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Hero Honda Motors:Uncertainty unresolved

The Munjal family will buy Honda Motor Company’s entire 26% stake in their joint venture, Hero Honda Motors. 
The royalty will remain at the current levels or may reduce in future. The royalty rate assumption has been much moderated compared to the market’s expectation. We estimate a 6.6% impact on the FY2012 earnings per share (EPS) for a 100-basis-point increase in the royalty.
The price to be paid for the 26% stake has not been disclosed by the promoters. It is not yet known if a special purpose vehicle (SPV) would be formed or a placement would be made to private equity players.
Hero Honda is trading at 13.5x its historical price/earnings (P/E). We see a risk to these valuations.
The trade-off is between what the promoters are getting and what the company as a whole is paying off.
A discount to the promoters for increasing their stake against increased royalty payout by the company is negative for minority shareholders. 
Strategic investors will get a backdoor entry at 10-15% discount to current market price as promoters plan to sell 30-40% in the SPV. (Promoters have to offload the stake as it is not economical to sustain the cost of $1.2-1.3 billion of expected bridge loan).
History has thrown enough examples of the aftermaths of splits in the automobile sector—TVS-Suzuki, Kinetic Honda, LML Vespa. Now is it Hero Honda? 
It is difficult to ascertain Hero Honda’s possible success in export markets and new ventures as of now. We believe that the deal is structurally negative for Hero Honda’s core motorcycle business in the long term. 
However a tactical bounce back in stock price is not ruled out in the short term on account of the sustenance of current royalty.