Usha International Ltd (UIL), the Siddharth Shriram Group company and a minority shareholder in Honda Siel Cars India (HSCI), is likely to rake in a maximum of only about Rs 126 crore on exiting the joint venture. This is based on a Rs 4,000-crore valuation of HSCI used by independent market analysts.
This is lower than the valuation worked out by HSCl's Japanese parent, Honda Motor, based on the premium it paid to infuse an additional Rs 1,200 crore through a rights issue into the company recently.
A March 17 HSCI Board meeting put a Rs 3,257 crore valuation when a resolution it passed issued 20.9 crore equity shares to Honda Motor of Rs 10 each and at a Rs 47.15 premium, increasing the equity share base from 36 crore to 56.9 crore.
“A fair valuation for the company is closer to Rs 4,000 crore. HSCI has a strong access to new technologies from its parent, plus the brand has a very strong recall in India. The diesel (variant) is also slated to come soon,” an official from a top merchant banking house said.
Corporate Governance Issues
With UIL not committing to infuse funds in accordance with its 5 per cent shareholding, the stake held through Shriram Industrial Enterprise Ltd (SIEL), is expected to have been diluted to 3.16 per cent. The March Board resolution is believed to have been passed without Chairman Mr Siddharth Shriram's nod.
Though it is unclear if UIL will settle for the same valuation, Mr Krishna Shriram, Executive Chairman, UIL, confirmed that the stake will not be sold to a third party.
Responding to a questionnaire, Mr Shriram instead raised questions on corporate governance procedures at the Board. He said that he was more upset at the “respect or lack thereof shown to my father (Mr Siddharth Shriram) in his capacity as chairman of Honda Siel and as a committed long term partner.”
He added, “These are not big numbers for either Usha or Honda. I am sure some resolution will be arrived at. It is not in our nature to sell to third parties, despite significant interest.”
Reports have indicated that UIL has been looking to sell out since October 2011, after Honda Motor initiated an equity capital-raising programme of Rs 3,200 crore to finance its plans for new models and a diesel engine plant. Since 1995, about Rs 3,000 crore has been invested in Honda Siel, majority of which came from the Japanese parent.
With Honda parting ways with the Hero Group just last year to concentrate on its own two-wheeler venture, the car-making division is expected to be the next to take the fall.
HSCI's sales dipped 22 per cent (43,411 units) in the April-February 2011-12 period, on multiple production issues following the Japan earthquake and the Thai floods last year. Production has since resumed at full steam in its 1.2 lakh units a year Greater Noida plant on high demand for the Jazz and Brio hatches, with another at Tapukara soon expected to become operational.