This move for Hero MotoCorp to stop paying fixed royalty to Honda after June this year, will result in increased profits for the company to the tune of INR 415 crores. However, Hero has stated that all money saved will not go into profits, but will be invested into research and development and in future expansion plans.
This payment of royalties was the result of a separation agreement entered into by Hero and Honda Motors, signed on 16th December 2010. Hero agreed to pay the Japanese auto major a sum of 45 billion yen or INR 2,350 crores in four instalments to be completed by June 2014. Now, with this payment coming to an end in June 2014, Hero MotoCorp will only need to pay royalty to Honda for products which it sources technology. By the end of this year, the royalty on these is expected to be about Rs 100 crores.
Despite economic downturn and high interest rates coupled with lower customer sentiments, Hero MotoCorp sold a total of 6.11 million units during financial year ended 31st March 2014, resulting in an increase of 3.43% YoY. They are still the world’s largest two wheeler manufacturer, and that too by a very good margin.