Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero Honda Motors
Royalty payment concern rehaunts
Honda Motor Japan's disclosure of Rs.24.2bn fixed royalty payment receipt deal
with Hero Honda for period through FY14F as part of JV split, raises concern
about Hero Honda's profitability in case of weak volume growth. At our current
sales growth estimate, we expect 3% EPS impact for FY12-13F.
Honda Japan discloses Royalty payment structure of the JV split
! Honda Motor Ltd, Japan, in its annual result statement yesterday, April 28th, disclosed that as
part of JV split ageement, it is agreed that it will receive fixed JPY45bn through 2014. It also
booked NPV of this value in its revenue for March quarter, as part of the deal.
! This opens up the royalty issue concern for Hero Honda again as part of the JV split. Even
though Hero Honda management has been guiding for a fixed amount royalty agreement, its
exact amount was not made available.
! In our estimate, we have built in 3% of net sales as royalty payment for FY12-14F. Hero
Honda management has guided for the royalty to cease from June 2014 and onwards.
! Considering that the fixed royalty will be applicable until June 2014, the impact on our current
13.8% net sales CAGR for F11-14F is around 3% on EPS. But, on the positive side, Hero
Honda’s ability to drive home better than our expected volume growth may extend operating
leverage benefit from this fixed royalty arragement.
Details of the JV split agreement
! The details of the JV split agreement as disclosed by Honda Motor Japan (consolidated
earning statement for March 2011 quarter, page 37) are: "On March 22, 2011, Honda sold all
of its investments in Hero Honda Motors Ltd. (HHML) with book value of JPY 34,275 million,
which represented 26.0% of HHML’s total outstanding shares, to its joint venture partner at
JPY 71,073 million for the dissolution of the joint venture. In addition, Honda and HHML have
signed a new licensing agreement which enables HHML to continue producing, selling and
servicing its current products. Consideration for the licensing agreement was JPY 45,000
million, and becomes due through 2014. Total consideration received less interest portion,
including the fair value attributable to the termination of certain obligations under the joint
venture agreement, is allocated to each element using the relative selling price method in
accordance with FASB ASC 605 "Revenue Recognition". As a result, the Company
recognized revenue of JPY 32,015 million related to the licensing agreement in Net sales and
other operating revenue, and gain on sale of the investments of JPY 46,756 million in Other
income (expense) - Other, net. "
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hero Honda Motors
Royalty payment concern rehaunts
Honda Motor Japan's disclosure of Rs.24.2bn fixed royalty payment receipt deal
with Hero Honda for period through FY14F as part of JV split, raises concern
about Hero Honda's profitability in case of weak volume growth. At our current
sales growth estimate, we expect 3% EPS impact for FY12-13F.
Honda Japan discloses Royalty payment structure of the JV split
! Honda Motor Ltd, Japan, in its annual result statement yesterday, April 28th, disclosed that as
part of JV split ageement, it is agreed that it will receive fixed JPY45bn through 2014. It also
booked NPV of this value in its revenue for March quarter, as part of the deal.
! This opens up the royalty issue concern for Hero Honda again as part of the JV split. Even
though Hero Honda management has been guiding for a fixed amount royalty agreement, its
exact amount was not made available.
! In our estimate, we have built in 3% of net sales as royalty payment for FY12-14F. Hero
Honda management has guided for the royalty to cease from June 2014 and onwards.
! Considering that the fixed royalty will be applicable until June 2014, the impact on our current
13.8% net sales CAGR for F11-14F is around 3% on EPS. But, on the positive side, Hero
Honda’s ability to drive home better than our expected volume growth may extend operating
leverage benefit from this fixed royalty arragement.
Details of the JV split agreement
! The details of the JV split agreement as disclosed by Honda Motor Japan (consolidated
earning statement for March 2011 quarter, page 37) are: "On March 22, 2011, Honda sold all
of its investments in Hero Honda Motors Ltd. (HHML) with book value of JPY 34,275 million,
which represented 26.0% of HHML’s total outstanding shares, to its joint venture partner at
JPY 71,073 million for the dissolution of the joint venture. In addition, Honda and HHML have
signed a new licensing agreement which enables HHML to continue producing, selling and
servicing its current products. Consideration for the licensing agreement was JPY 45,000
million, and becomes due through 2014. Total consideration received less interest portion,
including the fair value attributable to the termination of certain obligations under the joint
venture agreement, is allocated to each element using the relative selling price method in
accordance with FASB ASC 605 "Revenue Recognition". As a result, the Company
recognized revenue of JPY 32,015 million related to the licensing agreement in Net sales and
other operating revenue, and gain on sale of the investments of JPY 46,756 million in Other
income (expense) - Other, net. "
No comments:
Post a Comment