SIEL seeks divorce from Honda

The Indian auto industry will soon witness an acrimonious battle between Honda Motor Company and its Indian partner Siel (Shriram Industrial Enterprises Ltd). Honda formed a partnership with Siel in the year 1995 and the company was christened as HSCI (Honda-Siel Cars India) which manufactured passenger cars in the country. The 17 year old partnership has turn sour over the valuation of the five percent stake which the owner of Siel, Mr. Siddharth Shriram wants to sell. As per the words on street, Honda through an additional infusion of equity capital wanted to raise around Rs 3,000 crore. Honda needed this additional capital to bring in new small cars and diesel variants in the Indian car market. On the other hand, Shriram was not in favor of this move, as with this resource mobilization, Siel would have to invest proportionate capital in order to retain its current holding. Siel entered the JV in 1995 with a 40 per cent stake in HSCI however the company sold over 38 per cent to Honda in order to finance the Siddharth Shriram group development plans.

The option was open to Siel to rebuy the 30 per cent stake but with the money doubling to Rs 360 crore from Rs 180 crore in 1995 Siel rights went limited with 15% only. Siel executed the option a year back and bought an additional three per cent stake. Even though the talks are on, the rife between the two on the valuation front is quite evident. A resolution is anticipated in the next few weeks.Siel at present holds five percent stake in the HSCI joint venture through Usha International Limited. If and when Siel backs out from the partnership, it will be go on charts in the sixth place of a Japanese auto company calling off its partnership with an Indian firm. Two among the current five have happened with Honda, Honda broke partnership with Kinetic in the year 1998 and with Hero in the year 2010. Honda began its sales operation in Indian with its star stellar City sedan in the year 1998. Honda share in the Indian auto market has seen a drop as the competition turned aggressive with the augment of global players. Moreover the lack of diesel engine in the Honda India current portfolio is mounting up its troubles. The sales figure from February and April has toppled 22.32 per cent to 43,411 vehicles.