Hero MotoCorp will stop paying royalties to Honda, from June onwards, for the products it inherited from their 26-year-old partnership. This new development will help Hero MotoCorp save around Rs 415 crore which is a large chunk of money.
Under the separation agreement, Hero MotoCorp had to pay the Japanese company 45 billion yen (Rs.2,350 crore then) in four instalments by June 2014. After June, Hero will only need to pay royalty for the products which it sourced technology from Honda, namely, the Maestro scooter, and the Impulse, Ignitor and Passion X Pro bikes. In the last financial year, Hero MotoCorp paid Rs 50 crore royalty to the Japanese manufacturer, per bike. However, the sales of these products are picking up and this might result in the royalty on these models to be around Rs 100 crore this year.
Hero MotoCorp has confirmed to pump in this saved money into their research and development and not into profits.
"With sales of Maestro and Passion X Pro picking up, this (the royalty payment on new models) is likely to be around Rs 100 crore this year,” said a company official.
"They will clearly save a lot of money for the firm but all of it will not go into profits and will be invested into R&D and expansion plans," he added.
