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Brokerage firms show confidence in Hero Honda post split.

New Delhi, Dec. 21 -- Hero Honda Motor Ltd (HHML), the joint venture between Hero group and Honda came to an end after 26 years but the news had the whole industry and the stock market in a iffy. The impending exit rumours had kept HHML shares in tatters for some time. But the scrip rose 18 per cent on Monday, which is the highest since May 2009, after the company management on Thursday had announced that the spilt in the joint venture will lead to a decline in its royalty payments from early January. The royalty payment issue regarding technology was the main bone of contention between the partners which reportedly led to the end of the joint venture.

According to a report in the business daily The Business Line, it has been reported that despite the split, the company would start paying lesser royalty to Honda from January next year, Pawan Munjal, MD and CEO at Hero Honda, had said on Thursday. The company will also be free to use the 'Hero Honda' brand name till June 2014, he said.

The report mentioned that with the stock markets being closed last Friday, the effect of the announcement showed only on Monday. The scrip closed up 18 per cent over Thursday's close at Rs 1,981.2. The scrip touched a high of Rs 1,997.9. It had opened at Rs 1,766, which is also the lowest it was trading at on Monday. Hero Honda was also the best performing scrip amongst the Sensex stocks on Monday. The report quoted Munjal as saying "We hope to sign the definitive agreement in the next few weeks. There will be a continuous flow of new models some on a completely fresh platform. The deal is in the best interest of the company and its minority shareholders. The company wants to do much more now."

The report also quoted Vaishali Jajoo, auto analyst at Angel Broking who said that now with the concerns regarding royalty out of the way, there are no fears of earnings downgrades. "This announcement came as a positive for the stock which was being hammered well before the deal was announced," she added.

It was also reported that the scrip had taken a beating ever since rumours of the impending split started to make the rounds. From a high of Rs 2,060 in mid-November, it fell to a low of Rs 1,730.1 later that month. Now it has been reported that brokerages are recommending their investors to either accumulate shares of Hero Honda or to hold on to the shares they already own.

According to the report, Credit Suisse, in a research report, had upgraded its rating of the company from 'Neutral' to 'Outperform'. The research report then said that though the split might have a sentimental negative impact, it does not expect the Honda exit to have a detrimental impact on Hero Honda's prospects. Elara Capital, in a research report on Monday, has given a buy rating to the stock. It said that the royalty costs will not go up and in the long term, costs for the company are expected to reduce. Bank of America Merrill Lynch has also given a buy rating to the stock, according to the report.

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Publication:Wheels Unplugged
Date:Dec 21, 2010
Words:580
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