has not said if these new products will replace the existing four.

“Going forward, in view of our planned new launches of both motorcycles and scooters, we don’t expect the royalty to go up in the next two years,” added the spokesperson.